Rubberex 4Q net profit up 55% to RM5.61m

Rubberex 4Q net profit up 55% to RM5.61m
Written by Joseph Chin
Friday, 22 January 2010 16:03

KUALA LUMPUR: Rubberex Corp (M) Bhd posted net profit of RM5.61 million for the fourth quarter ended Dec 31, 2009, up 55.5% from the RM3.61 million a year ago due to sales contribution from its China subsidiaries and better profit margins and the company expects China to provide the bulk of the earnings this year.

It said on Friday, Jan 22 revenue rose 16.2% to RM91.72 million from RM78.9 million. Earnings per shares were 6.71 sen compared with 4.56 sen.

For the financial year ended Dec 31, 2009, net profit nearly doubled to RM16.56 million from RM8.63 million a year ago. Revenue was RM325.44 million compared with RM274.51 million.

"Such commendable achievement is mainly contributed by the strong demand of disposable gloves produced by its China operations. The board and management foresee that demand for disposable gloves will show further growth in 2010," it said.

Rubberex said additional production capacity has been installed in China which would increase the output by more than 25% to 5.6 billion pieces annually.

"Even though the industrial gloves segment of our Malaysian operation is showing improvement in orders intake amid encouraging signs of an economic recovery in the US, the management foresees that overall group's earnings growth for this year will continue to be derived mainly from its China operations.

"Barring any unforeseen circumstances, the group’s performance for financial year 2010 will be significantly better than the previous year," it said.

Pantech's 3Q net profit down 32% to RM11.7m

Pantech's 3Q net profit down 32% to RM11.7m

Tags: Pantech Group Holdings Bhd | third quarter

Written by The Edge Financial Daily
Monday, 25 January 2010 22:23

KUALA LUMPUR: Pipemaker PANTECH GROUP HOLDINGS BHD [] posted a 32% drop in net profit to RM11.7 million for its third quarter ended Nov 11, 2009 (3QFY10) from RM17.3 million a year earlier mainly due to lower sales volume from the trading division and lower output from manufacturing.

Revenue fell 30.6% to RM92.2 million from RM132.8 million, while basic earnings per share (EPS) dropped to 3.14 sen from 4.6 sen. It declared a special second interim single-tier dividend of 1.5 sen per share share versus eight sen per share a year earlier.

For the nine months to Nov 30, 2009, the group's net profit fell 21% to RM40.1 million from RM50.9 million a year earlier mainly due to lower contribution from the manufacturing division.

Revenue fell 9.8% to RM335.5 million from RM371.8 million. EPS fell to 10.71 sen from 13.57 sen while dividends declared rose to three sen from two sen in the same period in FY09.

On its prospects, Pantech said while there were signs of economic recovery, economic conditions continued to be challenging for the group.

“The board will continue its cautious approach undertaken to monitor, mitigate and respond to any negative economic headwinds through diligent administration of operational cost controls and cash flows.

“Barring any unforeseen circumstances, the board believes that the performance of the group for the current financial year will remain satisfactory while the long-term outlook of the oil and gas industry continues to be positive.”

EON Cap reviewing HL Bank offer

EON Cap reviewing HL Bank offer
Written by Darlene Liew
Monday, 25 January 2010 12:18

KUALA LUMPUR: EON Bank chief executive officer Michael Lor says EON CAPITAL BHD [] board is still reviewing HONG LEONG BANK BHD []'s RM7.10 share offer.

He said on Monday, Jan 25 that the board should be making announcement in a few days to meet the deadline of seven days set by Hong Leong Bank earlier.

Hong Leong Bank had on Jan 21 announced it was offering RM7.10 per share to acquire EONCap, which owns EON Bank Bhd.

The offer, to be fully satisfied in cash, translates to 1.4 times book valued based on a shareholders’ fund of RM3.49 billion as at Sept 30, 2009.

http://www.theedgemalaysia.com/business-news/158277-flash-eon-cap-reviewing-other-offers.html

CIMB Research maintains Outperform on Public Bank (TP: RM14.20)

CIMB Research maintains Outperform on Public Bank
Written by CIMB Equities Research
Monday, 25 January 2010 09:48

 

KUALA LUMPUR: CIMB Equities Research is maintaining its outperform on Public Bank at RM11.98 and a target price of RM14.20, still pegged to a 10% premium over its DDM (dividend discount model) value.

 

CIMB Research said on Monday, Jan 25 the DDM parameters remain intact, including a cost of equity of 14.3% and dividend growth rates of 15.7% in the interim growth phase and 6% in the long-term growth phase.

 

"In the event of a rights issue, our target price would be reduced to RM13.30, which may lead to a review of our recommendation," it said.

 

The research house said Public Bank’s management confirmed that it does not have any immediate plans for a rights issue unless it has to meet a minimum equity capital ratio of 9-10%.

 

"We rate the chances of this worst-case scenario happening as low. Furthermore, we estimate that the EPS dilution of such a rights issue would only be about 5%-6%. As such, we retain our positive stance on the stock, which is underpinned by the favourable earnings outlook," it said.

 

CIMB Research said the stock remains an Outperform based on the potential re-rating catalysts of

• (1) stronger ROEs of 28-30% for FY10-12, as per the company’s target,
• (2) increased contributions from Greater China, and
• (3) new growth avenue in the bancassurance business.

 

http://www.theedgemalaysia.com/business-news/158255-cimb-research-maintains-outperform-on-public-bank.html

The Company when It's Old (3): Why you might invest in these?

By now you might be wondering what's the point of investing in a stodgy old company such as IBM, GM, or US Steel? 

There are several reasons you might do this. 

• First, big companies are less risky, in that they generally are in no danger of going out of business.
• Second, they are likely to pay dividend.
• Third, they have valuable assets that might be sold off at a profit.

These corporate codgers have been everywhere and seen it all, and they've picked up all sorts of valuable property along the way.  In fact, studying an old company and delving into its finances can be as exciting as rummaging through the attic of a rich and elderly aunt.  You never know what amazing stuff you'll find stuck in a dark corner.

Whether it's land, buildings, equipment, the stocks and bonds they keep in the bank, or the smaller companies they've acquired along the way, old companies have a substantial "break-up value."  Shareholders act like the relatives of that aged rich aunt, waiting to find out who will get what.

There's always the chance an old company can turn itself around, as Xerox and American Express have been doing in the past couple of years.

On the other hand, when an old company falters or stumbles as badly as these companies did, it may take 20 or 30 years before it can get itself back on track.  Patience is a virtue, but it's not well rewarded when you own stock in a company that's past its prime.

The Company when It's Old (2): Alcoa, GM & IBM

There's a lesson here that may save you some grief in the future.  No matter how powerful it may be today, a company won't stay on top forever.  Being called a "blue-chip" or a "world-class operation" can't save a company whose time is past, any more than Great Britain was saved by having the word "Great" in its name.

Long after Great Britain had lost its empire, the British people continued to think of their country as stronger and mightier than it really was, the same as the shareholders of US Steel.

International Harvester, the dominant force in farm equipment for an entire half-century, peaked in 1966 and never came back, even though it tried to change its luck by changing its name to Navistar.  Johns-Manville, once number one in insulation and building supplies, topped out in 1971. 

The Aluminium Company of America, better known as Alcoa, a Wall Street darling of the 1950s when the country was discovering aluminium foil, aluminium siding, and aluminium boats, rose to $23 a share in 1957 (adjusted for splits), a price it didn't see again until the 1980s.

General Motors, the dominant car company in the world and the bluest of the automotive blue chips, reached a peak in October 1965 that it wouldn't see again for nearly 30 years.  Today, GM is still the largest company in the US, and first in total sales, but it's far from the most profitable.  Sometime in the 1960s, its reflexes began to slow.

The Germans came ashore with their Volkswagens and their BMWs, and the Japanese invaded with their Toyotas and Hondas.  The attack was aimed directly at Detroit and GM was slow to react.  A younger, more aggressive GM might have risen to this challenge more quickly, but the older GM was set in its ways.

It continued to make big cars when it could see that small foreign cars were selling like crazy.  Before it could build new models that could compete with the overseas models, it ad to overhalul its outmoded factories.  This cost billions of dollars, and by the time the overhaul was complete, and small cars were rolling off the GM assembly lines, the public had switched back to bigger cars.

For three decades the largest industrial company in the US has not been largely profitable.  Yet if you had predicted this result in 1965, when GM was riding the crest of its fame and fortune, nobody would have believed you.  People would sooner have believed that Elvis was lip-synching.

Then there's IBM, which had reached middle age in the late 1960s, about the time GM was in decline.  Since the early 1950s, IBM was a spectacular performer and a great stock to own.  It was a top brand name and a symbol of quality - the IBM logo was getting to be as famous as the Coke bottle.  The company won awards for how well it was managed, and other companies studied IBM to learn how they should run their operations.  As late as the 1980s, it was celebrated in a best selling book, In Search of Excellence.

The stock was recommended by stockbrokers everywhere as the bluest of the blue chips.  To mutual fund managers, IBM was a "must" investment.  You had to be a maverick not to own IBM.

But the same thing happened to IBM that happened to GM.  Investors were so impressed with its past performance that they did not notice what was going on in the present.  People stopped buying the big mainframe computers that wer the core of IBM;s business.  The mainframe market wasn't growing anymore.  IBM's personal computer line was attacked from all sides by competitors who made a less-expensive product.  IBM's earnings sank, and as you probably can guess by now, so did the stock price.

By now you might be wondering what's the point of investing in a stodgy old company such as IBM, GM, or US Steel? 

The Company when It's Old (1): Woolworth & US Steel

Companies that are 20, 30, 50 years old have put their best years behind them. 

You can't blame them for getting tired.  They'd done it all and seen it all, and there's hardly a place they can go that they haven't already been.

Take Woolworth.  It's been around for more than 100 years - several generations of Americans grew up shopping at Woolworth's.  At one point, there was a Woolworth's outlet in every city and town in America.  That's when the company ran out of room to grow.

Recently, Woolworth has suffered a couple of unprofitable years.  It can still make a profit, but it will never be the spectacular performer it was when it was younger.  Old companies that were great earners in the past can't be expected to keep up the momentum.  A few of them have - Wrigley's, Coca-Cola, Emerson Electric, and McDonald's come to mind.  But these are exceptions.

US Steel, General Motors, and IBM are 3 prime examples of former champions whose most exciting days are behind them - although IBM and GM are having a rebound.  US Steel was once an incredible hulk, the first billion-dollar company on earth.  Railroads needed steel, cars needed steel, skyscrapers needed steel, and US Steel provided 60% of it.  At the turn of this century, no company dominated its industry the way US Steel dominated steel, and no stock was as popular as US Steel stock. It was the most actively traded issue on Wall Street.

When a magazine wanted to illustrate America's power and glory, it ran a picture of a steel mill, with the fire in the furnaces and the liquid metal poureing like hot lava into the waiting molds.  We are a nation of factories then, and a good deal of our wealth and power came from the mill towns of the East and the Midwest.

The steel business was a fantastic business to be in, and US Steel prospered through both world wars and six different presidents.  The stock hit an all-time high of $108 7/8 in August 1950.

This was the beginning of the electronic age and the end of the industrial age and the glory of steel, and it would ahve been the perfect time for investors to sell their US Steel shares and buy shares in IBM.  But you had to be very farsighted and unsentimental investor to realize this.  After all, US Steel was classed as a blue chip, Wall Street's term of endearment for pretigious companies that are expected to excel forever.  Hardly anyone would have predicted that in 1995, US Steel stock would be selling for less than it sold for in 1959.

To put this decline in perspective, the DJIA was bumping up against the 500 level in 1959, and it's gone up more than 4000 points since.  So while stocks in the Dow have increased in value more than 8 times over, US Steel has gone downhill.  Loyal shareholders have died and gone to heaven waiting for US Steel to reclaim its lost glory.

Extinct Companies: Some die young, some in middle age. Bankruptcies and Takeovers

Companies die every year. 

Some die young.  They try to go too far too fast on borrowed money they can't pay back, and they crash. 

Some die in middle age because their products turn out to be defective, or too old-fashioned, and people stop buying.  Maybe they're in:

• the wrong business, or
• the right business at the wrong time, or
• worst of all, the wrong business at the wrong time.

Big companies can die right along with smaller and younger companies.

American Cotton, Laclede Gas, American Spirits, Baldwin Locomotive, Victor Talking Machine, and WRight Aeronautical were once big enough and important enough to be included in the Dow Jones Industrial Average, but they're gone now, and who remembers them?  The same goes for Studebaker, Nash, and Hudson Motors, Remington Typewriter, and Central Leather.

Takeover

There's one way a company can cease to exist without actually dying.  It can be swallowed up by some other company in a takeover. 


Bankruptcy:  Chapter 11 protection and Chapter 7

Chapter 11:  And often, a company can avoid dying a quick death by seeking protection in a bankruptcy court. Bankruptcy court is the place where companies go when they can't pay their bills, and they need time to work things out.  So they file for Chapter 11, a form of bankruptcy that allows them to stay in business and gradually pay off their debts.  The court appoints a trustee to oversee this effort and make sure everyone involved is treated fairly.

Chapter 7:  If it's a terminal case and the company has no hope of restoring itself to profitability, it may file for Chapter 7.  That's when the doors are closed, the employees sent home, and the desks, lamps and word processors are carted off to be sold.

Often in these bankruptcies, the various groups that have a stake in the company (workers, vendors, suppliers, investors) fight each other over who gets what. 

• These warring factions hire expensive lawyers to argue their cases. 
• The lawyers are well-paid, but rarely do the creditors get back everything they're owed. 

There are no funerals for bankrupt companies, but there can be a lot of sorrow and grief, especially among workers, who lose their jobs and bondholders and stockholders, who lose money on their investments.

Companies are so important to the health and prosperity of the country that it is too bad there isn't a memorial someplace to the ones that have passed away.  Or perhaps the state historic preservation deparments should put up plaques on the sites where these extinct companies once did business.  There ought to be a book that tells the story of interesting companies that have disappeared from the economic landscape, and describes how they lived, how they died, and how they fit into the evolution of capitalism.

The Bulls and the Bears

In a normal day of trading, many stocks will go up in price, while otheres will go down.

But occasionally, there's a stampede when the prices of thousands of stocks are running in the same direction, like bulls at Pamplona.  If the stampede is uphill, we call it a "bull market."

When the bulls are having their run, sometimes 9 out of 10 stocks are hitting new highs every week.  People are rushing around buying as many shares as they can afford.  They talk to their brokers more often than they talk to their best friends.  Nobody wants to miss out on the good thing.

As long as the good thing lasts, millions of shareholders go to bed happy, and wake up happy.  They sing in the shower, whistle while they work, help old ladies across the street, and count their blessings every night as they put themselves to sleep reviewing the gains in their portfolios.

But a bull market doesn't last forever.  Sooner or later, the stampede will turn downhill.  Stock prices will drop, with 9 out of 10 stocks hitting new lows every week. People who were anxious to buy on the way up will become more anxious to sell on the way down, on the theory that any stock sold today will fetch a better price than it would fetch tomorrow.

Are you strategized to gain from a correction or a bear market?

Correction:  When stock prices fall 10% from their most RECENT peak.
Bear market:  When stock prices fall 25% or more from their most RECENT peak.

Statistics:

• There were 53 corrections during the last century.
•  That is, 1 correction occurred every 2 years. (1:2)
• 1 in 3 corrections have turned into bear markets.(1:3)
• That is, 1 bear market appeared every 6 years.(1:6)

Nobody knows who coined the term "bear market."

You can make a better case for calling a bear market a lemming market, in honour of the investors who sell their stocks because everybody else is selling.

Though financial losses are linked with the appearance of the bear market, there are also those who gained from the bear market.  Are you strategized to gain from a correction or a bear market?

1929:  Papa Bear market
1973-74:  Momma Bear market, average stock was down 50%.
1982: Bear market
1987:  Crash of 1987, Dow dropped over 1000 points in 4 months; 508 of those points in 1 day.
1990:  Saddam Hussen bear market when investors worried about the Gulf War,
1997:  Asian Financial Crisis Bear market
2001:  Technology Bust Bear market
2008:  Credit crunch Bear market

Anxious to buy and anxious to sell

A bull market doesn't last forever.  Sooner or later, the stampede will turn downhill.

Are you one who is anxious to buy on the way up?
Are you one who is anxious to sell on the way down?

People who were anxious to buy on the way up will become more anxious to sell on the way down, on the theory that any stock today will fetch a better price than it would fetch tomorrow.

An EXTENDED bear market can test everybody's patience and unsettle the most experienced investors.

An extended bear market can test everybody's patience and unsettle the most experienced investors.
Small bears were easier to handle than the big (extended) bears of 1929 and 1973 - 74.

No matter how good you are at picking stocks, your stocks will go down, and just when you think the bottom has been reached, they will go down some more.  If you own stock mutual funds, you won't do much better, because the mutual funds will go down as well.  Their fate is tied to the fate of the stocks they own.

1929:  People who bought stocks at the high point in 1929 (this was a small group, fortunately) had to wait 25 years to break even on the prices.  Imagine your stocks being in the red for a quarter-century! 

1973-74:  From the high point in 1969 before the crash of 1973-74, it took 12 years to break even. 

Perhaps we'll never see another bear market as severe as the one in 1929 - that one was prolonged by the Depression.  But we cannot ignore the possibility of another bear of the 1973-74 variety, when stock prices are down long enough for a generation of children to get through elementary, junior high and high school.

Investors can't avoid corrections and bear markets any more than northerners can avoid snowstorms.

Predicting the market is difficult: Chorus of "experts" claiming to see bears that never show up.

It would be nice to be able to get a warning signal, so you could sell your stocks and your mutual funds just before a bear marekt and then scoop them up later on the cheap.  The trouble is nobody has figured out a way to predict bear markets.  The record on that is no better than the record on predicting recessions.

Once in a while, somebody calls a bear and becomes a celebrity overnight - a stock analyst named Elaine Garzarelli was celebrated for predicting the Crash fo 1987. (Roubini for the recent bear market of 2008).  But you never hear of somebody prediting two bear markets in a row. 

What you do hear is a chorus of "experts" claiming to see bears that never show up.

Since we are all accustomed to taking action to protect ourselves from snowstorms and hurricanes, it's natural that we would try to take action to protect ourselves from bear markets, even though this is one case in which being prepared like a Boy Scout does more harm than good.  Far more money has been lost by investors trying to anticipate corrections than has been lost in all the corrections combined.

http://myinvestingnotes.blogspot.com/2010/01/another-telling-statistics.html
Another telling statistics on Market Timing:  Missing the chance to run with the bulls
Great Timing versus Lousy Timing

Investors can't avoid corrections and bear markets

Investors can't avoid corrections and bear markets any more than northerners can avoid snowstorms. 
In 50 years of owning stocks, you can expect

• 25 corrections, of which
• 8 or 9 will turn into bears.

You can expect 1 correction every 2 years, on average.

You can expect 1 bear every 6 years, on average, that is, every 3 corrections turned into bear markets.

Another telling statistics on Market Timing: Missing the chance to run with the bulls

Great Timing versus Lousy Timing
(Performance difference = 1.6% difference)

Investment returns from 1970 to 1995

Starting in 1970, if you were unlucky and invested $2,000 at the peak day of the market in each successive year, your annual return was 8.5%.

If you timed the market perfectly and invested your $2,000 at the low point in the market in each successive year, your annual return was 10.1%. 

So the difference between great timing and lousy timing is 1.6%.

Of course, you'd like to be lucky and make that extra 1.1%, but you'll do just fine with lousy timing, as long as you stay invested in stocks.  Buy shaes in good companies and hold on to them through thick and thin. 

There's an easy solution to the problem of bear markets.  Set up a schedule of buying stocks or stock mutual funds so you're putting in a small amount of money every month, or four months, or six months.  This will remove you from the drama of the bulls and bears.


Missing the chance to run with the bulls

One of the worst mistakes you can make is to switch into and out of stocks or stock mutual funds, hoping to avoid the upcoming correction.  It's also a mistake to sit on your cash and wait for the upcoming correction before you invest in stocks.  In trying to time the market to sidestep the bears, people often miss out on the chance to run with the bulls.

A review of the S&P 500 going back to 1954 shows how expensive it is to be out of stocks during the short stretches when they make their biggest jumps. 

• If you kept all your money in stocks throughout these four decades, your annual return on investment was 11.5%. 
• Yet if you were out of stocks for the fourty most profitable months during these fourty years, your return on investment dropped to 2.7%..

The real story is in the numbers - get the necessary training to read them

Four times a year, you'll get the report card that tells you

• how the company is doing,
• how its sales are going, and
• how much money it has made or lost in the lastest period. 

Once a year, the company sends out the annual report that sums up the year in great detail.  Most of these annual reports are printed on fancy paper with several pages of photographs.  It's easy to mistake them for an upscale magazine.

In the front, there's a personal message from the head of the company, recounting the year's events, but the real story is in the numbers. 

• These run for several pages, and unless you are trained to read them, they will surely strike you as both confusing and dull. 
• You can get the necessary training from a good accounting course. 
• Once you do, these dull numbers can become very exciting, indeed. 
• What could be more exciting than learning to decipher a code that could make you a prosperous investor for life?

Companies that intentionally mislead their shareholders (this rarely happens) face severe penalties, and the perpetrators can be fined or sent to jail.  Even if it is unintentional (a more common occurrence), a company that misleads shareholders is punished in the stock market. 

• As soon as they realize it hasn't told them the whole truth, many big-time investors will sell their shares at once. 
• This mass selling causes the stock price to drop. 
• It's not unusual for share prices to fall by half (50%) in a single day after the news of the scandal gets out.

When a stock loses half its value overnight, that disturbs all the investors, including the corporate insiders, from the chief executive on down, who are likely to own large numbers of shares.  That's why it is in their best interest to make sure the company sticks to the facts and doesn't exaggerate. 

• They know the truth will come out sooner or doesn't exaggerate. 
• They know the truth will come out sooner or later, because companies are watched by hundred, if not thousands of shareholders. 
• A company can't brag about its record-breaking earnings if the earnings aren't there - too many investors are paying close attention.

The ultimate "NO" vote

Ultimately, the company exists for the shareholders.  The directors are there to represent the shareholders' interests.  These directors are not employees of the company.  They make strategic decisions, and they keep tabs on what the managements are doing.

Any time you decide you don't like the management, its policies, or the direction the company is headed, you are always free to exercise the ultimate "no" vote and sell your shares.

You have to Know the Story: Confusing the price with the story is the biggest mistake an investor can make.

If you're going to invest in a stock, you have to know the story.  This is where investors get themselves in trouble.  They buy a stock without knowing the story, and they track the stock price, because that's the only detail they understand.  When the price goes up, they think the company is in great shape, but when the price stalls or goes down they get bored or they lose faith, so they sell their shares.

Confusing the price with the story is the biggest mistake an investor can make. 

• It causes people to bail out of stocks during crashes and corrections, when the prices are at their lowest, which they think means that the companies they own must be in lousy shape. 
• It causes them to miss the chance to buy more shares when the price is low, but the company is still in terrific shape.

The story tells you what's happening inside the company to produce profits in the future - or losses, if it's a tale of woe. 

• It's not always easy to figure this out. 
• Some stories are more complicated than others. 
• Companies that have many different divisions are harder to follow than companies that make a single product. 
• And even when the story is simple, it may not be conclusive.

But there are occasions when the picture is clear and the average investor is in a perfect position to see how exciting it is.  These are the times when understanding a company can really pay off.

Stock Picking Strategies - Value Investor

Stock Picking Strategies | Value Investor

As long as the stock market exists, there must always be the bullish and the bearish trends in the market place. These are the two components that make up the stock market. What this implies is that for every single day that the stock market opens, there are people making money, and there are people who are equally loosing money at the same time depending on the direction of the market. As a discerning investor, you need to arm yourself with the strategies that are geared towards securing your investments and also ensuring that you profit from the market daily, regardless of the period on the floor, whether bull or bear. So in order to achieve this, your stock picking strategies and principles has an important role to play here.

The first principle a wise investor should adopt for success, is to go for value investing. This is one of the best known stock picking strategies.

How do you go about this? Simply look for the stocks that are selling at a bargain price, but have strong fundamentals, which include the company's earnings, dividends, cash flow, and book value. These are companies that are undervalued by the market, but are sure to soar immediately the market corrects itself, which is certain that it will do. It is important to note here that not all prices that are down that are cheap.

So a value investor will know how to do his due diligence before arriving at the conclusion that a particular stock is cheap or not. Price does not always determine whether a stock is cheap or not, the determinant factor is the fundamentals. E.g., if a company's share price suddenly drops from $20 to $5, it does not mean that the price is cheap at that $5, rather, a value investor will first of all find out why the price nose-dived.

• Is it as a result of over-pricing which the market is now correcting?
• Or is it as a result of some fundamental problems?
• Or just because of profit taking and other market forces which does not affect the company's fundamentals?

These are the questions that a value investor must find answers to before investing his cash. The value investor knows that profits are made not just by trading of shares; rather, profits are made in stocks by investing in quality companies with strong fundamentals.

If you really want to make money in stocks, you have to sit down first, and ask yourself the type of investor you want to be. Ask yourself whether you are just trading in shares or whether you are investing for value. Don't follow the herd. Do your due diligence before investing. The internet has made things so easy today that you will get any information you need at your finger-tips. When you do this and remove greed, you will definitely make it big investing in stocks. Know when to exit and do so immediately, as waiting a minute or a day longer can wipe out a big fraction from your investment profits which are not a good idea at all.

by jsieiw
http://www.linkroll.com/Day-Trading-Finance--311038-Stock-Picking-Strategies-Value-Investor.html

Three Faces of Market Danger

Three Faces of Market Danger

By PAUL J. LIM
Published: January 23, 2010

AFTER one of the most volatile periods for stocks in decades, it’s only natural for investors to wonder how risky the markets will be in 2010.


Weekend Business: Paul Lim on stock market risks.Unfortunately, that is impossible to predict with any certainty. But investors can at least look for the types of risks the market seems most likely to face. Those perceived dangers have shifted in recent years. In 2008, for example, there was the all-too-real risk of losing big money in the global credit crisis. Last year, after the crisis seemed to subside, investors who stayed on the sidelines risked missing out on the market’s huge rebound.

Today, strategists say, investors face risks in three major categories:

EARNINGS RISK As the economy started to heal last year, investor expectations for corporate profits started to grow. That helped to drive up equity prices by 65 percent from March 9 to Dec. 31.

But after a rally of that magnitude, “people will start to get nervous about the ability of companies to actually meet those expectations,” said Ben Inker, director of asset allocation at GMO, an asset management firm in Boston. That is partly because corporate profit forecasts have grown so lofty.

Wall Street analysts estimate that earnings for companies in the Standard & Poor’s 500-stock index were up 193 percent in the fourth quarter of 2009, versus the period a year earlier, according to a survey by Thomson Financial. Moreover, they expect earnings for all of 2010 to be up more than 28 percent from 2009.

“While we are seeing profit improvement, we think the numbers that are getting baked in are excessive,” Mr. Inker said.

Michele Gambera, chief economist at Ibbotson Associates, an investment consulting firm in Chicago, points out that “it’s hard to have a stable improvement of corporate profits in an environment where companies are deleveraging.”

It’s also difficult to see profits soaring, he said, while the employment outlook is so weak. Not only does a struggling job market threaten consumer spending, it also exacerbates continuing problems in the financial system. “If people don’t have jobs, they cannot pay off their debts,” Mr. Gambera said.

VALUATION RISK When the market began to rally in March, stocks were roundly considered cheap. Back then, the price-to-earnings ratio for equities was a mere 13.3, based on 10-year averaged earnings, as calculated by Robert J. Shiller, the Yale economist.

But thanks to the recent surge in stock prices, the market P/E has jumped to a much frothier 20.8, versus the historical average of around 16.

“Current market valuations are high enough that they’re more or less suggesting everything is going to be fine this year,” said Robert D. Arnott, chairman of Research Affiliates, an investment management firm in Newport Beach, Calif. But if everything isn’t — if the economy hits a speed bump, for instance, or if corporate profits come in lower than expected — investors may start to question the prices they are paying for risky assets, he said.

This is why James W. Paulsen, who works in Minneapolis as chief investment strategist for Wells Capital Management, says that this year, unlike 2008 and 2009, “it will be important for people to go back to assessing valuations again.”

POLICY RISK Government economic policies are having a huge impact, but they can be tricky to predict. For instance, investors who were banking on imminent health care reform may need to rethink their strategy after the special Senate election last week in Massachusetts.

Health care is only one area that is up for grabs. This year, for example, the government and the Federal Reserve Board will face a big decision on whether to curtail the huge stimulus that has helped prop up the economy.

Mr. Arnott says he believes the Fed will be forced to raise short-term interest rates this year, possibly even before the recovery gains full traction.

The danger is that the markets may react badly to the end of the Fed’s unusually loose monetary policy.

“It’s not like the economy is out of the woods,” said Duncan W. Richardson, chief equity investment officer at Eaton Vance, an asset manager in Boston. “The patient is still in the hospital.”

INVESTORS must also keep in mind that the tax cuts enacted under President George W. Bush — which lowered the maximum rate on long-term capital gains taxes to 15 percent from 20 percent and the top dividend tax rate to 15 percent from 39.6 percent — are due to expire at year-end.

While it is unclear whether the Obama administration will extend those cuts, or at least extend them for the middle class, the uncertainty is bound to raise concerns on Wall Street.

Because of the “potentially big risks that may come out of Washington,” Mr. Richardson said, “investors need to be more diversified than ever.”

Paul J. Lim is a senior editor at Money magazine. E-mail: fund@nytimes.com.

http://www.nytimes.com/2010/01/24/business/24fund.html