Reality check on debt mountain of Malaysian households

Saturday October 12, 2013 

Reality check on debt mountain

BY ALAN TONG KOK MAU

A YOUNGSTER came to me recently to seek views about his financial stress. He says the first thing he does when he gets his pay cheque is to repay loans, including a car loan, credit card payments and personal loan. Owning a house is on his wish list, but it is yet to be realised.

His case mirrors many similar situations faced by Malaysians nowadays, not only confined to the younger generation. It has become a concern to the authorities as our household debt ratio against the GDP (gross domestic product) has reached an all-time high of 83% as of March this year, the highest for a developing country in the region. In comparison, Indonesia’s household debt ratio stands at 15.8%, Hong Kong at 58%, and Singapore at 67%, according to Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz’s comment recently.

While we are concerned about the high debt level, we should also take a closer look at the root cause. What is underneath the “debt mountain” and how can we address the issue?

The major components of household debt are housing, car, personal and credit card loans. According to Bank Negara statistics, as at April 2013, the total residential housing loans taken by Malaysians is RM316.2bil, passenger car loans amounts to RM145bil, personal loans stand at RM55.8bil, and credit card loans at RM32.3bil.

In terms of debt ratio for the four components mentioned above, housing loans account for 57.5% of the total debt, with car, personal and credit card loans accounting for 26.5%, 10% and 6% respectively (see chart).

As housing loans seem to be the biggest contributor to household debt, there are already several measures being put in place to cool the housing sector and to curb mortgage growth.

However, if we take further steps to scrutinise the breakdown of the loans, and study the interest incurred in absolute terms, and the appreciation or depreciation in value of the underlying assets, we will soon discover the source of the real burden.

Property is truly an asset, compared with a car, personal loan or credit card spending in which the value of the purchases depreciates over time.

According to the Malaysian House Price Index by the National Property Information Centre, the overall housing price in Malaysia has increased by an average of 5% every year since 2000. Thus, servicing a housing loan is like paying for “good debt” as the asset will gain in value in the long term and eventually protect us against the inflation.

On the other hand, based on car insurance calculations and accounting practice, the value of cars depreciates about 10% to 20% per year. This means that the car loan and interest is paid for item that is contracting in value every year, it is a liability instead of an asset.

In addition, based on our current structure, the average interest rate for housing loan is 4.2%. If we apply this rate across the board, the absolute interest incurred for RM316.2bil housing loan will be about RM13.3bil a year, which is only 43% in terms of absolute interest paid compared with its loan amount component of 57.5%. Whereas, personal loans which account for only 10% of the total household debt, would incur absolute interest of 22% of overall household debt due to its high interest rate of 12%.

As mentioned in some of my previous articles, the younger generation is advised to purchase a house instead of a car first. Let’s visualise this via the following scenarios.

Let’s assume a young couple which has a household income of RM6,000. The ideal mortgage (housing loan) repayment is always one third of the income, i.e. RM2,000.

After deducting RM2,000 from their income, they will still have RM4,000 household income available.

If the couple decides to own a car, the loan repayment, petrol, parking and maintenance fees are most likely to come up to RM1,000 to RM1,500 depending on the types of car they are getting.

This leaves the family with a household income of only RM2,500 to RM3,000 provided they are just owning one car instead of two.

With the same household income, if the couple decides to utilise public transport, the monthly transport expenses may be in the range of RM300 to RM400 for two persons. They will still have a household income of RM3,600 every month after paying for house loan interest and transportation cost.

To help lessen the debt burden of the rakyat, the authorities must accelerate the effort of providing comprehensive public transportation network including MRT, buses, mini buses and taxis, to reduce public dependency on private vehicles.

A total review on the cost of car and motorcycle ownership in Malaysia would also help reduce this debt burden.

For households that wish to reduce their debt level, they should avoid the temptation of instant gratification, and instead should place importance to assets that grow in value.

When we look in detail at the household debt level of the nation, it provides more insights than the headline number at first glance. Sometimes, it is as simple as to differentiate the “healthy” debt from the rest to make a significant difference in our financial position.

FIABCI Asia-Pacific Regional secretariat chairman Datuk Alan Tong has over 50 years of experience in property development. He is also the group chairman ofBukit Kiara Properties. For feedback, please email feedback@fiabci-asiapacific.com.

Public Bank advances to new all-time high again

Friday October 11, 2013
Public Bank advances to new all-time high again


KUALA LUMPUR: Shares of Public Bank Bhd rose to an all-time high in early Friday trade, helping to underpin the FBM KLCI’s advance as investors remained upbeat about the prospects for the banking group.

At 9.48am, Public Bank was up 12 sen to RM18.20 with 205,700 shares done while its foreign shares rose 14 sen to RM18.20 with 77,600 shares traded.

The KLCI rose 9.91 points to 1,785.83. Turnover was 484.44 million shares done valued at RM245.56mil. There were 317 gainers, 111 losers and 212 counters unchanged.

StarBiz reported Public Bank looked to have settled one aspect of its succession planning when it recently appointed Quah Poh Keat as deputy chief executive officer II.

The appointment of Quah, a former independent director of the bank, suggests he could be a leading candidate to succeed managing director and chief executive officer Tan Sri Tay Ah Lek when he retires.

StarBiz also reported that the recent price gains were linked to rumours that may include the prospect of allowing Chinese banks to acquire stakes in Malaysian banks.

Making Money the Warren Buffett Way (Educational Videos)

https://www.udemy.com/value-investing-code/



by MILLIONAIRE INVESTOR
Always wanted to learn how to invest like the world's greatest investor - Warren Buffett?

Then let this simple investment course teach you the fundamentals of Value Investing - the investing philosophy that has made Warren Buffet the richest investor in the world. In this stock market for beginners course, you'll learn how the stock market works, the basics of personal financial management, the concept of value investing, and how to analyze and pick the best companies to invest in.

For the aspiring or beginner investor, this 30-video investment course is right up your alley in helping you achieve financial freedom and passive income through the power of value investing!

*Please note that we are not affiliated with Warren Buffett or Berkshire Hathaway in any way. We just think Warren Buffett is one really cool dude who just happens to be the greatest investor of all time.

Net Net Working Capital (Value Investing)

What is Net Net Working Capital?

Net Net Working Capital = Cash + Short Term Marketable Investments + Accounts Receivable * 75% + Inventory * 50% – Total Liabilities

“Net Net Working Capital” (NNWC) is one of the first stock valuation screening methods to be defined in the value investing world.  Benjamin Graham also referred to this as Net-Current-Asset Value (NCAV).

The Net Net Working Capital formula may help identify undervalued stocks.  Benjamin Graham actually used the term “Net Working Capital” but current value investors and Graham followers use the terms “net nets” or “Net Net Working Capital” interchangeably.

One value investing strategy of Graham was to purchase stocks that were trading at less than two-thirds of the Net-Current-Asset Value per Share (i.e. less than two-thirds of the Net Net Working Capital Value per Share).  This type of value investing strategy could be thought of as a “liquidation value investing strategy”.  In other words, Graham is proposing that the stock is so cheap that even under a situation where the business was wound down, that the investor would have a such a suitable margin of safety that a return could still be earned.  Of course, Graham is not counting on a liquidation since there are costs associated with that action.  Rather, Graham is satisfied that he is paying nothing for the fixed assets of the business nor is he paying anything for any potential earnings.

According to Graham, “The type of bargain issue that can be most readily identified is a common stock that sells for less than the company’s net working capital alone, after deducting all prior obligations.* This would mean that the buyer would pay nothing at all for the fixed assets—buildings, machinery, etc., or any good-will items that might exist.  Very few companies turn out to have an ultimate value less than the working capital alone, although scattered instances may be found.”  (Source:  The Intelligent Investor by Benjamin Graham).

Of course, stocks that are trading below their NNWC may be trading at such low multiples for various reasons (e.g. pending bankruptcy, misstated financial statements, or a host of reasons why investors may be shunning a particular stock).  Regardless, we present the Net Net Working Capital formula and provide further discussion.

Net Net Working Capital = Cash + Short Term Marketable Investments + Accounts Receivable * 75% + Inventory * 50% – Total Liabilities

Once the NNWC is determined, this amount divided by the number of shares outstanding will provide the NNWC per share.  NNWC per share that is less than the current share price may be an indication of an undervalued stock or a deep value stock.  Graham advocated buying a basket of stocks whose prices traded significantly below NNWC per share (or Net Current Asset Value per Share – NCAV per Share).

The NNWC formula considers that not all balance sheet amounts may reflect current reality.  A 25% discount is applied to accounts receivable as these amounts may not actually be collectible.  In addition, a 50% discount to inventory is applied given that it may be stale or obsolete.  Of course, this is a first screen and potential investors should consider whether further discounts would be prudent.

The estimation or calculation of intrinsic value is as much art as science.  Any investor can run a mathematical screen to identify stocks trading at various metrics that could indicate potential value.  However, it must take keen business sense and deep curiosity to ask why a stock may be trading at the level it is, whether there actually is business value and how much, and what potential catalysts could emerge to unlock value.  The Net Net Working Capital formula is one more value investing tool.

Net Net Working Capital Formula – Further Analysis and Discussion:

Net Net Working Capital is a subset of Graham’s Net Working Capital is a subset of Net Working Capital (also known as Working Capital).

1) Net Working Capital = Current Assets – Current Liabilities

2) Graham’s Net Working Capital = Current Assets – Total Liabilities

3) Net Net Working Capital = Cash + Short Term Marketable Investments + Accounts Receivable * 75% + Inventory * 50% – Total Liabilities

Note that the results of each formula are presented in a decreasing order.  That is to say Net Net Working Capital will provide the lowest and hence, most conservative, value.  In other words, all else being equal, of the three formulas above, a stock trading below Net Net Working Capital provides the investor with the largest margin of safety.

Value investing is about buying a stock at a sufficient discount to intrinsic value.  Graham’s “Net Working Capital” or the “Net Net Working Capital” formulas can be used as preliminary screens to identify potentially undervalued stocks or deep value stocks.

http://deepvalueinvestor.com/net-net-working-capital/

Margin of Safety

'Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good results.'

Source: "Buffett: The Making of an American Capitalist" (1995)

'If you understood a business perfectly and the future of the business, you would need very little in the way of a margin of safety.'

Source: 1997 Berkshire Hathaway annual meeting

So, the more vulnerable the business is, assuming you still want to invest in it, the larger margin of safety you'd need. If you're driving a truck across a bridge that says it holds 10,000 pounds and you've got a 9,800 pound vehicle, if the bridge is 6 inches above the crevice it covers, you may feel okay, but if it's over the Grand Canyon, you may feel you want a little larger margin of safety.'

http://www.cnbc.com/id/101000052

http://www.cnbc.com/id/33608379/page/17

Debunking 5 Common Investor Dilemmas

FORBES | 2/13/2013

Hundreds of investors ask me questions each year about the dilemmas they confront. Their worst problem? Uncertainty. They are traumatized and become emotional or confused to the state of inaction. Even worse, they try to solve a short-term problem in a way that hurts them financially in the long run.

My solution is to keep it simple: Buy the stocks of great companies at reasonable valuations.

Here are five everyday investor dilemmas and my easy stock solutions.

Dilemma: You need cash flow, but it’s a scary world. A ten-year Treasury pays just 1.8%. If you are prepared for some risk, junk bonds pay about 5%, but they tend to get whacked when interest rates rise. Same with lower-yielding but higher-quality corporate bonds.

I have long advocated a safer approach if yield is what you crave. Buy big-cap stocks. I like America’s largest wireless carrier, Verizon (VZ, 44), which has a 4.75% dividend yield. With Verizon, you can expect single-digit growth from a diversified group of consumer and business offerings, plus a boost from added wireless spectrum.

Like any stock, Verizon isn’t immune to short-term volatility, but in the long term it will deliver. It’s cheap at 1.1 times annual sales and 15 times my estimated 2014 earnings. Beats T bonds by a mile.

Dilemma: The Federal Reserve is printing money, and the country’s going to hell. Your daughter just got a nose piercing and a facial tattoo. The prospect of inflation has you terrified. How can you invest in the ugly realities of neo-America?

Not with gold—it doesn’t actually do anything, and during 85% of its long history it has lost money. Do you flee America? Poland is doing great, but the language is difficult. Mexico? Better take your gun.

The solution, of course, is to diversify globally, and one of the best ways I know to stave off inflation is buying in Deutschland. The Germans have little tolerance for inflation. I like Germany’s fast-growing SAP (SAP, 80). It’s the global market-share leader in enterprise software for business operations and customer relations.

Crowd-think sees faltering growth due to competition. That was also the view one, three, five and ten years ago. Don’t fall prey to the doubters—the stock sells for 20 times my estimate of 2013 earnings with a 1.2% dividend yield.

Dilemma: Your other daughter—the good one, from wife No. 2—is adorable, just 7, and you want to put away something for her college years that she will appreciate.

In a decade we may think back on Facebook as a great fad, but Coca-Cola KO +0.11% (KO, 38) is a stock with staying power!

It’s truly one of the original global buys, but it’s as American as apple pie. It should continue to grow at low rates until long after your daughter proudly gives you grandkids. It sells at 16 times my 2013 estimated earnings with a 2.6% dividend yield.

Dilemma: You’re intrigued by exciting, fast-growing emerging markets, but you’re also worried about terrorists, drug dealers, corruption and lousy roads.

Buy Ecopetrol (EC, 61), one of the largest petroleum companies in the world, based in Colombia. But don’t worry about Colombia’s narco issues. Ecopetrol is an experienced local operator. I last recommended it Sept. 21, 2009 at $26, but it should continue to prosper. It sells at 13 times my estimated 2013 earnings.

Dilemma: how to find another great stock despite a well-diversified portfolio.

Buy Walt Disney DIS +2% Co. (DIS, 55), the world’s largest media firm by revenue. It’s big and easy to understand. Slow growth, but superbly managed and diverse in its field, and by definition fun! It’s just 13 times my estimated September 2014 earnings with a 1.4% dividend yield.

Money manager Ken Fisher’s latest book is Markets Never Forget (But People Do) (John Wiley, 2011). Visit his home page at www.forbes.com/fisher.


http://www.forbes.com/sites/kenfisher/2013/02/13/debunking-5-common-investor-dilemmas/

Ken Fisher: The Only Three Questions that Count: Investing by Knowing What Others Don't

The Only Three Questions that Count: Investing by Knowing What Others Don't is a book on investment advice. It was released in December 2006 and spent three months on The New York Times list of "Hardcover business bestsellers" .^[1] It was also a Wall Street Journal and a 'BusinessWeek best seller.^[2]

In the book, Fisher says that because the stock market is a discounter of all widely known information, the only way to make, on average, winning market bets is knowing something most others don’t. The book claims investing should be treated as a science, not a craft, and details a methodology for testing beliefs and uncovering information not widely known or understood. The book’s scientific method consists of asking three questions:

1. What do I believe that’s wrong?
2. What can I fathom that others can’t?
3. What is my brain doing to mislead me?

The first question addresses common investing errors, the second shows how to try and find bettable patterns which others may misinterpret, and the third deals with behavioral finance, pointing out cognitive errors such as overconfidence and confirmation bias.

Other issues covered include high P/E ratios; debt; the federal budget, trade, and current account deficits; the U.S. dollar; high oil prices; emerging markets; gold; and the U.S. economy.

Book reviews have also appeared in the Financial Times, which stated "you get the impression that its author, Ken Fisher, does not often find himself short of things to say. The stream of consciousness that flows through the book can be distracting but it is impressive and certainly never dull."^[3] Forbes Magazine which said "Fisher's key insight is that investment is not a craft that can be mastered by merely accumulating information."^[4] and Canada's National Post which says that the book " dispels more than a dozen ... myths".^[5]

From Wikipedia, the free encyclopedia

References[edit]

1. Jump up^ The New York Times list of "Hardcover business bestsellers"
2. Jump up^ BusinessWeek best seller
3. Jump up^ Financial Times book review
4. Jump up^ Forbes Magazine book review
5. Jump up^ National Post book review

Not all REITS are good enough to invest in.

You must learn to avoid investing in sub-par REITS.  These have:
1.  overly high level of debt, and
2.  inconsistent or declining income for distribution.

Here are 6 screens for finding the best REITs:

1.  High distribution yield (at least 5%)
A low distribution yield (less than 5%) tells you that the REIT is currently too expensive to buy.

2.  History of consistent growth in DPU.
You need to ensure that the REIT you invest in has a history (at least 4 - 5 years) of consistent increase in their distribution per unit (DPU) (i.e dividend per share).

3.  High expected DPU growth in the next 1 - 2 years
You have to ensure that the REIT you buy is expected to generate increased income and distribution in the next 1 - 2 years.  This comes from expected increase in property prices, increase in rental or acquisition of new properties.

Cyclical REITs like office, industrial and residential REITs should not be bought when the economy is entering a recessionary phase.  This is a time when these property prices and rental income are expected to decline.  They should only be bought when the economy is recovering from a recession or in an expansionary phase.

4.  Low gearing ratio (< 40% )
Since REITs must pay out 90% of their income in dividends, most REITs can only acquire new properties by taking bank loans.  When a REIT takes on too much debt, it exposes itself to interest rate risk and even defaut risk (when it is unable to service the repayments).

5.  REIT stock price is fairly valued
As an investor, you would want to buy a REIT at a time when its price is below its NAV (undervalued).  Such opportunities arise when there is a lot of pessimism in the market.  At the same time, when the price has risen too high above its NAV (overvalued), you may want to avoid buying the REIT.

6.  REIT must be on a confirming uptrend.

DPU = Distribution per unit.



Ref:  Adam Khoo

How to Look for Values in Companies

All you need is to have certain tools to look after your own investing.

@ 3.00  The moment my son turned 18, I invested with him and he is now competent in looking after his own investing.  I believe when he reaches my age, he will be wealthier than I am.

@8.30  US, Japan, Europe, and UK.  Quantitative Easing - To Lower Interest Rates, Lift Asset Prices and Lower Exchange Rates

@ 11.00 My Currency - Your Problem
National Debt solutions - Service it, Default on it, or Inflate it away.

@ 12.40:  Buy inflation beating assets for the long term:  Properties and Shares.

@ 14.18:  How do you value?  PYAD - P/E, Yields, Assets and Debts

@ 16.00:  Cheap rubbish is still rubbish.   What do you do?  Hold or Sell?

@ 17.00:  Benjamin Graham vs Warren Buffett

@ 20.30:  Growth and value are joined at the hip.

@  21.20:  Coca Cola company

@  23.15  Concept of Yield on Cost.

@ 26.20:  "The harder I work, the luckier I am." (Biosensors International)

@ 28.00:  A Healthy Culture


www.fool.sg

The Powerful Chart That Made Peter Lynch 29% A Year For 13 Years

6/26/2013 

In his excellent book One Up on Wall Street, Peter Lynch, the best mutual fund manager ever, revealed a powerful charting tool that helped him to achieve a gain of 29.2% in his portfolios for 13 years. In this chart, Peter Lynch drew the stock price and the earnings per share together and aligned the value of $1 in earnings per share to $15 in stock price. He wrote in pages 164-165 of the book:

“A quick way to tell if a stock is overpriced is to compare the price line to the earnings line. If you bought familiar growth companies – such as Shoney’s, The Limited, or Marriott – when the stock price fell well below the earnings line, and sold them when the stock price rose dramatically above it, the chances are you’d do pretty well.”

To see how this Peter Lynch Chart works, we applied it to the top holdings of Warren Buffett, the most successful investor ever: Wells Fargo (WFC), Coca-Cola (KO), IBM (IBM), American Express (AXP) and Wal-Mart (WMT). The Peter Lynch Chart of Wells Fargo is below, where the green line is the Price Line, and the blue line is the Peter Lynch Earnings Line. When the Price Line is well below the Peter Lynch Earnings Line, the stock is a buy.

Among these top five holdings of Warren Buffett, we found that Wells Fargo is the most undervalued. Wal-Mart and IBM are about fair valued. We then compared this result with the trading activities of Warren Buffett. To our surprise, we found that Warren Buffett was buying Well Fargo heavily and adding to Wal-Mart and IBM.

Is this just a coincidence? Does Warren Buffett only buy the stocks that are undervalued as measured by the Peter Lynch Chart? Is Warren Buffett using this powerful tool, too?

We don’t know the answer to the question. But we know that great minds think alike!

Now this powerful charting tool is available at GuruFocus.com. You can create it in just two clicks for any of the more than 50,000 stocks covered by GuruFocus.com.

We applied this tool to the portfolios of George Soros, Carl Icahn and other investment Gurus tracked at GuruFocus.com. We even developed a screen for this strategy that makes it easy to find stocks that are traded well below Peter Lynch’s Earnings Line.

Certainly buying stocks that are traded well below their Earnings Line is not the only criterion Peter Lynch used to achieve his 29%-a-year results. We also added his other requirements such as strong balance sheet and solid growth into the screener. When I limit my Peter Lynch screen to only the stocks that are owned by Warren Buffett, I found eight other companies that Warren Buffett owns and Peter Lynch would be buying. All of these eight companies have strong balance sheet, solid growth and reasonable valuations. One of them is of course Wells Fargo. Warren Buffett loves it so much that he made it his largest holding.

Now both Warren Buffett and Peter Lynch are working for me! I have added these stocks to my watch list.

http://www.forbes.com/sites/gurufocus/2013/06/26/the-powerful-chart-that-made-peter-lynch-29-a-year-for-13-years/

The Six main types of REITs

There are 6 main types of REITs

1.  Office REITs - own and operate office buildings
2.  Retail REITs - own and operate retail properties like shopping centres and shopping malls.
3.  Industrial REITs - own and lease out industrial properties that include light industrial properties, factory space, warehouses, business parks and distribution centres.
4.  Hospitality REITs - own and lease properties to hotels and serviced residences.
5.  Health Care REITs - own health care facilities that are leased to health care providers like hospitals, nursing homes and medical offices.
6.  Residential REITs.- own and operate multi-family rental apartment buildings as well as manufactured housing.

Health care and industrial REITs have the highest yields but the lowest potential for capital gains.
Retail, residential and office REITs have relatively lower yields but greater potential for price appreciation.
Office, hospitality and industrial REITs are highly sensitive to the economy (that is, their business performances are cyclical).

What is a Market Maker?

You probably take for granted that you can buy or sell a stock at a moment's notice. Place an order with your broker, and within seconds, it is executed. Have you ever stopped to wonder how this is possible? Whenever an investment is bought or sold, there must be someone on the other end of the transaction.

If you wanted to buy 1,000 shares of Disney, you must find a willing seller, and visa versa. It's very unlikely you are always going to find someone who is interested in buying or selling the exact number of shares of the same company at the exact same time. This begs the question, how is it that you can buy or sell anytime? This is where a market maker comes in.

A market maker is a bank or brokerage company that stands ready every second of the trading day with a firm ask and bid price. This is good for you, because when you place an order to sell your thousand shares of Disney, the market maker will actually purchase the stock from you, even if he doesn't have a seller lined up. In doing so, they are literally "making a market" for the stock.

How do Market Makers make their Money?

Market Makers must be compensated for the risk they take; what if he buys your shares in IBM then IBM's stock price begins to fall before a willing buyer has purchased the shares? To prevent this, the market maker maintains a spread on each stock he covers. Using our previous example, the market maker may purchase your shares of IBM from you for $100 each (the ask price) and then offer to sell them to a buyer at $100.05 (bid). The difference between the ask and bid price is only $.05, but by trading millions of shares a day, he's managed to pocket a significant chunk of change to offset his risk.

Historical and Performance F.A.S.T. Graphs™

Channeling Peter Lynch

http://online.barrons.com/article/SB50001424052748704382404578571404089572628.html

What can F.A.S.T. Graphs™ do for you and your investments?

http://www.fastgraphs.com/

www.fastgraphs.com

Business Buyers and Sellers

A business buyer's task can be stated simply:  to buy a good company at a good price.

Buyers usually have many alternatives, and time is often on their side.

The job of the buyer is to make sure that a company is "as good as it looks" by analyzing financial statements and the competitive landscape of the industry.

The buyer should also question whether a company can successfully navigate a change in ownership, as companies sometimes lose key employees or customers in time of transition.


A business seller's task can be stated simply as well:  to position his company to receive the best possible price in the marketplace.

Sellers need to anticipate the sale of their company well before it actually happens so that they have enough time to sell unused assets or make other necessary changes.

Early consideration of important issues will allow sellers to capitalize on favourable conditions in their industry or in the capital markets.


Both buyers and sellers need to think carefully about the extent to which a company has created an economic moat - a sustainable competitive advantage -within its industry.  Business with wide moats tend to be more valuable.

Rubber gloves sector downgraded to neutral

PETALING JAYA: Maybank Investment Bank Research has downgraded the rubber gloves sector from “overweight” to “neutral” as the valuations of the stocks are fairly reflective of fundamentals now.

Analyst Lee Yen Ling said price-to-earnings (PER) valuations had risen from eight to 16 times end-2012 to 11 to 19 times currently.

“Though new supply (for nitrile gloves) looks aggressive, near-term price competition is likely to be mild, for new capacity will just about match demand, we believe, with the latter expanding by about 20% year-on-year,” she said.

Demand for nitrile glove sales were also driven by a shift in customer preference from latex powder-free to nitrile gloves, she said, adding that margins for nitrile gloves remained higher compared with latex gloves by more than 6 percentage points as a result of higher pricing and lower raw material cost.

Lee pointed out that glove manufacturers usually did not gain or lose significantly on foreign exchange volatility as most of them bought forward contracts which expired in two to three months to sell US dollars when they delivered the products as a way to hedge their US-denominated receivables.

She added that the recent fuel price hike, which led to higher transportation costs for the companies, had insignificant impact on them as transportation accounted for only 2% to 3% of total costs, thus they were not adjusting glove prices.

The research house’s top pick was Kossan Rubber Industries Bhd on the back of its better value proposition compared with its peers.

She has given a higher target price of RM7.60 to the counter as she revised Kossan’s PER upwards to 16 times from 15 times.

Meanwhile, she maintained a “hold” rating on Hartalega Holdings Bhd with the same target price of RM6.71 whereas the target price for Top Glove Corp Bhd was re-rated downwards to RM6.40 with a downgraded “hold” call as weaker latex powder-free glove sales were factored in.

http://www.thestar.com.my/Business/Business-News/2013/09/25/Rubber-gloves-sector-downgraded-to-neutral.aspx

A Dozen Things I’ve Learned About Investing From Peter Lynch

1. “Nobody can predict interest rates, the future direction of the economy, or the stock market.  Dismiss all such forecasts and concentrate on what’s actually happening to the companies in which you’ve invested.” It is far more productive for an investor to focus their time and energy on systems which are potentially understandable in a way which might reveal a mispriced asset. George Soros said once: “Unfortunately, the more complex the system, the greater the room for error.” The simplest system on which an investor can focus is an individual company. Trying to understand something as complex as an economy in a way which outperforms the markets is not a wise use of time and is unlikely to happen.    

2. “The way you lose money in the stock market is to start off with an economic picture. I also spend fifteen minutes a year on where the stock market is going.” and “If you spend more than 13 minutes analyzing economic and market forecasts, you’ve wasted 10 minutes.”  The media’s objective is to convince you that obsessively following the news cycle is necessary for an investor. In short, the media’s interest is to to convince you to watch their advertising. While you don’t want to be oblivious to the state of the economy, listening to talking head pundits and incessantly following the news cycle is actually counterproductive to profitable investing. Instead, focus on the companies  you chose to follow.

3. “The GNP six months out is just malarkey. How is the sneaker industry doing? That’s real economics.” The difference between the predictive power of microeconomics and macroeconomics is “night and day” since with the former vastly fewer assumptions are required and the systems involved are far less complex. The best investors make investing as simple as possible, but no simpler.  Lynch is saying he may pay attention to the economics of an industry, but only to understand the economics of the companies he chooses to follow. 

4. “To make money, you must find something that nobody else knows, or do something that others won’t do because they have rigid mind-sets.” It is mathematically certain that you can’t beat the market if you *are* the market. You must find bets that are mispriced, be right about that mispricing and when you do find a mispriced bet, by definition, your view will be contrarian.  

5. “A share of a stock is not a lottery ticket. It’s part ownership of a business.” Many people love to gamble since it gives their brain a dopamine hit. They gamble even though it is a tax on people with poor math skills. The right thing for an investor to love is the process of investing, not the bet itself.  The right process for an investor is to understand the value generated by the underlying business.  

6. “Investing without research is like playing stud poker and never looking at the cards.” You can’t understand a business and its place in an industry without doing research. And in doing research you must find something that the market does not properly discount into the price of the stock or bond. If you spend more time picking out a refrigerator than researching a stock, you should instead be buying a low fee index fund.

7. “Owning stocks is like having children—don’t get involved with more than you can handle. The part-time stock picker probably has time to follow 8-12 companies.” The time in any given day, week etc. is a zero sum game. If you work at a day job and you have a life, only so much time is left to follow stocks and bonds.  It is better to be a mile deep in understanding 8-12 companies than an inch deep on many more.

8. “Everyone has the brainpower to follow the stock market. If you made it through fifth-grade math, you can do it.” Addition, subtraction, multiplication and division is all the math skill you need. Investors should ignore formulas with Greek letters in them.

9. “People seem more comfortable investing in something about which they are entirely ignorant.” Suspending disbelief about an investment is easier for many people for some reason when you know less rather than more, especially if the story is well crafted and told by the promoter.  When confronted with someone touting a stock, imagine them holding a megaphone at the circus and then think about what they are saying.  

10. “If you can’t convince yourself ‘When I’m down 25 percent, I’m a buyer’ and banish forever the fatal thought ‘When I’m down 25 percent, I’m a seller,’ then you’ll never make a decent profit in stocks.” and “Bargains are the holy grail of the true stock picker. We see the latest correction not as a disaster, but as an opportunity to acquire more shares at low prices. This is how great fortunes are made over time.” Who doesn’t like it when something like a hamburger is cheaper to buy? Stocks and bonds are no different.  Also, don’t put yourself in a position where you may need to sell at the wrong time.

11. “A market player has 50 percent of his portfolio in cash at the bottom of the market. When the market moves up, he can miss most of the move.” Markets over long period of time inevitably rise. They always have and always will. That is the good news. The bad news is that you can’t “time” when the rise in a market will happen. By trying to “time” the market you can miss a big move up and if you do, your returns will show it.   

12. “Only invest what you could afford to lose without that loss having any effect on your daily life in the foreseeable future.” Nothing is worse than not being able to care for people you love. Don’t take that risk. And don’t put yourself in a position where you are likely to panic more than usual due to the pain of something normal and inevitable (e.g., a 20% correction in the stock market). Peter Lynch said once: “Small investors tend to be pessimistic and optimistic at precisely the wrong times.”

http://25iq.com/2013/07/28/a-dozen-things-ive-learned-about-investing-from-peter-lynch/

Day trading: only two out of ten make money; fewer do so consistently

Conclusion

We analyze day traders in Taiwan.

1. Day trading is prevalent in Taiwan – accounting for more than 20 percent of total trading volume during our sample period.
- Individual investors account for virtually all day trading (over 97 percent).
- Day trading is heavily concentrated. About one percent of individual investors account for half of day
trading and one fourth of total individual investor trading volume.

2. Our analysis of performance indicates day trading is treacherous, but not entirely a fool’s game.
- Heavy day traders, as a group, earn gross profits (before transaction costs).
- Thus, heavy day traders do appear to have a trading advantage over other investors.
- The stocks bought by the most active day traders outperform those sold by 31 basis points per 21 day.
- Unfortunately, the gross profits of heavy day traders are not sufficiently large to cover reasonable estimates of transaction costs.
- Thus, as a group, they lose money.
- In contrast, occasional day traders experience both gross and net losses.
- The stocks bought by occasional day traders actually underperform those sold, even before considering
transaction costs.

3. There is considerable cross-sectional variation in the performance of day traders.
- Over the typical six month horizon, using lower range assumptions regarding transaction costs, less than 20 percent of day traders earn profits net of transaction costs.

4. These results paint a rather dim portrait of day traders. However, we do document a select few are able to consistently earn profits sufficient to cover transaction costs.
- We identify day traders who earn substantial profits over a six-month period and analyze the performance of their subsequent trades.
- These profitable day traders continue to earn stellar returns.
- The average day trader in this group earns a semi-annual income of over $NT 1 million from his day trading activity, though the group’s median income is a more modest $NT 126,000.
- The stocks they buy outperform those that they sell by 62 basis points per day.
- These profits survive transaction costs.
- In other words, there is strong evidence of persistence in the ability of day traders.

Our analysis makes clear the need for comprehensive risk disclosure.
Prospective day traders should be apprised of their likelihood of success: only two out of ten make money; fewer do so consistently.


http://faculty.haas.berkeley.edu/odean/papers/Day%20Traders/Day%20Trade%20040330.pdf