How are we going to figure out value? How can anyone? Do we have the answer yet?

Valuing a company you are investing into.

For simplicity, we will assume that the business in question will earn $10,000 each year for the next thirty-plus years.

Intuitively, we know that collecting $10,000 each year for the next thirty years is not the same as receiving all $300,000 today.  

Present value 

=  Annual Cash Flow / Discount rate

= $10,000 / 0.06 

= $166,667

(In reality, we should look for how much cash we receive from the business over its lifetime.  For the purposes in this post, we will assume that earnings are a good approximation for cash received.)

So, earning $10,000 a year for the next thirty-plus years turns out to be worth about $166,667 today.   

In practice, predicting so far into the future is pretty hard to do.  

You will probably pay less for those estimated earnings than if they were guaranteed.

How much less?  

That's not exactly clear, but we would certainly discount that hoped-for $10,000 by more than the 6% we used when the $10,000 was guaranteed - maybe we'd use a discount of 8% or 10% or 12%, or even more. (the amount of our discount would reflect in part how confident we were in our earnings estimate).  

Value of the Company

At 6% discount rate

$10,000 /0.06 = $166,667

At 8% discount rate

$10,000 / 0.08 = $125,000

At 12% discount rate

$10,000 / 0.12 = $ 83,333

As it turns out, using a 12% discount rate, the value of the company is only $83,000.  

What is crystal clear, however, is that using different discount rates for our estimated earnings can lead to wildly different results when we try to value a business.

Figuring out the right discount rate isn't our only problem, we also have to estimate earnings. 

Many businesses grow their earnings over time, while others due to competition, a bad product, or a poor business plan, see their earnings shrink or even disappear over the years.  

Let us see how funny the math gets when we try to value a business using not only different estimates for discount rates but we throw on top of that some different guesses for future earnings growth rates!

Value of the Business

At 4% growth rate, 8% discount rate

$10,000 / (0.08 - 0.04) = $250,000

At 4% growth rate, 12% discount rate

$10,000 / (0.12 - 0.04) = $125,000

At 6% growth rate, 8% discount rate

$10,000 / (0.08 - 0.06) = $500,000.

Annual Cash Flow / (Discount Rate - Growth Rate) = Present Value

According to finance theory and logic, the value of a business should equal the sum of all of the earnings that we expect to collect from that business over its lifetime (discounted back to a value in today's dollars based upon how long it will take us to collect those earnings and how risky we believe our estimates of future earnings to be).  

Will earnings grow at 2%, 4%, 6% or not at all?  Is the right discount rate 8%, 105, 12%, or some other number?   

The math says that small changes in estimated growth rates or discount rates or both can end up making huge differences in what value we come up with!

At 2% growth rate, 12% discount rate

$10,000 / (0.12 - 0.02) = $100,000

At 5% growth rate, 8% discount rate

$10,000 / (0.08 - 0.05) = $333,333

Annual Cash Flow / (Discount Rate - Growth Rate) = Present Value

Which numbers are right?

It is incredibly hard to know.  Whose estimates of earnings over the next thirty-plus years should we trust?  What discount rate is the right one to use?

The secret to successful investing is to figure out the value of something and then - pay a lot less.  

How are we going to figure out value?  How can anyone?  Do we have the answer yet?  Hopefully, we have learned some very valuable lessons even if we cannot answer them yet.

Behavioural Finance: We are hardwired to be lousy investors.

1.  We are hardwired from birth to be lousy investors.

Our survival instincts make us fear loss much more than we enjoy gain.  We run from danger first and ask questions later.  We panic out of our investments when things look bleakest - we are just trying to survive!  We have a herd mentality that makes us feel more comfortable staying with the pack.  So buying high when everyone else is buying and selling low when everyone else is selling comes quite naturally - it just makes us feel better!

We use our primitive instincts to make quick decisions based on limited data and we weight most heavily what has just happened.  We run from managers who performed poorly most recently and into the arms of last year's winners - that just seems like the right thing to do!  We all think we are above average!  We consistently overestimate our ability to pick good stocks or to find above-average managers.  It is also this outsized ego that likely gives us the confidence to keep trading too much.  We keep making the same investing mistakes over and over - we just figure this time we will get it right!

We are busy surviving, herding, fixating on what just happened and being overconfident!  Maybe it helps explain why Mr. Market acts crazy at times.

2.  So, how do we deal with all these primitive emotions and lousy investing instincts?  

The answer is really quite simple:  we don't!

Let's admit that we will probably keep making the same investing mistakes no matter how many books on behavioural investing we read.

3.  How to invest in the stock market?

Traditionally, stocks have provided high returns and have been a mainstay of most investors’ portfolios. Since a share of stock merely represents an ownership interest in an actual business, owning a portfolio of stocks just means we’re entitled to a share in the future income of all those businesses. If we can buy good businesses that grow over time and we can buy them at bargain prices, this should continue to be a good way to invest a portion of our savings over the long term. Following a similar strategy with international stocks (companies based outside of the United States) for some of our savings would also seem to make sense (in this way, we could own businesses whose profits might not be as dependent on the U.S. economy or the U.S. currency)

4.  These words of wisdom from Benjamin Graham

In an interview shortly before he passed away, Graham provided us with these words of wisdom:

The main point is to have the right general principles and the character to stick to them.… The thing that I have been emphasizing in my own work for the last few years has been the group approach.  To try to buy groups of stocks that meet some simple criterion for being undervalued—regardless of the industry and with very little attention to the individual company.… Imagine—there seems to be practically a foolproof way of getting good results out of common stock investment with a minimum of work. It seems too good to be true. But all I can tell you after 60 years of experience, it seems to stand up under any of the tests that I would make up.

That interview took place thirty-five years ago. Yet we still have an opportunity to benefit from Graham’s sage advice today.

I wish you all—the patience to succeed and the time to enjoy it. Good luck.

Book:  Joel Greenblatt:  The Big Secret for the Small Investor (2001)

The secret to successful investing is to figure out the value of something and then pay a lot less!

Valuing a company you are investing into.

For simplicity, we will assume that the business in question will earn $10,000 each year for the next thirty-plus years.

Intuitively, we know that collecting $10,000 each year for the next thirty years is not the same as receiving all $300,000 today.  

Let us analyse and see what thirty-plus years of earning $10,000 per year are really worth to us today, using a discount rate of 6%.

Present value 

=  Annual Cash Flow / Discount rate

= $10,000 / 0.06 

= $166,667

(In reality, we should look for how much cash we receive from the business over its lifetime.  For the purposes in this post, we will assume that earnings are a good approximation for cash received.)

So, earning $10,000 a year for the next thirty-plus years turns out to be worth about $166,667 today.   

We have just figured out something incredibly important.  

A business guaranteed to earn us $10,000 each year for the next thirty-plus years or so, is worth the same as having $166,667 cash in our pocket today!

If we could be guaranteed that all of our assumptions were correct and someone offered to sell us the company for $80,000, should we do it?  If someone offered to give us $166,667 right now in exchange for $80,000, should we do it?  

Given all of our assumptions, the answer is easy:  of course we should do it!  

This is an incredibly important concept.  

If we can really figure out the value of a business, investing becomes very simple!  

The secret to successful investing is to figure out the value of something and then - pay a lot less!  

In fact, it couldn't be simpler:  $166,667 is a lot more than $80,000.

In practice, predicting so far into the future is pretty hard to do.

Are you really going to trust my predictions about what earnings will be over the next thirty years?

But will earnings actually shrink over those years?

Will they grow?

Will the company even be around in another thirty years?

In practice, predicting so far into the future is pretty hard to do.  In addition, many businesses are actually more complicated.

In fact, forget thirty years - it turns out that Wall Street analysts are actually pretty bad at predicting earnings for even the next quarter or the next year.  

You will probably pay less for those estimated earnings than if they were guaranteed.

Since no one rally knows for sure what earnings will be over the next thirty-plus years, whatever we use for estimated earnings during that time is just going to be a guess.   Even if this guess is made by a very smart, informed "expert", it will still be a guess.  

In practice, investors discount the price they will pay for future earnings that are based only on estimates.  

If there is no guarantee that you will actually collect that $10,000 after the first year of owning the business, you will probably pay less for those earnings than if they were guaranteed.  

In the above example, where next year's earnings of $10,000 were guaranteed, we discounted that payment by 6%, reflecting the fact that we had to wait a year to collect our $10,000.  Now, with only an estimated $10,000 coming in at the end of the first year, we will pay less.

How much less?  

That's not exactly clear, but we would certainly discount that hoped-for $10,000 by more than the 6% we used when the $10,000 was guaranteed - maybe we'd use a discount of 8% or 10% or 12%, or even more. (the amount of our discount would reflect in part how confident we were in our earnings estimate).  

But when we apply that higher discount to the next thirty-plus years of earnings estimates, that's when things really start to get silly (yes, it's true, math can be hilarious).

Value of the Company

At 6% discount rate

$10,000 /0.06 = $166,667

At 8% discount rate

$10,000 / 0.08 = $125,000

At 12% discount rate

$10,000 / 0.12 = $ 83,333

As it turns out, using a 12% discount rate, the value of the company is only $83,000.  We are starting to get in trouble!  It is no longer so obvious that a purchase price of $80,000 is such a bargain!

Figuring out the right discount rate isn't our only problem, we also have to estimate earnings. 

What is crystal clear, however, is that using different discount rates for our estimated earnings can lead to wildly different results when we try to value a business.   But figuring out the right discount rate isn't our only problem.  For simplicity, we have made some other assumptions that don't really hold up in the real world.  

For instance, as you might intuitively guess, most companies don't earn the same amount each year for thirty straight years.  Also, many businesses grow their earnings over time, while others due to competition, a bad product, or a poor business plan, see their earnings shrink or even disappear over the years.  

Let us see how funny the math gets when we try to value a business using not only different estimates for discount rates but we throw on top of that some different guesses for future earnings growth rates!

Value of the Business

At 4% growth rate, 8% discount rate

$10,000 / (0.08 - 0.04) = $250,000

At 4% growth rate, 12% discount rate

$10,000 / (0.12 - 0.04) = $125,000

At 6% growth rate, 8% discount rate

$10,000 / (0.08 - 0.06) = $500,000.

Annual Cash Flow / (Discount Rate - Growth Rate) = Present Value

According to finance theory and logic, the value of a business should equal the sum of all of the earnings that we expect to collect from that business over its lifetime (discounted back to a value in today's dollars based upon how long it will take us to collect those earnings and how risky we believe our estimates of future earnings to be).  

Will earnings grow at 2%, 4%, 6% or not at all?  Is the right discount rate 8%, 105, 12%, or some other number?   

The math says that small changes in estimated growth rates or discount rates or both can end up making huge differences in what value we come up with!

At 2% growth rate, 12% discount rate

$10,000 / (0.12 - 0.02) = $100,000

At 5% growth rate, 8% discount rate

$10,000 / (0.08 - 0.05) = $333,333

Annual Cash Flow / (Discount Rate - Growth Rate) = Present Value

Which numbers are right?

It is incredibly hard to know.  Whose estimates of earnings over the next thirty-plus years should we trust?  What discount rate is the right one to use?

The secret to successful investing is to figure out the value of something and then - pay a lot less.  

How are we going to figure out value?  How can anyone?  Do we have the answer yet?  Hopefully, we have learned some very valuable lessons even if we cannot answer them yet.

Summary:

1.  The secret to successful investing is to figure out the value of something and then pay a lot less!

2.  The value of a business is equal to the sum of all of the earnings we expect to collect from that business over its lifetime (discounted back to a value in today's dollars).  Earnings over the next twenty or thirty years are where most of this value comes from.  Earnings from next quarter or next year represent only a tiny portion of this value.

3.  The calculation of value in #2 above is based on guesses.  Small changes in our guesses about future earnings over the next thirty-plus years will result in wildly different estimates of value for our business.  Small changes in our guesses about the proper rate to discount those earnings back into today's dollars will also result in wildly different estimates of value for our business.  Small changes in both will drive us crazy.

4.  If our estimate of value can change dramatically with even small changes in our guesses about the proper earnings growth rate to use or the proper discount rate, how meaningful can the estimates of value made by "experts" really be?

5.  The answer to #4 above is - "not very."

Additional notes:

These concepts involve a discussion of the time value of money and discounted cash flow.  

In reality, we should look for how much cash we receive from the business over its lifetime.  For the above purposes, we will assume that earnings are a good approximation for cash received.

The Big Secret for the Small Investor

This is the third book by Joel Greenblatt.  It is well worth reading.  He shares many good investing points in a short and easy to read book.  It was published in 2011, 1st edition.

What have I gathered from this book.

It is important to know how to value an asset.  Equally, it is important to pay much less than its fair value to own it.  Those are the fundamentals of investing safely.

He spent many good paragraphs on how valuation is indeed difficult, both for the professionals and the novice.  After spending a great deal explaining the many ways to value stocks (discount cash flow value, acquisition value, liquidation value and relative value), he concludes that these are difficult and not easy.  He gives many good reasons of how small changes in your judgements of various factors can lead to big changes in the valuation.  Also, one is often faced with a lot of uncertainties in many of your assumptions.  

I particularly like his section on earnings yield.   Buy using the earnings yield.  A company with a higher earnings yield is a better one than the other, assuming all else being equal.  He asks his readers to compare this with the risk free investment return, using the bond rate of the 10 years treasury bond.  Stick to a minimum of 6%, even if the present rate is much lower.  If the 10 years treasury bond rate is higher than 6%, for example, 8%, you should use the higher rate in your comparison.  He advises investors to aim for returns higher than the 6% in their investments.  Search for a company, a good company with a good business, that is available at a bargain and from your analysis can give a return of greater than 6%.  Find a second company using similar criteria.  Now you have 2 companies which you think are better than the treasury bond.   Compare the two companies to each other and invest into the better one.  This method is simple and practical; and it rhymes with the earnings yield method of Buffett where he treats his stocks as bond equity equivalents.

Another chapter on how much money to invest was particularly useful too.   How much money do you wish to have in stocks?   If you have 100% of your assets in stocks, will you be able to "stomach' a 40% decline in your portfolio value?  Perhaps, you should only have 50% of your assets in stocks and the rest in other different assets.  Then a 50% decline in your stock portfolio value will only caused a 20% decline in your overall total asset value, assuming your other assets were not similarly affected.  Maybe you can "stomach" this 20% decline without selling out of the stock market in panic.  The author advise each investor to decide on the percentage of their total asset to be in stocks, perhaps 40% to 80%.   For example, an investor may have 60% of his total asset in stock; at certain times he may increase this to 70% and at other times reduce this to 50%.  He caution that this adjustment should infrequent, preferably occur not more than once a year.  Also, no one should be completely out of the stock market at any time, as in the long run, stocks offer the best returns of all investable assets. 

Joel Greenblatt shares a good chapter on Behavioural Finance, another very important topic indeed.  All investors are wired poorly for investing, he mentioned.  They tend to panic and they tend to follow the herd for comfort.  Reading this chapter will certainly benefit many readers in their investing.

There are also many sections on investing in mutual funds, ETF, index funds and others.  Also, he has described well the different types of indexes which are market weighted, equal weighted and value weighted, giving their advantages and disadvantages.  Those who invest in funds will find this segment useful.

There are many valuable lessons I have learned from this book and hope you will find it likewise.  It is a small readable book.  It can be completed a few hours for a fast reader with some basic understanding of investing.

Not inappropriately, Joel Greenblatt is sometimes referred to as our modern day Benjamin Graham, the Benjamin Graham of the 21st Century.

Please read a good summary of this book here:

https://frankploegman.blog/2011/10/30/the-big-secret/

To STOP the transmission of Covid-19: Test, test, test, trace, trace, trace, vaccinate, vaccinate and vaccinate.

Very important to know what to do

If you are symptomatic or have been identified to be a close contact to a positive case, please undergo immediate medical screening and testing.

While waiting for the test results, please self-quarantine at home responsibly.

Notify the health ministry through self-notification in the MySejahtera application and the nearby District Health Office or CAC, if you are found to be positive either through the RT-PCR or RTK Antigen test.

Immediately report any "warning signs" and seek treatment at a nearby health facility.  Warning signs are symptoms that signal that a Covid-19 patient's condition is getting worse.

Contact your regular doctor too (hopefully you have a regular doctor ) to let him/her know of your condition so that he/she may advise you accordingly also, over this period of your illness.

Vaccinate as soon as this is available.

-----------

Malaysia sees exponential rise in brought-in-dead Covid-19 cases

By Tharanya Arumugam - July 2, 2021 @ 8:31pm

Health director-general Tan Sri Dr Noor Hisham Abdullah advised people to be more vigilant in monitoring their health, especially when they have tested Covid-19 positive and are undergoing home quarantine or self-isolation. - NSTP/SYAFEEQ AHMAD

KUALA LUMPUR: Malaysia is seeing an exponential rise in brought-in-dead (BID) cases due to Covid-19 complications, particularly in the Klang Valley region involving those aged 50 and above.

Health director-general Tan Sri Dr Noor Hisham Abdullah advised people to be more vigilant in monitoring their health, especially when they have tested Covid-19 positive and are undergoing home quarantine or self-isolation.

He said an analysis by the National Crisis Preparedness and Response Centre (CPRC) found that there has been a sevenfold increase in BID cases from April (35 cases) to June 2021 (246 cases).

"As of July 2, the ministry recorded a total of 5,327 deaths (0.7 per cent) since the Covid-19 pandemic hit our country.

"A total of 4,856 (91.2 per cent) deaths were reported in 2021. Of the total deaths in 2021, 670 (13.8 per cent) deaths were reported before arrival at the hospital (BID)," he said in a statement today.

He said most BID cases involved victims aged 50 to 70 years (76.7 per cent) with at least a comorbidity (64.5 per cent).

"The highest number of BID cases concerned those aged between 60 and 69 (170), followed by the 50 to 59 age group (130), 70 to 79 (106), 80+ (107), 40 to 49 (85), 30 to 39 (46), 20 to 29 (20) and aged below 20 (six cases)."

Selangor, he said clocked the highest number of BID cases this year at 181 (27 per cent), followed by Kuala Lumpur (78 cases or 11.6 per cent) and Sabah (85 cases or 12.7 per cent).

Other states with BID cases this year were Sarawak (45), Labuan (31), Johor (23), Kelantan (18), Melaka (14), Negri Sembilan (14), Penang (13), Pahang (12), Perak (11), and Kedah (four).

Perlis and Putrajaya registered no BID cases from Jan to July 2, this year.

Dr Noor Hisham advised the public to undergo immediate medical screening and testing if they were symptomatic or have been identified to be a close contact to a positive case.

He also reminded people who were waiting for their test results and calls from the District Health Office (PKD) and Covid-19 Assessment Center (CAC) to self-quarantine at home responsibly.

"Notify the health ministry through self-notification in the MySejahtera application and the nearby District Health Office or CAC if they are found to be positive either through the RT-PCR or RTK Antigen test.

"Immediately report any 'warning signs' and seek treatment at a nearby health facility. Warning signs are symptoms that signal that a Covid-19 patient's condition is getting worse."

Among the warning signs that require immediate treatment, he said, are prolonged fever; breathing difficulties; chest pain; lack of appetite to eat or drink; worsening fatigue; lack of consciousness and confusion; coughing, vomiting and worsening diarrhoea; less urination; lips or fingers becoming bluish; and oxygen saturation

"Family members or housemates are advised to be concerned and sensitive to the condition and health of Covid-19 patients by utilising communication technology to monitor the health of patients throughout the home quarantine monitoring period."

Dr Noor Hisham further said the ministry is also working to improve the monitoring process by CACs nationwide to enable a comprehensive initial assessment to be done immediately on positive cases.

These cases, he said will then be determined whether they can undergo isolation and self-monitoring at home, need to be admitted to the Covid-19 Low-Risk Treatment Center (PRKC) or referred to a hospital.

"With the strengthening of the CAC, better case monitoring can be carried out and immediate referrals can be made if necessary."

Additionally, he said the ministry is working with various parties to increase the capacity of daily SARS-CoV-2 virus detection tests which consist of RT-PCR and RTK-Ag tests.

To increase the capacity of RT-PCR testing, the ministry, he said is collaborating with laboratories from various ministries - Higher Education; Science, Technology and Innovation; Defense - and private laboratories.

RTK-Ag testing is conducted by private clinics and hospitals either individually or by mass screening, he said.

"Cooperation between these agencies and sectors has enabled case detection activities and other public health actions to be implemented promptly."

Dr Noor Hisham added that the ministry would implement a smart device initiative at several CACs including by issuing pulse oxymeters to monitor the current condition of Covid-19 patients while at home.

"As announced by the health ministry, this initiative aims to strengthen the management of Covid-19 patients. With this initiative, the health of patients tested positive, especially those who are undergoing isolation at home, can be better monitored so that any deterioration of symptoms can be detected more quickly."

Source:

Malaysia sees exponential rise in brought-in-dead Covid-19 cases

https://www.nst.com.my/news/nation/2021/07/704592/malaysia-sees-exponential-rise-brought-dead-covid-19-cases

Malaysia's richest tycoons and the billions in dividends they earned in the final quarter of 2020

 Bees for the honey

Cows for the milk

And, stocks for the dividends!

KUALA LUMPUR (March 18): Eight of Malaysia's top 10 richest tycoons — based on Forbes' 2020 billionaires list — earned a whopping RM1.99 billion worth of dividends from the recently announced financial results for the quarter ended Dec 31, 2020, based on their known shareholdings in Bursa Malaysia-listed firms.

Among them, Public Bank Bhd founder Tan Sri Dr Teh Hong Piow is expected to receive the biggest dividend payout totalling RM668.18 million from his shareholdings in the bank and insurer LPI Capital Bhd.

Public Bank, the third largest banking group in the country by asset size, declared an interim dividend of 13 sen (payable on March 22) for its fourth quarter of financial year 2020 (4QFY20) ended Dec 31, 2020. Public Bank also undertook a four-for-one bonus share issue to reward shareholders last year, which enlarged the number of Public Bank's outstanding shares to 4.2 billion.

Teh holds a 22.78% stake in Public Bank through his private investment vehicle — Consolidated Teh Holdings Sdn Bhd. He has another direct stake of 0.64%.

LPI Capital, meanwhile, announced a second interim dividend of 44 sen per share for its 4QFY20, which amounted to a payout of RM175.3 million. Based on Teh's 44.15% stake in the company, his share of the dividend payout will be about RM77.39 million.

After Teh is Hong Leong Group's Tan Sri Quek Leng Chan, who is estimated to get RM296.05 million worth of dividends through his holdings in Hong Leong Financial Group Bhd (HLFG) and Hong Leong Bank Bhd (HLB).

HLFG declared an interim dividend of 10.8 sen per share while HLB announced an interim single-tier dividend of 14.78 sen per share. Quek holds a direct interest of 0.47% and an indirect interest of 77.88% in HLFG, while he controls an indirect interest of 64.51% in HLB.

Next is telecommunications tycoon T Ananda Krishnan, who will receive RM276.04 million from his stake in Maxis Bhd and Astro Malaysia Holdings Bhd. Ananda is the largest shareholder in Maxis with an indirectly held 62.34% stake. In Astro, he holds an indirect stake of 41.29%.

Maxis declared a fourth interim dividend of five sen per share in its 4QFY20 ended Dec 31, 2020, while Astro announced a payout of 1.5 sen per share in its 3QFY20 ended Oct 31, 2020.

Ananda also holds a 34.86% stake in Bumi Armada Bhd, Asia's biggest offshore supporting vessel operator. The company, however, did not declare any dividends in 2020.

Robert Kuok's dividend cheque from PPB Group Bhd for the final quarter of last year is estimated to be RM274.65 million — the fourth highest sum among the ultra-rich.

PPB Group announced a dividend of 38 sen, comprising a final dividend of 22 sen and a special payout of 16 sen, in its 4QFY20 ended Dec 31, 2020. Kuok holds a 50.81% stake in the diversified conglomerate through his private investment vehicle, Kuok Brothers Sdn Bhd. He also holds a stake in Shangri-La Hotels (Malaysia) Bhd, though the latter did not declare any dividends for its FY20.

The fifth largest dividend gainer among the top 10 Malaysian billionaires is the founder and chairman of Hartalega Holdings Bhd, Kuan Kam Hon, who received RM162.47 million from the rubber glove maker, which recently announced a record high net profit of RM1 billion, and a second interim dividend of 9.65 sen for its 3QFY21 ended Dec 31, 2020, which was paid in February.

Based on the latest bourse filings, Kuan holds a direct interest of 0.795% in the group and a 48.32% indirect interest via Hartalega Industries Sdn Bhd. The glove manufacturer recently announced a record high net profit of RM1 billion for its 3QFY21 ended Dec 31, 2020 and declared a second interim dividend of 9.65 sen.

Next comes gaming tycoon Tan Sri Lim Kok Thay, who likely earned RM148.73 million in dividends from his shareholdings in the Genting group of companies listed on Bursa, despite the group facing challenges in operating its casino and resorts amid the pandemic.

This is based on the RM146.54 million Genting Bhd paid to Kok Thay's private investment company, Kien Huat Realty Sdn Bhd, and the dividends declared by Genting Plantations Bhd and Genting Malaysia Bhd.

Genting Malaysia declared a dividend payout of 8.5 sen per share for its 4QFY20 ended Dec 31, 2020, while Genting Plantations announced a 15 sen dividend — comprising a final dividend of four sen per share and a special dividend of 11 sen per share.

Kok Thay holds a direct interest of 0.44% in Genting Malaysia and a direct interest of 0.05% in Genting Plantations.

After Kok Thay is Datuk Lee Yeow Chor, who earned RM141.28 million in dividends from his holding in IOI Corp Bhd. Lee holds a direct interest of 0.16% and an indirect interest of 49.94% in the group.

Meanwhile, Press Metal Aluminium Holdings Bhd's Tan Sri Koon Poh Keong garnered RM20.22 million through his holdings in Press Metal and PMB Technology Bhd. Press Metal declared a fourth interim single-tier dividend of 1.25 sen per share in its 4QFY20 ended Dec 31, 2020 while PMB Technology declared a one sen dividend to its shareholders.

Two of the top 10 tycoons, however, did not appear to have gained any dividend payments from their shareholdings in Bursa-listed companies. They are gaming tycoon Tan Sri Chen Lip Keong and Tan Sri Lau Cho Kun, the largest shareholder in Hap Seng Consolidated Bhd.

What the glove maker billionaires take home

Though not on the list of Malaysia's top 10 richest tycoons based on Forbes 2020 list — which was published in March 2020 — Top Glove Corp Bhd's founder and executive chairman Tan Sri Dr Lim Wee Chai earned about RM460.45 million in dividend in end-2020, thanks to the interim dividend of 16.5 sen that the world's largest rubber glove maker declared in its 1QFY21 ended Nov 30, 2020.

The group also announced an interim dividend payment of 25.2 sen per share for its 2QFY21 ended Feb 28, 2021, payable on April 6 this year. Based on the announcement, Wee Chai stands to gain another dividend payout of RM710.12 million before mid-2021.

That means just for the first two quarters of Top Glove's FY21, Wee Chai has accumulated a total of RM1.17 billion in dividends, based on his total shareholdings of 35.22% in Top Glove, comprising a direct stake of 26.56% and an indirectly held stake of 8.65%.

Datuk Seri Stanley Thai of Supermax Corp Bhd, on the other hand, accumulated dividends of RM38.17 million, while Tan Sri Lim Kuang Sia of Kossan Rubber Industries Bhd earned RM132.99 million.

Including Kwan, the billionaires from the big four glove makers on Bursa earned RM794.07 million worth of dividends in end-2020, as their companies' earnings continued to scale new highs following the surge in glove demand amid the Covid-19 outbreak.

 

https://www.theedgemarkets.com/article/malaysias-richest-tycoons-and-billions-dividends-they-earned-final-quarter-2020

Happy Chinese New Year 2021

 

How a GameStop share pullback could hurt some investors

Ross Kerber, April Joyner and Lewis Krauskopf

/

Reuters

February 02, 2021 

-A+A

(Feb 2): Any pullback in GameStop Corp’s shares potentially exposes some investors to losses. Those at risk could include people who 

• bought the stock at recent highs, or 
• on margin, and 
• those using options trading strategies.

Shares of GameStop, which had seen a spectacular rally, fell 31% on Monday to close at $225, 53% lower than their Jan 28 peak of $483.

WHICH INVESTORS COULD TAKE A HIT?

Analysts worry some new or inexperienced investors could face losses if they bought in as the stock was peaking.

Particularly vulnerable would be those who bought “on margin,” using money borrowed from brokers to buy extra shares.

The strategy can boost gains when share prices are on the way up, but magnify losses on the way down especially if brokers issue “margin calls” requiring clients to add money or face forced sales to bring an account’s equity back to required levels.

Brokers are not required to notify clients when they sell shares in a margin call, "although most do so as a courtesy," according to the Financial Industry Regulatory Authority here, the industry's self-policing body.

Riley Adams, a 31-year-old financial analyst who runs youngandtheinvested.com, a financial blog aimed at millennials, said if investors bought on margin late to the party “you’re definitely exposed right now.”

Thomas Peterffy, chairman of Interactive Brokers, estimated about half the platform’s 1.2 million accounts are margin accounts. Thousands of margin calls occur on a typical day and the rate increased last week, he said. Peterffy said about 27,000 accounts had some sort of position in GameStock, and many positions liquidated were owned by traders who had shorted GameStock.

Representatives for brokerages TD Ameritrade and Robinhood declined to share details about how many clients may have traded GameStop shares on margin. A Schwab representative did not respond to questions.

However, Robinhood has restricted here buying shares, which limits investor exposure on its platform.

WHAT DOES THIS MEAN FOR TRADERS USING OPTIONS

Options bets on GameStop shares helped fuel the stock’s breathtaking rally. Investors are gauging to what extent they could exacerbate a decline.

Some market watchers say a “gamma squeeze” - where market makers who have sold large numbers of calls to investors balance out their positions by buying the underlying stock - was a key driver of GameStop’s sharp rally.

In theory, a sharp drop in the stock could prompt those same market makers to unload their shares, potentially speeding up a plunge. That’s what happened last September, after investors piled into call options on tech-related companies such as Amazon.com Inc and Alphabet Inc. The unwind of those positions helped fuel a sharp decline in the Nasdaq.

For now, however, it appears that open interest in GameStop calls has not accumulated significantly, as many buyers of those contracts have traded them the same day, according to Christopher Murphy, co-head of derivatives strategy at Susquehanna Financial Group.

More contracts have remained open among GameStop puts, according to data from Trade Alert. Another key risk would be to market participants who sold those puts, wagering that GameStop shares would not fall below a certain level, if the stock were to tumble significantly below their targets.

But because options prices already account for gigantic swings in the stock, “people who are short options might not lose as much as you think,” Murphy said. Overall, GameStop options are now pricing in daily moves of about 27% over the next month, versus around 8.5% at the start of January, according to Trade Alert.

On the other hand, investors who have held onto calls to position for further gains in GameStop shares could lose their entire investment should the stock not hit their targeted price before the options expire.

WHAT DOES THE TRADING MEAN FOR SHORT-SELLERS?

A slide in GameStop shares would see short sellers looking to capitalize by finding “attractive exit points,” said Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners. Short sellers sell borrowed shares in a bet that prices will fall and the shares can be bought back at a lower level.

At the same time, a slide could draw new shorts looking to jump on any downward price momentum, Dusaniwsky said. The number of GameStop shares shorted has fallen by more than half in the past week, as shorts have covered their bets, Dusaniwsky said.

If new shorts join in as the stock slides, it would exacerbate the selling, as long holders try to exit their positions to realize profits, Dusaniwsky said.

Reference:

How a GameStop share pullback could hurt some investors | The Edge Markets
https://www.theedgemarkets.com/article/how-gamestop-share-pullback-could-hurt-some-investors

Bitcoin's Bull Should Fear Its Other Scarcity Problem

As the value of this asset class rises, generating price spikes becomes increasingly difficult.

The Theory behind Bitcoins

The supply of Bitcoins was set from the start at 21 million.

That means, in the words of its pseudonymous founder Satoshi Nakamoto, it should ultimately be "completely inflation free" - making it a far better store of wealth than assets whose real value declines over time.

That's in theory, at least.

Digital currencies are still a tiny share of the world's investments

With the price of Bitcoin climbing as high as $34,792 Sunday (3.1.2021) and putting the value of all coins in circulation at around $647 billion, there is a different scarcity problem looming larger.

It is easier to think about this in terms of asset allocation.

World equity and bond markets  = $217 trillion

World equity markets = $103 trillion

World bond markets = $114 trillion

Bitcoins = 18.6 million coins = $647 billion.

Cryptocurrencies = $884 billion

Investment Gold = $3 trillion

If investors in aggregate decide to put just 0.1% of their stock and bond portfolios into Bitcoin right now, that represents an additional $200 billion or so, chasing the same pile of 18.6 million coins that have been mined to date - enough to push the price well over $40,000.

In that sense, the roller--coaster ride that Bitcoin has ridden in recent years looks almost sedate.

At current prices, all the digital Bitcoins in circulation are equivalent to about 0.6% of the $103 trillion market capitalization of the world's equity markets.

That is higher than the 0.4% allocation when the crypto price last peaked on Dec. 18, 2017 and much higher than levels shy of 0.1% that have prevailed at times since then - but it looks a whole lot less dramatic than the 79% run-up in coin prices from their last peak.

The success of cryptocurrencies tends to eat itself

The problem for digital bulls is that the success of cryptocurrencies tends to eat itself. 

As the value of the asset class rises, the shifts away from more conventional investments needed to provoke price spikes get larger and larger.

Bitcoin versus Gold

Bitcoin on its own is worth about 6 times the 56 million ounces of metal represented by all the contracts outstanding on the Comex 100-ounce gold contract.   

The world's biggest gold ETF, SPDR Gold Shares, holds about $72 billion of the yellow metal.  

Add in other forms of private investment gold and you've got about $2.87 trillion worth of metal -  but much of that is in the form of bars and coins that aren't easily liquidated when investors want to tweak their portfolios.

Turnover of digital coin derivatives 

Turnover of digital coin derivatives in the September quarter came to $2.7 trillion, according to Tokeninsight, a research company.  

That is not all that far behind the run rate of the world's biggest equity markets.    

The value of all shares traded in Japan in 2019 came to just $5.09 trillion, according to the World Federation of Exchanges, enough to make it the third-largest equity market on that basis.

Hedge Maze

Far from looking like a hedge against equity markets, the correlation between Bitcoin and the S&P is stronger than for many stock indexes.

Why would you choose to allocate a slice of your stock and bond holdings into a digital currency, instead of more conventional assets?

Once momentum stops driving the price higher, as it inevitably will, the best argument is still the hope that it might balance out the swings in your broader portfolio.  The prospect of Bitcoin becoming that sort of negative beta asset is the most promising way for it to become something more useful than a dice game for investors.

Unfortunately there is still little sign of that happening.  These days it looks not so much like a hedge against the gyrations of the equity market as a leveraged bet on the same movements.

• The correlation between Bitcoin and the S&P 500 index was 0.767 over the past year - somewhat closer than the link between the S&P and the FTSE 100 index, and substantially tighter than that between U.S. and Hong Kong stocks.  
• Gold's correlation with the S&P 500 was a far lower 0.299, while the Bloomberg Barclays U.S. Treasury index of total sovereign bond returns posted a prized negative beta of minus 0.036.

Crypto will only grow up if and when it finds a different driving force to the animal spirits that govern equity markets.  If it really wants to be an alternative asset to stocks and bonds, it needs to start behaving  like one.

https://www.bloomberg.com/opinion/articles/2021-01-04/bitcoin-price-surge-creates-a-different-scarcity-problem

January 4, 2021 by David Fickling

Bitcoin Price Surge Creates a Different Scarcity Problem - Bloomberg

Bitcoin’s Bulls Should Fear Its Other Scarcity Problem

As the value of this asset class rises, generating price spikes becomes increasingly difficult.

A 300-year bubble worth remembering: South Sea Bubble

By Edward Chancellor

LONDON (Reuters Breakingviews) - 

Next year marks the 300th anniversary of England’s most notorious speculative mania. The South Sea Company owned the monopoly rights to trade with South America but never made much from those activities. It was the Company’s offer in 1720 to acquire 32 million pounds of Britain’s national debt, in exchange for its own shares, that juiced its returns. Between January and August of that year, the price of South Sea stock traded in London rose sevenfold. At its peak, the Company’s market worth was around twice the total value of land in all of England. The South Sea bubble contains lessons for contemporary investors - even if many of the tales told about the affair are the stuff of legend. 

Sir Isaac Newton, when asked about South Sea stock in the spring of 1720, famously declared that he “could calculate the motions of the heavenly stars, but not the madness of people”. The trouble with the great mathematician’s comment is that it was first recorded, in slightly different form, three decades after his death in 1727. Newton did, however, lose a great deal of money in the bubble – possibly as much as $20 million in current terms - having sold his South Sea stock at an early stage, later re-entering the market and investing his entire fortune in the Company. Although Newton died a rich man, his niece said that he hated being reminded of these losses. 

It’s possible to calculate precisely how irrational Newton and his contemporaries became during 1720. Since England was then at war with Spain, the Company’s South American trading monopoly was basically worthless. Its entire income derived from the fixed interest payments it was set to receive from holding government debt. A highly numerate parliamentarian, Archibald Hutcheson, published a pamphlet in June 1720 arguing that the stock could not possibly be worth more than 200 pounds – just one-fifth of its peak value and roughly the level to which the shares subsequently fell. Some shrewd investors didn’t lose their heads. Bookseller Thomas Guy sold his entire South Sea holding at an average price of 416, and later used his enormous profits to establish the London hospital that still bears his name. Guy also shorted South Sea stock. 

During the early months of 1720, dozens of new companies were floated on London’s Exchange Alley. The most commonly cited of these ventures - a “company for carrying an undertaking of great advantage, but nobody to know what it is” – never actually existed. This mythical venture was merely a satire on the crazy schemes that abounded at the time. Nearly 200 “bubble companies” were launched at the time. Not all of them were scams: of the four survivors, two insurers, the Royal Exchange and London Assurance, later enjoyed great success. 

The companies, the startups of their day, were deeply unpopular with the directors of the South Sea Company, who wanted all the speculators’ capital for themselves. The directors persuaded Parliament to pass a law banning the trade in unauthorised shares. This backfired. After writs were issued in August against several illegal companies, a panic appeared in Exchange Alley; the collapse of market confidence doomed both the mini-bubbles and the South Sea Company itself. By early autumn, its stock was down 80%. Several banks failed, including the Sword Blade Bank which had provided loans against South Sea shares. Distressed speculators took their lives, leading to a large rise in the number of reported suicides. Writing in February 1721, the Earl of Oxford reported that “all credit in trade is stopped”. 

The collapse of the bubble is widely believed to have produced a severe economic downturn. Yet records show only a small increase in bankruptcies and a slight decline in overseas trade. The collapse of the South Sea stock caused a public uproar, however. The directors of the Company, led by former lottery promoter Sir John Blunt, had used numerous tricks to boost the shares. Their main sleight of hand was not to specify the number of shares to be issued for the conversion of the government debt. What this meant was that the higher the South Sea stock climbed, the fewer shares needed to be issued in exchange for the debt and the greater the Company’s profit. To this end, the Company provided loans to speculators, issued partly paid shares with only 10% down payments, secretly repurchased its own shares and promised impossibly large dividends. 

The connection between the Company and the ruling class was close - King George I served as its Governor-General and several directors held government offices. It was later discovered that the Company had spent vast sums bribing members of the establishment. King George, his mistresses, several ministers and dozens of lawmakers were allocated shares at low prices for which they paid nothing. During the bubble months, insiders including the king, Chancellor of the Exchequer Sir John Aislabie and the nefarious Blunt cashed out large fortunes. A House of Commons investigation concluded that the Company’s directors had engaged in “the raising and supporting of the imaginary value of the stock at an extravagant and high price, for the benefit of themselves, and those who were in secret with them”. After the collapse, the directors were forced to disgorge their profits and several ministers lost their jobs. 

In 1720, the word “bubble” didn’t refer to an overpriced asset but to a confidence trick. The South Sea swindle was the greatest of them all. Yet financial practices haven’t improved much over the past three centuries. Bubbles arguably proliferate among the unicorns of Silicon Valley and in the murky world of cryptocurrencies. A revolving door whirrs between Wall Street and Washington. Companies are floated which don’t reveal their ultimate purpose – today they’re called SPACs. Directors still use company funds to boost their stock price and enrich themselves. Thomas Guy’s intellectual heirs, now styled value investors, continue to avoid bubbles and lose money shorting them. But when markets crash, the cries of outrage from those who’ve been “bubbled” will be as loud as in Newton’s day. 

From Reuters

Central-bank Interest rates and Interbank rates in Europe or Fed funds rates in the U.S.

Central-bank interest rates

Reducing interest rates has also been shown to be a valuable tool to control economic growth.  

When a central bank decides that an economy is growing too slowly, it can simply reduce the interest rate it charges on loans of central bank funds to banks, referred to as the discount rate in the U.S.

When banks get this "cheaper" money, they are able to make cheaper loans to businesses and consumers, providing an important stimulus to economic growth.

Likewise, by raising interest rates, a central bank can slow down the economy by making it more "expensive" for businesses and consumers to borrow money, consequently reducing purchases of homes, cars, vacations, and factories.

Interbank rates (Europe) or Fed funds rates (U.S.)

The central-bank interest rates tend to change the interest rates throughout the economy at large.

The interest rates on loans made between banks - called interbank rates in Europe and Fed funds rates in the U.S. - 

• will rise whenever banks have to pay more to borrow from the central bank and 
• will fall when they have to pay less.

The higher cost of money is almost always passed on to consumers and businesses in the form of higher interest rates on every other form of loan in the economy.

A bank's ability to provide loans

 A bank's ability to provide loans is limited by only 2 things:

• the amount of its deposits and
• its reserve requirements. 

The reserve requirements are determined by the central bank or monetary authority.

Most banks are required to put a minimum percentage of their funds - 10% of deposits, for example - on reserve and are prohibited from lending these funds back to customers.

If a central bank increases the reserve requirement, it effectively reduces the money supply, since banks then have less to lend to businesses and consumers.

On the other hand, by reducing the reserve requirements - as several central banks around the world did during the Great Recession of 2008 - they allow the country's banks to lend more, stimulating the economy and releasing even more money for lending.

The Multiplier Effecct

The reason central bank monetary policy works so well is because of the multiplier effect.

Basically, money we deposit in our banks doesn't just sit there collecting dust.  

The bank can and does lend that money to someone else.  

A hundred dollars deposited in a bank in in A, for example, may end up being loaned to an individual or a business in B.

After setting aside a small portion of each deposit as a reserve, banks are free to lend out the remainder.

The effect is to increase the money supply without any extra currency being printed.

What gets loaned out ends up in another bank to be subsequently loaned again.

The main tool for fighting uncontrolled inflation: reduce the money supply

The main tool for fighting uncontrolled inflation is for the government and local monetary authorities to reduce the money supply.

Since most easily accessed money is in the form of bank deposits, the most efficient way for a central bank to control the money supply is by regulating 

• bank lending and 
• reserve requirements.

Essentially, when banks have more money to lend to customers, the economy grows  And when banks reduce their lending the economy slows.

The reason central bank monetary policy works so well is because of the multiplier effect.

Inflation versus Deflation

Inflation and hyperinflation

By the time the popular Venezuelan government called for next economic measures to end rampant hyperinflation at the end of 2018, the local currency had become virtually worthless.

After 80,000% inflation over the previous year, it took more than 6 million bolivars to buy a loaf of bread - that is, if you could find a store that had a loaf of bread in stock.

After more than a decade of economic mismanagement, the financial meltdown has become so bad that by the late 2010s, clean water distribution had slowed to a trickle, and gravely sick citizens were dying in make-shift hospitals, unable to get the treatments that were keeping people alive in almost every other country in the world.

It is nearly impossible to index prices and salaries in the chaotic world of hyperinflation, and consequently, no one is left untouched by uncontrolled inflation. 

• From the top 1% to the poorest of the poor, an economy in crisis eventually hurts virtually everyone.  
• But it's the most vulnerable who suffer the most.  When the cost of a loaf of bread exceeded the total monthly minimum salary in Venezuela, those at the bottom of the economic ladder had to face the worst aspect of economic hardship:  starvation.  Millions ended up fleeing across the border as economic refugees to Colombia and Brazil.

Hyperinflation has ravaged countries as diverse as Germany, Mexico and Argentina - even China during the Yuan dynasty, where too much paper money in circulation led to uncontrolled inflation.  In Germany's postwar Weimar Republic, in 1923, inflation became so bad that the government had to resort to issuing postage stamps worth fifty billion marks and people had to use wheel barrows to carry enough cash to make simple household purchases.

Deflation

The economic crisis in Japan at the beginning of the twenty-first century was marked by severe deflation, where a chronic decline in prices led to decades of sluggish economic growth.

When deflation was accompanied by a sharp decline in consumers - with the total population in Japan expected to decline precipitously by 2050 - the crisis in Japan appeared to be just as intractable as the inflationary crises in Venezuela and other parts of the world.  

• In a country with persistent deflation, consumers will simply stop buying goods and services as prices decline expecting to get a better price at some point in the near future.  
• Likewise, companies also tend to delay investments in new plants and machinery when they think prices for their products will soon decline.  
• In deflationary environments, companies try to find ways to reduce input costs, often leading to a reduction in salaries.  The lower salaries then translate into even lower consumer spending, completing the vicious circle of deflationary economic crisis.

The solution is to change long term expectations

The problem with too much deflation, just like to much inflation, is that growth screeches to a halt because of the economic uncertainty both problems create.

In periods of crisis, however, central banks are often unable to change the perception in the minds of consumers and business-people that there will be no end to the vicious cycle of inexorably rising or declining prices.  

The solution for deflation, as for hyperinflation, essentially involves finding a way to change long-term expectations - not an easy task in an economy out of control.

Neither too hot nor too cold

Like the Three Bears' porridge, an economy should be neither too hot nor too cold.  

Neither acute inflation nor acute deflation are positive for sustainable economic health.

Despite the desire of some populist leaders to have a high inflation rate of 3 or even 4%, most economists recommend a "just right" inflation rate of about 2% per year.

Fighting excessive deflation once interest rates have been reduced to zero

Fighting excessive deflation is in some ways more difficult than fighting hyperinflation.

During inflationary times, there is basically no limit to how much central banks can raise interest rates.

But in the battle against deflation, once interest rates have been reduced to zero, there is little that central banks can do to stimulate further growth.  

The two things that can be done once interest rates reach zero are:

• negative interest rates or 
• quantitative easing.

Negative interest rates

In times of negative interest rates depositors are essentially being charged to store their money in the bank.

Negative interest rates has been the case in the past, in countries including Switzerland and Denmark.

This encourages consumers and businesses to put their money in the economy at large by buying additional goods and services.

Quantitative easing: how is this done?

Central banks use quantitative easing to create money

Faced with the economic meltdown following the 2008 crash, some central banks opted to stimulate their moribund economies via quantitative easing.

Quantitative easing uses the unlimited purchasing power of central banks to buy large quantities of bonds in the open market to pump cash into the economy.  

Central banks use quantitative easing to create money where previously none existed.

How is this done?

A central bank "creates" money every time it dips into its "vaults" - essentially a black hole of unlimited financial resources - to buy existing bond from banks or other investors.

These purchases, often referred to as open market operations, inject new money into the economy.  

The bank, instead of holding bonds, is now holding the "cash" it got from the central bank.  

This money can now be made available for loans to consumers and individuals, thereby stimulating economic growth.

How populist leaders use your economic and political illiteracy?

Populist leaders

Solving the economic crises was presented as the reason for expanding government power and limiting citizens' rights.  

Marginalised workers usually don't want to hear arcane economic arguments when confronting low wages, unemployment and job insecurity.

Countries are increasingly being governed by radical popular politicians keen to exploit the average voter's fear and insecurities.

Economic and social turmoil have led voters to allow the democratic process to be severely eroded.  

In many countries, the media has become a tool of the ruling party or leader, leaving virtually no possibility of disseminating opposing viewpoints or critical arguments domestically.

Once populists have gained power, a typical tactic is to attack the press or the justice system as being part of the problem, not the solution.

Autocratic leaders

In extreme cases, the populists become true autocrats by stifling any form of opposition, pointing out that they, and only they, are able to solve the economic problems in a way that will benefit the average worker.

Autocratic leaders often enrich themselves and their families at the expense of the voters or workers they are ostensibly there to protect.  

The dirty little secret of autocratic leaders is that many are more interested in protecting their own interests, such as protecting selected political supporters or an inner circle of oligarchic businesspeople, so they play to the fears of average citizens, manipulating them into voting against the economic interests of the country as a whole.