Stock Market Investing Will Be Made More Uncomplicated, By Making Use Of These Tips

Stock Market Investing Will Be Made More Uncomplicated, By Making Use Of These Tips
February 24th, 2010 by Tom Kearney

There is certainly a state of flux in the present day stock markets but that is no reason why you should not learn more about stock market investing. The good news is that there are many useful tips available that will help you understand how to invest your money profitably in the best stocks.

At the very outset, it must be emphasized that success in stock market investing only comes to those who plan their activities before investing their money.

• In fact, it is also safe and wise to distribute your investments and 
• in addition you will need to also make regular investments plus 
• you should invest with a long term plan in mind.

It is also important that you invest without hesitating because then you can take advantage of the benefits of compounding which will also begin sooner.

• Time is the magic wand that has to be waived as only it can help transform cents into dollars. 
• At the same time, you must also learn to avoid futures and derivatives.

The third important tip is that do not try leveraging as you will find it

• hard to predict future trends in the short term and so 
• it is better to buy into a market rather than invest your money on certain stocks.

Now, when it comes to picking individual stocks you need to choose stocks that are a mirror of the much broader indexes and at the same time you need to ensure that you do not purchase single or even handful of stock exposures. It is always safer to spread your risk across different market segments so that even if a particular stock fails, you will have other stocks that can help cover the losses.

Before purchasing stocks,

• you need to look at how well a company is earning and 
• base your buying decision on this factor, instead of on the current stock prices. 
• These stock prices often give wrong impressions and will not reflect the true nature of a company’s welfare.

In addition, when some of your stocks turn out to be duds, you must not hesitate in selling them off as soon as is possible.

• If you have erred in buying stocks, then you should admit this and get rid of the duds and in this way cut your losses.

When buying stocks, you need to also ensure that you buy into value and not into momentum.

• Also, be sure that you base your buying of stock decisions according to what your head says, and not what your heart is telling you.
• It also means that when your brain tells you to buy a stock, you should buy the stock and not make the mistake of purchasing stocks based on emotions. 
• Buying into large company stocks is always prudent as the chances of earning profits in the long run are higher as compared to other stocks.
•  Therefore, you should buy into large stocks while avoiding purchasing penny stocks which are hard to evaluate and so are best left alone.

http://www.tradercurrencies.com/currency-trading/62193/stock-market-investing-will-be-made-more-uncomplicated-by-making-use-of-these-tips/

Quality is king

Quality is king, says Oak Value's Coats

While last year's recovery lifted low-quality stocks, this year's market will reward companies with strong balance sheets

By Jeff Benjamin
February 24, 2010

Stock picking in the current market requires a renewed focus on corporate economics and balance sheets, said Larry Coats, manager of the Oak Value Fund (OAKVX).

“After a low-quality recovery last year, now quality matters, and it's time for serious stock selection,” he said.

Mr. Coats has been part of the fund's management team since it was launched in 1993 by Oak Value Capital Management Inc.

As a portfolio manager, he describes himself as an “opportunistic buyer of advantaged businesses.” The strategy goes beyond the “implicit biases” of a traditional value investing approach, he said.

“By concentrating on price-to-earnings and price-to-book ratios, money managers are spending all their time looking at the cheapest stocks, but they're missing some valuable opportunities,” he said. “When we look at all the companies in the S&P 500, we start by looking at the businesses themselves, not the valuations.”

The highly concentrated portfolio of just 27 names has an average operating profit margin of 25%, which is about 10 percentage points higher than the S&P 500.

The fund's 30% average return on equity is almost double that of the index.

Mr. Coats said by focusing on a company's balance sheet, he has been able to build a portfolio of truly profitable businesses that aren't hampered by excess leverage.

The fund, which has a four-star rating from Morningstar Inc. and has $76 million in assets, is categorized as large-cap blend.

Mr. Coats admitted that the strategy could fit into a few different boxes.

“Some people would argue that what we’re doing is [growth at a reasonable price], but in our mind, it’s value with a quality bias, or growth with a pricing discipline” he said. “Our discipline is blend, and our portfolio is built with a growth bent.”

The strategy got high marks from Morningstar analyst Greg Wolper for the way it beat its benchmark during both the 2008 market decline and the rebound last year. The fund gained 33% last year, while the S&P 500 returned 26%. And during the meltdown of 2008, the fund lost 33%, while the index fell by 38%.

The average annual turnover of around 37% is reflective of a strategy that is based on an extremely deliberate research process. “We identify the best companies from the index, follow them, research them and then wait for the right time to buy them,” Mr. Coats said.

One stock added to the portfolio late last year is Intuit Inc. (INTU), a company best known for its TurboTax software. But Mr. Coats said the stock price was pushed down by investor concerns that an economic slowdown would hurt Intuit's broader software sales to smaller businesses.

“The stock got cheap because people were concerned about a slowdown in new business starts,” he said.

Through Tuesday's market close, Intuit shares were up 3.7% this year, which compares with a 1.8% decline by the S&P 500 over the same period.

Portfolio Manager Perspectives are regular interviews with some of the most respected and influential fund managers in the investment industry. For more information, please visit InvestmentNews.com/pmperspectives .

Buying Bargain Stocks (The tenet of Value Investing)

The activities the enterprising investor in the stock market may be classified under 4 areas:

1. Buying in low markets and selling in high markets (Beware that this is Market timing)
2. Buying carefully chosen "growth stocks" (Learn the Paradox of Growth Stocks)

3. Buying bargain stocks (The tenet of value investing)

4. Buying into "special situations" (Only a few will benefit)


From Chapter VI of the Intelligent Investor, to obtain better than average investment results over a long pull, the investor requires a policy of selection or operation that have 2 characteristics:

* it must meet objective or rational tests of underlying soundness (that should prove both conservative and promising); and
* it must be different from the policy followed by most investors or speculators.

Three investment approaches meet these criteria. They differ rather widely from one another, and each may require a different type of knowledge and temperament on the part of those who apply it.

1. Bargain in the Relatively Unpopular Large Company
- concentrating on the larger companies that are going through a period of unpopularity.  Their cheapness are evidently the reflection of relative unpopularity with investors or traders.

2. Purchase of Bargain Issues
- a bargain issue is one which, on the basis of facts established by analysis, appears to be worth considerably more than it is selling for. To make a point, an assumption maybe that an issue is not a true "bargain" unless the indicated value is at least 50% more than the price. This may occur during two circumstances:

* (a) currently disappointing results, and
* (b) protracted neglect or unpopularity.

3. Bargains in Secondary Stocks
- a secondary company is one that is not a leader in a fairly important industry. Due to pronounced preference for industry leaders and a corresponding lack of interest most of the time in the ordinary company of secondary importance, meant the latter group have usually sold at much lower prices in relation to earnings and assets than have the former. It has meant further that in many instances the price has fallen so low as to establish the issue in the bargain class.

Market timing/charting is ungrounded folly - Benjamin Graham

The activities of the enterprising investor in the stock market may be classified under 4 areas:

1. Buying in low markets and selling in high markets (Beware that this is Market timing)
2. Buying carefully chosen "growth stocks" (Learn the Paradox of Growth Stocks)
3. Buying bargain stocks (The tenet of value investing)
4. Buying into "special situations" (Only a few will benefit)


Buying in low markets and selling in high markets (Beware that this is Market timing)

From first inspection of a market chart covering its periodic fluctuations, buying low and selling high appeared both simple and feasible.

However, this market's action studied over many years has not lent itself to predictability by any mathematical means.

The fluctuations that have taken place, often considerable in extent, would have required a special talent or "feel" for trading to take advantage of them.  Operations based on such 'skills' are better excluded.

Benjamin Graham:  ..."market timing / charting" is ungrounded folly and is to be avoided by any intelligent investor.

Top unit trust companies recognised

Top unit trust companies recognised

Written by Joy Lee
Wednesday, 24 February 2010 00:00
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KUALA LUMPUR: Top-performing unit trust funds in the country were acknowledged at The Edge-Lipper-StarMine Awards 2010, held here yesterday.

Public Mutual Bhd maintained its winning streak as the biggest winner for the seventh consecutive year, sweeping 10 out of the 29 awards, including the most prestigious Best Overall Group award.

AmInvestment Services Bhd retained its award for the Best Bond Fund Group and Pacific Mutual Fund Bhd took home the Best Equity Fund Group and the Best Mixed Assets Fund Group awards.

In addition, the year's top brokers and analysts were honoured in The Edge-StarMine Malaysia Brokers Rankings and The Edge-StarMine Malaysia Analyst Awards.

Kim Eng Research Sdn Bhd was ranked top for earnings estimates in the mid- and small-cap stocks category as well as the FTSE Bursa Malaysia 30 Index category.

Norziana Mohd Inon of CIMB Investment Bank Bhd took home the award for Malaysia's top analyst. Annuar Aziz of Credit Suisse Securities (Malaysia) Sdn Bhd and Ahmad Maghur Usman of OSK Research Sdn Bhd came in second and third respectively.

Zarinah (centre, front row), Ho (5th from left), Soo (4th from left), Yusli (3rd from left) and Lee (2nd from left) with winners of the Edge-Lipper Fund Awards. Photo by Mohd Izwan Mohd Nazam

The event was graced by Tan Sri Zarinah Anwar, chairman of Securities Commission, as guest of honour. Also present were Bursa Malaysia CEO Datuk Yusli Mohd Yusuf, The Edge Malaysia editor-in-chief Ho Kay Tat, Thomson Reuters Malaysia senior company officer Simon Soo Hu and the Federation of Investment Managers Malaysia's Lee Siew Hoong.

The winners of the awards are determined based on the Lipper Leader ratings for consistent return, a risk-adjusted investment performance return measure developed by Lipper.

A total of 25 classification awards covering 13 eligible fund categories and four group awards were given out this year, including Islamic funds that topped their respective Lipper classifications.

http://www.theedgemalaysia.com/business-news/160230-top-unit-trust-companies-recognised.html

SC to amend unit trust fund guidelines

SC to amend unit trust fund guidelines

Written by Joy Lee
Wednesday, 24 February 2010 00:03
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KUALA LUMPUR: The Securities Commission (SC) will be amending the guidelines on unit trust funds to meet the varying needs of investors, its chairman Tan Sri Zarinah Anwar said.

"The industry is developing and we have to innovate. We have to find new ways and better ways of doing things. Investors need more choices. So the idea behind the amendments is to allow greater flexibility in terms of offering choices to investors to meet their needs," she said.

Speaking to reporters after The Edge-Lipper-StarMine Awards 2010 here yesterday, she said the amendments were being worked on and would be published as soon as they were ready.

The SC is open to suggestions on new fee structure, says Zarinah.

Zarinah said the amendments would include offerings in multiple currencies.

"We are encouraging unit trust funds to be distributed overseas, and it will facilitate investment by foreign investors, for example, who may find it difficult to cope with exchange rate vagaries," she said.

The amendments would also facilitate a multi-class structure for unit trust funds whereby a single unit trust fund will be able to offer multiple classes of units over a single investment pool, with each class of units having different features such as the fees and charges imposed and the currency in which it is denominated.

Investors are becoming more aware of the effects of fees on their long-term returns and Zarinah believes that the market is ready for new fee configurations that more appropriately match service levels, resource capacity, quality and performance. "The SC is open to such propositions," she said.

In her keynote address, she noted that the unit trust industry had done extremely well with total funds hitting 541 with a total net asset value (NAV) of RM191.7 billion as at the end last year from 43 funds with total NAV of RM28.1 billion in 1993. The NAV makes up 19.18% of the capitalisation of Malaysia's stock market.

The industry continued to contribute significantly to the development of Malaysia's capital market by helping build the demand side and played an important role in channelling capital into the real economy, she added.

However, she said the challenge moving forward was to sustain this performance and to develop the depth and breadth of the industry.

To this end, Zarinah said SC had come up with two initiatives to provide confidence to investors that their investments would receive an appropriate level of protection and oversight as well as a facilitative regulatory framework for unit trust funds to operate in.

The industry must also continue working towards expanding the range of products and markets, she said. Malaysia has a competitive advantage as an Islamic capital market hub and currently, there are 144 syariah-compliant unit trust funds.

"As part of our efforts to facilitate market expansion for the industry, we had, as a start, inked the Mutual Recognition Agreement with the Dubai Financial Services Authority and another, more recently, with the Hong Kong SFC to enable cross-border distribution of Islamic funds on a bilateral basis.

"Our unit trust intermediaries have become one of the best in the region and are well-positioned to play a significant role in the regional arena. The industry must now rise to the challenge of broadening our connectivity with other markets and to increase its competitiveness on an international level, taking advantage of the facilitative regulatory framework that has been established," she said.

She noted that the unit trust industry must also increase its efforts to broaden distribution channels and reach both domestically and internationally.

Relying solely on traditional channels and existing distribution structures and approaches was not a sustainable solution, she said, as excellence in distribution capabilities is key to any industry that seeks to be internationally competitive.

"It would be worthwhile for the industry to also critically examine whether there is a need to focus on size to benefit from economies of scale given that close to half of the unit trust funds we have today have NAVs of RM50 million and below. The industry will have to compete for a share of investors' wallet and will benefit from finding better ways of doing things and passing on the cost savings to investors," she said.

http://www.theedgemalaysia.com/business-news/160231-sc-to-amend-unit-trust-fund-guidelines.html

3A's net profit up 85% in 4Q

3A's net profit up 85% in 4Q

Written by The Edge Financial Daily
Tuesday, 23 February 2010 23:34


KUALA LUMPUR: THREE-A RESOURCES BHD [] (3A) saw its net profit rise 85.1% in the fourth quarter (4Q) ended Dec 31, 2009 to RM4.52 million from RM2.44 million a year earlier due to better demand for its products in the food and beverage manufacturing industry and higher margins, the group said in its results announcement to Bursa Malaysia today.

Revenue rose 71.54% to RM55.2 million compared to RM32.18 million a year earlier while profit before taxation is significantly higher at RM6.5 million compared to RM234,000 a year ago. The group attributed the improvement to higher turnover and better product margin.

Basic earnings per share (EPS) were 1.32 sen from 0.79 sen previously. No dividend was declared for the quarter under review.

On a sequential basis, the group's turnover of RM55.2 million was 22.3% higher than RM45.1 million recorded in the immediate preceding quarter. However, the profit before taxation for the current quarter of RM6.5 million is lower by 8% than that recorded in the immediate preceding quarter of RM7.06 million. The group attributed this to lower products margin recorded as the costs of raw materials rose in the quarter under review.

For the 12 months ended Dec 31, 2009, net profit was RM18.04 million, up 48.6% from RM12.14 million in FY08. Revenue increased 17.3% to RM178.58 million compared to RM152.25 million a year earlier while basic EPS was 5.7 sen compared with 3.9 sen previously.

The effective tax rate for FY09 was 23.9%, which is slightly lower than the statutory income tax rate of 25% as a result of utilisation of reinvestment allowance, the group explained.

As for its prospects, 3A said its products are expected to remain competitive.

"Despite the prevailing economic conditions, the directors anticipate that the group will achieve a satisfactory performance for financial year 2010," it said.

3A's share price has more than doubled to today's close of RM2.29 since its Oct 6, 2009 closing of 89.5 sen.

http://www.theedgemalaysia.com/business-news/160229-3as-net-profit-up-85-in-4q.html

Some Singapore Property stocks, Genting, NOL, SPH, Wilmar

Feb 22: Property stocks, Genting, NOL, SPH

Written by The Edge
Monday, 22 February 2010 08:24

Last Friday, the Straits Times Index dropped 0.4% to 2,757.14.

Asian investors are likely to be wary ahead of the opening of Shanghai shares on Monday after a week-long holiday for the Lunar New Year, but last week’s gains on Wall Street could offset any negative sentiment.

The following companies may have unusual price changes in trading today. Prices are from Friday’s close.

Property stocks could be hit after the government imposed a new stamp duty on homes sold within one year of purchase and capped the maximum housing loan at 80% of the property value, measures aimed at cooling the property market.

CapitaLand (CAPL SP), Southeast Asia’s biggest developer, lost 0.5% to $3.90. City Developments (CIT SP), the island-nation’s second-biggest developer, dropped 1.5% to $10.82. Keppel Land (KPLD SP), the developer part-owned by Keppel Corp. (KEP SP), declined 1.8% to $3.37.

Palm-oil suppliers: Crude palm oil for May delivery dropped 0.2% in Kuala Lumpur on Feb. 19, taking losses in the past two days to 1.2%. Golden Agri-Resources (GGR SP), the world’s second-biggest palm oil producer, slid 0.9% to 54.5 cents. Wilmar International (WIL SP), the world’s biggest palm oil trader, gained 1.3% to $6.39.

Genting Singapore Plc. (GENS SP): The owner of Singapore’s first casino said its net loss doubled to $277.6 million last year from $124.8 million in 2008 as gambling revenue in London declined and staff costs increased. Genting fell 1.1% to 94 cents.

Neptune Orient Lines (NOL SP): Southeast Asia’s biggest container carrier said its APL unit will raise rates on intra-Asian routes from March 1. NOL slipped 0.6% to $1.66.

Singapore Press Holdings (SPRM.SI) announced early today it was setting up a $1 billion multi-currency notes programme and will sell at least $300 million of five bonds via lead manager OCBC (OCBC.SI).

Bulk carriers: The Baltic Dry Index, which measures the cost of shipping commodities, gained 0.4% in London on Feb. 19, extending a four-day rally to 5.8%. Cosco Corp. Singapore (COS SP), a China-based shipbuilder that also operates bulk carriers, was unchanged at $1.27. STX Pan Ocean Co. (STX SP), South Korea’s biggest bulk carrier, dropped 1.3% to $13.80.

http://www.theedgesingapore.com/the-daily-edge/business/12720-feb-22-property-stocks-genting-nol-sph.html

Price and the Valuation of Shares

Price and the Valuation of Shares

When you participate in the market you are one of three things: a trader, an investor or a loser.

Everyone can find out the price of shares by looking at the live ticker on your stock trading charts. But the price of shares aren’t set in stone. Stock prices are always in a state of flux, moving up and down at the mercy of the constant pull and push of supply and demand between buyers and sellers.  

How about the valuation of shares?
The value of shares depends on who is looking at the stock. It’s all about perspective: where there is a buyer, there is always a seller and a trade is made when an agreement in price is completed.

• The seller may have other reasons, but let’s assume they see the stock has exhausted its upward trend, and they are selling to realise their profit:
• while the buyer sees potential value in an increasing stock price.

What method do you use to assess the value of shares?
The market doesn’t employ a valuation method at all – it moves at the whim of the market. Does the share price fluctuations ever make sense to you?

• How can the share price of Commonwealth Bank more than halve from $62 to $24 then jump 140 percent from $24 to $58 in January? 
• Did the real company value fall and then jump that much in a month? How can that happen?

When you participate in the market you are one of three things: a trader, an investor or a loser

There is always going to be a mismatch between the price and the valuation of the shares. And when you participate in the market you are one of three things: a trader, an investor or a loser.

• A share trader jumps into the trade (either long or short) to take advantage of this mismatch of price and the value of the company on the stockmarket (or they could be executing their trading system based on other factors). 
• A stockmarket investor buys into a position, optimally when the company is valued cheaply, and waits in the long term for the value to surface. 
• A loser simply doesn’t know who they are and are probably jumping into the markets because of a hot tip.

So understand that as there will always be a mismatch in the share price and the valuation of shares.  The important part to remember is to know

• if you are in the markets as a trader (where a skill set of trading with discipline complete with trading rules is required) or
• if you are participating in the market as a share investor who must keep track of the share valuation.

http://www.mysharetrading.com/2010/02/22/price-and-valuation-shares.htm

How can you determine what a small company (or corporation) is worth?

How can you determine what a small company (or corporation) is worth?


When considering purchase of a company, there are many approaches:

1) Discount cash flow method. Work out all the projected free cash flows of the company and then do a dcf on it. The key is not in doing up the model – the key is in your assumptions (as in all models);

2) Multiples – look for a listed company in a similar industry and use a EBITDA multiple to find out an approx value. Check yahoo finance – it is rather good for info finding;

3) Asset valuation method – not as accurate as the above but add up all the assets of the company. Note that the sum may be worth more than each piece if all is functioning together well;

4) Replacement value – check out the market values of all the assets and value that.

5) Net Asset Value – Assets minus liabilities for a really general ballpark figure.

I generally use 1 & 2.
3-5 are just very general guides.

----

3 Responses

1. jason77734 Says:
February 23rd, 2010 at 3:16 pm

no clue
References :


2. northfulton39 Says:
February 23rd, 2010 at 3:36 pm

Two approaches.

1. Value all the assets of the company and pay fair value less any liabilities (loans that will need to be paid off); business owns inventory, a building and some vans valued at $350K but has a bank note of $100K, you buy it all for $250K.

2. Look at the financial statements and calculate Earnings before interest, taxes, depreciation and amortization (EBITDA); price should be anywhere from 3-6X that annual number depending on size of the company, industry and growth projections. If a company generates 100K in EBITDA, price could be anywhere from 300K to 600K.
References :


3. The Professional Says:
February 23rd, 2010 at 4:19 pm

Many approaches:

1) Discount cash flow method. Work out all the projected free cash flows of the company and then do a dcf on it. The key is not in doing up the model – the key is in your assumptions (as in all models);

2) Multiples – look for a listed company in a similar industry and use a EBITDA multiple to find out an approx value. Check yahoo finance – it is rather good for info finding;

3) Asset valuation method – not as accurate as the above but add up all the assets of the company. Note that the sum may be worth more than each piece if all is functioning together well;

4) replacement value – check out the market values of all the assets and value that.

5) Net Asset Value – Assets minus liabilities for a really general ballpark figure.

I generally use 1 & 2.
3-5 are just very general guides.
References :


http://www.songbirdcoffeecompany.com/company-corporation/how-can-you-determine-what-a-small-company-or-corporation-is-worth

Price is what you pay, value is what you get.

Warren Buffett used the analogy of attending the university to explain the core difference between price and value.  The school fees is the price you paid for the education.  Value is what you get out of the education.

Those wishing to learn investing needs to read widely.  Invest in the many good investment books available, preferably those classics written by actual investors.

Regarding attending talks, I have some reservations.  It is unlikely that you will learn enough to develop a safe investing philosophy and strategy in a few hours, other than an introductory.

Here are some good videos on investing:

****Value Investing Conference (Videos)

****Warren Buffett MBA Talk on Investing and Stock Market Wisdom (Videos)

Saving and Investing - Videos

Introduction to Valuation - Videos

Saving and Investing are very important topics - Introduction Videos

 

FBMKLCI Chart

http://www.klsetracker.com/

Genting Singapore reports net loss of S$277.56m for FY2009

Genting Singapore reports net loss of S$277.56m for FY2009

Written by Joseph Chin
Friday, 19 February 2010 20:12
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KUALA LUMPUR: Genting Singapore plc posted net losses of S$277.56 million (RM 669 million) in the financial year ended Dec 31, 2009 versus S$124.80 million a year ago due to losses in derivative financial instruments, higher pre-operating expenses and lower contribution from its UK casino operations.

It told the Singapore Exchange today that consolidated revenue was S$491.2 million in FY2009 compared to S$630.7 million in 2008. The reduction is mainly due to a decrease of S$141.8 million in revenue from the group’s UK casino operations.

It added revenue from the UK casino operations were depressed by lower business volumes. The reduction was further exacerbated by the weakening of the sterling pound against the Singapore dollar.

Genting Singapore's loss before taxation increased from S$148.5 million in the previous financial year to S$265.7 million in the current financial year.

This was mainly due to:

a) Fair value loss on derivative financial instruments in the current financial year of S$108.3 million arising mainly from the valuation of the conversion option embedded in the group’s convertible bonds as compared to a fair value gain of S$37.2 million recognised in 2008;

b) Increase in pre-operating expenses incurred for the integrated resort in Singapore of S$103.4 million. The higher pre-operating costs is mainly in relation to staff costs incurred as the integrated resort begins to accelerate its recruitment, training, sales and marketing programs prior to its launch;

c) Lower interest income of S$3.8 million for the current financial year compared against S$13.2 million in 2008;

d) Share of losses from jointly controlled entities of S$8.9 million;

e) The estimated one-third share of after tax profits of the international betting division, which was disposed by the group in 2007. The group had on March 22, 2007 completed the disposal of its 50% interest in international betting operations for a cash consideration of S$3.3 million.

TM posts higher 4Q net profit

TM posts higher 4Q net profit

Written by Joseph Chin & Siti Sakinah Abdul Latif
Monday, 22 February 2010 18:17


KUALA LUMPUR: TELEKOM MALAYSIA BHD [] (TM) posted a net profit of RM170.25 million in the fourth quarter ended Dec 31, 2009 (4Q09) compared with RM164.81 million a year ago, despite lower revenue.

TM said today that for the current quarter, group revenue fell 9% to RM2.27 billion from RM2.49 billion a year ago, mainly due to lower revenue from the special project, MERS 999 (the unified emergency contact number system for the Malaysian Emergency Rescue Services). Earnings per share were 4.80 sen.

The company proposed a final gross dividend of 13 sen per share less tax at 25% (2008: a final gross dividend at 14.25 sen per share less tax at 25%) amounting to RM348 million subject to shareholders' approval in the next meeting. This is on top of the interim dividend of 10 sen amounting to RM357.7 million distributed in September last year.

"With the proposed total dividend payout of RM706 million, that brings our 12-month total return to shareholders to 38.5%, the highest among all fixed peers in the region," said CEO Datuk Zamzamzairani Mohd Isa at the briefing of the company's financial result today.

TM said excluding revenue from MERS 999, the current quarter revenue was only 1.5% lower as compared to the preceding year quarter.

Internet and multimedia revenue registered a 2.6% growth at RM402.0 million in 4Q09 from RM391.8 million recorded in 4Q08 due to growth in broadband customers (excluding Hotspot customers) to 1.43 million in 4Q09 from 1.28 million in 4Q08.

"Group profit after tax and minority interests (Patami) increased by 2.5% to RM170.2 million as compared to RM166.0 million (excluding the results of the demerged Axiata Group) in the corresponding quarter in 2008. This was mainly attributed to unrealised exchange gain on translation of foreign currency borrowings of RM47.3 million as compared to a loss of RM18.2 million in the same quarter in 2008," it said.

For FY09, group revenue dipped 0.8% to RM8.608 billion versus RM8.675 billion in FY08 mainly due to lower revenue from MERS 999 in the current financial year.

Excluding revenue from MERS 999, the current year revenue would have increased by 0.9% as compared to preceding financial year.

Operating profit before finance cost increased 46.0% to RM1.06 billion due to lower operating costs recorded in the current financial year and the absence of loss on disposal of equity investment.

For FY09, the voice segment contributed RM4 billion or 46.5% of total revenue, a decline from RM4.4 billion or 50.9% in FY08. Meanwhile, the non-voice segment is increasing its contribution to 53.5% in FY09 to RM4.6 billion from 49.1% or RM4.26 billion in FY08.

Asked on the decline of the voice segment to revenue, Zamzamzairani said that the situation is not unique, as all operators would face decline in the voice segment, adding that TM planned to offer bundle packages of data/Internet and voice to its customers for "value proposition".

"Besides fix-to-fix call, we also look at enhancing fix-to-mobile call," he added.

As for its non-voice segment, Zamzamzairani said TM would be working on upgrading its Internet service for higher speed, having more simplified bundling and enhancing its market strategy to make its service available to "as many people as possible".

"We also saw aggressive push by the mobile and WiMAX players who came onto the market with their products and services. Despite the fierce competition, TM continued to attract new customers and maintained leadership position in the broadband segment with 1.43 million customers as at the end of 2008," he added.

On the high-speed broadband (HSBB) project, Zamzamzairani said that TM has already achieved 152,000 premises, surpassing the target of 150,000 premises, adding that it is on track to commercially launch the retail service in four areas — Taman Tun Dr Ismail, Bangsar, Subang Jaya and Shah Alam — by the end of the first quarter this year.

He added that TM was looking at a total of 750,000 premises this year.

TM had spent RM516 million on the HSBB project in FY08 as the contract was signed in Sept 2008. In FY09, TM spent RM1.3 billion and expects to spend another RM2 billion for FY10.

To recap, the HSBB project is a private-public project worth RM11.3 billion, with the government pledging to finance a total of RM2.4 billion, targeting 1.3 million premises by end-2012 with network access speed from 10Mbps while for businesses, it can go up to 1Gbps.

As for the company's prospect, Zamzamzairani said TM's performance improvement programme (PIP) 2.0 would be continued to enhance customer experience.

Meanwhile, Bloomberg reported that TM is targeting revenue growth of 2% in FY10 and a further 3% in FY12. TM's stock rose to its 52-week high today, closing nine sen higher at RM3.35.

http://www.theedgemalaysia.com/business-news/160111-telekom-malaysia-4q-net-profit-rm17025m-vs-rm16481m-yr-ago.html

Stocks to watch: Maybulk

Despite almost a halving of charter rates for vessels, Maybulk saw a significant jump in profits for the fourth quarter ended Dec 31, 2009 (4Q09), thanks to improvement in the group's quoted investments and higher contributions from associate companies.

http://www.theedgemalaysia.com/business-news/160134-stocks-to-watch-astro-mas-telekom-maybulk.html 


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Maybulk's profit jumps despite fall in charter rates

Written by The Edge Financial Daily

Monday, 22 February 2010 23:24

KUALA LUMPUR: Despite almost a halving of charter rates for vessels, MALAYSIAN BULK CARRIERS BHD [] (Maybulk) saw a significant jump in profits for the fourth quarter ended Dec 31, 2009 (4Q09), thanks to improvement in the group's quoted investments and higher contributions from associate companies. Maybulk registered a net profit of RM88.4 million, which was a marked improvement compared to RM3.2 million in the corresponding quarter of 2008. The turnover in 4Q was RM82.6 million compared to RM138.1 million in 2008. The vastly improved earnings resulted in improved earnings per share (EPS) of 8.84 sen for 4Q09 compared to 0.32 sen in 2008. The board proposed a final single-tier dividend of 15 sen per share, amounting to RM150 million, for FY09. In the current quarter, the group's other operating income which mainly comprised a reversal of mark to market losses and gains realised from the disposal of quoted investments amounted to RM39.2 million while contributions from associates were RM19.1 million. Both administrative expenses and finance cost were also lower than last year's. Maybulk's associate companies are PACC Offshore Services Holdings Group, Eminence Bulk Carriers Pte Ltd and Novel Bright Assets Ltd. For the year ended Dec 31, 2009, Maybulk posted a net profit of RM243.8 million, a decline of 47% compared to a net profit of RM460.9 million recorded in 2008. This was on a revenue of RM303.7 million in the FY ended Dec 31, 2009 as compared to RM721.2 million in the corresponding period a year earlier. However, the FY08's results included gains from the disposal of four ships of RM327.3 million. In FY09, Maybulk sold its over-aged handy-size bulk carrier Alam Sempurna for a gain of RM8 million. Compared to 3Q09, revenue for the quarter in review was lower at RM82.6 million. In the preceding quarter, revenue was RM98 million. However, this was cushioned by reduced operating expenses of RM43.2 million against 3Q's RM59.1 million. In FY09, Maybulk's performance was affected by a decline in charter rates and its reduced fleet size. Maybulk stated that the Baltic Dry Index (BDI), which is an indicator of the charter rate, was volatile throughout the year resulting in lower comparative average Time Charter Equivalent (TCE) for the drybulk fleet of US$19,076 (RM64,858) per day versus 2008's time charter average of US$37,953 per day. Going forward, Maybulk stated that it will be challenging as indications of increased spending in exploration and production in the oil and gas sector have yet to translate into higher rates due to the current over-supply in the offshore segment.

Singapore winds down economic stimulus in budget

Singapore winds down economic stimulus in budget
Written by Thomson Reuters
Monday, 22 February 2010 19:37

Singapore today announced a smaller budget deficit for 2010/11, as governments across Asia start to unwind the stimulus policies introduced at the height of the financial crisis last year.

The government halted income and property tax rebates introduced last year and said it will phase out subsidies paid to employers to hold onto staff amid a strengthening labour market.

But the government will raise spending to boost productivity, which lags developed economies such as the United States, Japan and Hong Kong.

“The economy is improving here and around the world and so is the business activity,” said David Cohen, an economist at Action Economics. “Maybe the government feels it’s time to tighten up their fiscal largess as the economy can afford it.”

Finance Minister Tharman Shanmugaratnam expects a basic budget deficit of $7.2 billion, or 2.6% of GDP, for the fiscal year beginning April 2010, down from an estimated S$8.5 billion, or 3.3% of GDP, this fiscal year.

Singapore last week raised its economic growth forecast for 2010 to 4.5% to 6.5% from 3% to 5% after reporting better-than-expected fourth-quarter GDP.

The overall budget balance for FY2010/11 is an estimated deficit of $3 billion, or 1.1% of GDP.

The basic budget deficit excludes transfers by government to various endowment and retirement funds as well as the net investment returns from the country’s massive reserves.

Singapore last year tapped its reserves for the first time and introduced a $20.5 billion “resilience package” on top of its regular budget to save jobs and help businesses.

The government originally expected a $14.9 billion basic budget deficit in 2009/10 but the shortfall turned out to be smaller as the economy recovered in the second half of 2009 and the boom in the residential market boosted stamp duties.

India, which will announce its 2010/11 budget on Friday, is likely to announce a narrower deficit of 5.5% of GDP, Citigroup predicts. Hong Kong, which will unveil its budget on Wednesday, may dole out income and property tax waivers given the government’s strong finances.


Also read:
http://www.theedgesingapore.com/blog-heads/manu-bhaskaran/12348-manu-bhaskaran-new-directions-for-singapores-economy.html

Latexx's successful ongoing expansion plan should ensure strong growth for FY2010 and FY 2011.

Latexx CEO Low Bok Tek revealed an aggressive expansion plan to boost the company's rubber glove capacity in May 2009.

Planned targets were:

• beginning of 2009 - 4 billion pieces per year
• end of 2009 - 6 billion pieces per year
• end of 2010 - 7.5 billion pieces per year
• 2012 - 9 billion pieces per year.

Present targets:

• Latexx completed 3 double former lines at its newly built Plant 1 before Chinese New Year, increasing capacity to 6.6 billion from 6 billion at the end of 2009.
• Additional lines will be added to Plant 1 to up capacity to 9 billion pieces a year by the end of 2010 - 2 years ahead of target.

Latexx was successful in clinching new multinational customers to take up the 3 billion pieces a year capacity at Plant 1 even before it was completed.

• In 2008, it sold 2.68 billion pieces.
• It sold 3.82 billion pieces in 2009, 43% more than 2008.
• In Q4 2008, Latexx sold 750 million pieces.
• In Q4 2009 alone, Latexx sold 1.15 billion pieces.

All of Latexx's plants are located on a 50-acre site in Kamunting, Perak.  Latexx still has 12 acres of unutilised land to build plants 7 and 8.  Each plant has the capacity to produce 3 billion pieces of gloves a year.

• Plant 7 has already been cleared, which could boost its capacity by another 3 billion to 12 billion by the end of 2011.

Although the lines can be used for the production of both nitrile and natural latex gloves, Latexx is focusing on nitrile gloves for its new lines, because the margins for nitrile are higher than for natural rubber glove.

• Nitrile accounted for 20% of glove production in 2009.
• By 1QFY2010, this percentage will increase to 35%.

Latexx's successful ongoing expansion plan should ensure strong growth for FY2010 and FY 2011. 

Net profit surged:

• from RM15.2 million in 2008
• to 52.2 million in 2009
• as net profit margin expanded from 6.8% to 15.9%.

Judging from the company's

• rapid expansion plan and 
• rising margins arising from economies of scale and 
• higher nitrile production, 

a FY2010 net profit of RM 100 million is within reach.

Successfully boosting capacity by 3 billion pieces of gloves a year in 2010 will set the stage for a surge in 2011 profits, which will benefit from

• Plant 1's full-year contributions, and 
• additional contribution from Plant 7.

Latexx is conserving its cash flow for growth, so dividend yield may not be so attractive.

Net debt at end of 2009 - RM 57.4 million
Net gearing:  47% in 2008 declined to 33.7% in 2009.

Estimated cash flow in 2010 - RM 110 million
Capital expenditure in 2010 - RM 75 million.

The share prices of rubber glove companies have corrected on fears of an impending oversupply in 2011.  Although the new supply will reduce the current shortage, it need not necessarily lead to a price war, which is detrimental to all players.

Margins may be squeezed but industry growth will continue at 8% to 10% per annum, probably faster for Malaysian rubber glove companies due to outsourcing by multnationals and the exit of small players.

In a world where growth is uncertain, rubber glove companies are attractive because:

• they enjoy steadily rising demand which is recession proof,
• pricing power to pass on rising raw material costs, and
• low PERs of less than 10 x compared with almost 20 x for the large plantation and construction companies with cyclical earnings.

Ref:
Latexx:  Overachieving its growth promise
by Choong Khuat Hock
The Edge Malaysia 22.2.2010

Supermax: Future Prospects and Internal target for FY2010

Prospects

The rubber glove industry continues to be on a strong growth path despite the current global financial challenges and global economic uncertainties. In addition to the organic growth of 8-12% annually, global demand has been boosted by the ongoing H1N1 pandemic and growing demand from emerging markets as well as the healthcare and hygiene sectors.

The Group currently operates 8 wholly owned manufacturing plants and has 5 overseas distribution centres. The growing demand which is continuously being tapped by the Group’s wide global network of 750 distributors in over 145 countries and 5 distribution centres augurs well for the Group in terms of business stability and sustainability in the long term. The Group’s investment in overseas distribution since year 2001 has benefited and yielded greater market penetration in selected market territories.

The ongoing refurbishment works as well as the construction of its new Meru plant which encompasses the installation of 16 new lines with added capacity of 2.3 billion pieces of gloves per annum, is also expected to contribute to the Group’s performance going forward.

For the current financial year, the Group has achieved earnings per share of 48.37 sen, which had already surpassed its original internal target of a minimum 27 sen for year 2009 as well as the revised target of 44 sen. In view of this better than projected performance, the Company has now revised the internal target for FY2010 from the initial target of 50 sen earnings per share to 62 sen or RM168 million Profit after Tax for FY2010.

http://announcements.bursamalaysia.com/EDMS/edmsweb.nsf/ba387758ae37412b482568a300466fb6/da19a43ca011aaac482576cf003baf58/$FILE/SCB%20Q4%2709%20Bursa%20Anncmnt%20Notes%205pm.pdf

The best dividend-paying stocks

The best dividend-paying stocks
The best dividend-paying stocks, provide not only income, but significant capital appreciation.


Related readings:

Evaluating Dividend-Paying Companies
The importance of not buying shares near the top of the market peaks
Dividends Are Still the Linchpin
Ten Principles of Dividend Growth Investing
How and Why Do Companies Pay Dividends?
The 10 Best Dividend Stocks of the Past Decade
Investing for income: Dividend yield and Dividend cover ratio
The case for Dividend Growth Investing
The concept of valuing a share according to its dividend
Importance of dividend yield in the evaluation of the worth of a share.
Dividend yield prevents investors from being side-tracked by irrelevant events.
Dividend is a sure thing
Recession or not McDonald's increases dividend for the 32nd year 

Warren Buffett's concept of Equity Bond

Warren Buffett’s Concept of Equity Bond in Action

How to pay less personal tax

Monday February 22, 2010
How to pay less personal tax
By ANG WEINA

THE 2009 tax-filing season for individuals has arrived. For many of us, April 30 will be just another day (perhaps accompanied by scrambling for our just-in-time filing) to settle our dues with the Inland Revenue Board by submitting the Form e-BE and paying any balance tax.

Before clicking the button to complete the e-filing, take a second look at the figures keyed in. Is the amount of tax calculated the lowest it can be? Here are some tips on saving tax that would not get you in trouble with the law.

1. Know your income: What is taxable and what is not.

Gone are the days when you agonise over the delay in receiving your Form EA from your employer. It is now a law for employers to issue the Form EA to their employees no later than the end of February. The key point to note is not all income in your Form EA is taxable! Scrutinise all the items in Form EA to see if there is any which should be tax-free. For example:

Travelling allowances

If you receive travelling allowance, up to RM2,400 for your travels from home to office is tax-free. What this means is if you receive an allowance of RM12,000 for such travel, you can deduct RM2,400 and only RM9,600 is taxable. Further, travelling allowance of up to RM6,000 for official duties is tax-exempt.

Meal, parking and childcare allowances

Many employees receive these allowances, do you? You would be happy to know that you can enjoy such perks with no worries about paying tax thereon (up to RM2,400 in the case of childcare allowance).

2. Make the most of all tax-free benefits.

Medical benefits

Medical benefits for traditional medicine including ayurvedic, plus maternity benefits are also tax-free.

Interest subsidies

Your employer may have subsidised interest on your housing, car and education loans. In the past, these subsidies would be taxable on you. Now you would be glad to know such interest subsidies are tax-exempt (so long as the total loans do not exceed RM300,000).

Broadband and telephone benefits

Who can leave home without the iPhone, Blackberry or PDAs nowadays? Getting such a device from your employer plus reimbursement for broadband and telephone bills are tax-free. So take advantage and enjoy the latest gadgets and services.

3. Know your limits.

Just as in drinking and driving, stay within the limits to avoid any trouble or triggering tax.

If you have enjoyed any staff benefits like discounts on your company’s goods or services and kept within the RM1,000 a year limit, you should enjoy tax exemption thereon.

Did you receive a small token from your employer on your achievements in service excellence, innovation or productivity which brought on a smile? Don’t blame your employer if they kept the awards below RM2,000 as no tax should be levied on you. Neither is the award for your long service with the company (for more than 10 years) forgotten. As long as your employer kept the value of all awards to you within the RM2,000 limit, the smile should remain on you.

4. Look for more tax-free income.

Bank interest income

You will note a subtle difference in your bank statement nowadays as it no longer shows the amount of tax withheld. Bank interest income is now tax-exempt.

Dividends

Dividends need not be entirely taxable. Have a good look at the dividend voucher. If it states that the dividend is “tax-exempt”, then it is not taxable anymore.

5. Gain more deductions.

Purchase of sports equipment

If the slimming fad has caught on with you, keep the receipts of your purchases of any sports equipment. A claim of up to RM300 is a small incentive to shape those curves and muscles in a big way!

Have receipts or evidence to support more deductions

Medical expenses for your parents certified by a medical practitioner (restricted to RM5,000);

Medical expenses for serious diseases for self, spouse or child (up to RM5,000), including a complete medical examination for self, spouse or child limited to RM500;

Basic supporting equipment for disabled self, spouse, child or parents (ceiling of RM5,000);

Disabled person (self) (RM6,000);

Disabled husband/wife (RM3,500);

Education fee (self) up to tertiary level for the purpose of acquiring law, accounting, Islamic financing, technical, vocational, industrial, scientific or technological skills or qualifications for a masters or doctorate level, undertaken for the purpose of acquiring any skill or qualification (limited to RM5,000);

Purchase of books/journals/magazines/similar publications for self, spouse or child (up to RM1,000);

Net deposit in National Education Savings Scheme (ceiling of RM3,000);

Purchase of personal computer for individual (maximum deduction of RM3,000 allowed once every three years);

Premiums on life insurance plus EPF and other approved fund contributions (subject to RM6,000 restriction);

Premiums for education or medical insurance (restricted to RM3,000);

Relief of up to RM10,000 on the housing loan interest paid (conditions apply);

Payment of alimony to former wife (maximum total deduction for wife and alimony payment is RM3,000);

Zakat other than monthly zakat deduction from salary; and

Fees/levy paid by a holder of an employment pass, visit pass (temporary employment) or work pass.

The rule of the “game” of keeping your tax liability to the minimum when preparing your tax return Form e-BE is to do it right within the law. For a start, make the website of the Inland Revenue Board, www.hasil.gov.my, one of your favourites from now until April 30 to access its easy to read guides. Happy e-filing!

● Ang Weina is executive director and global employer services leader with the tax practice of Deloitte Malaysia.


http://biz.thestar.com.my/news/story.asp?file=/2010/2/22/business/5708847&sec=business

http://www.asiaone.com/News/AsiaOne%2BNews/Asian%2BOpinions/Story/A1Story20090506-139612.html

Learn to Invest in 10 Steps

Learn to Invest in 10 Steps

Learn To Invest In 10 Steps

Investing is actually pretty simple; you're basically putting your money to work for you so that you don't have to take a second job, or work overtime hours to increase your earning potential. There are many different ways to make an investment, such as stocks, bonds, mutual funds or real estate, and they don't always require a large sum of money to start.

Step 1: Get Your Finances In Order

Jumping into investing without first examining your finances is like jumping into the deep end of the pool without knowing how to swim. On top of the cost of living, payments to outstanding credit card balances and loans can eat into the amount of money left to invest. Luckily, investing doesn't require a significant sum to start. Gain more insight in Invest On A Shoestring Budget and Should I Invest Or Reduce Debt?.

Step 2: Learn The Basics

You don't need to be a financial expert to invest, but you do need to learn some basic terminology so that you are better equipped to make informed decisions. Learn the differences between stocks, bonds, mutual funds and certificates of deposit (CDs). You should also learn financial theories such as portfolio optimization, diversification and market efficiency. Reading books written by successful investors such as Warren Buffett or reading through the basic tutorials on Investopedia are great starting points. Get started with our Investing 101 tutorial.(listed below)

Step 3: Set Goals

Once you have established your investing budget and have learned the basics, it's time to set your investing goal. Even though all investors are trying to make money, each one comes from a diverse background and has different needs. Safety of capital, income and capital appreciation are some factors to consider; what is best for you will depend on your age, position in life and personal circumstances. A 35-year-old business executive and a 75-year-old widow will have very different needs. Read more in Basic Investment Objectives and Investing With A Purpose.

Step 4: Determine Your Risk Tolerance

Would a significant drop in your overall investment value make you weak in the knees? Before deciding on which investments are right for you, you need to know how much risk you are willing to assume. Do you love fast cars and the thrill of a risk, or do you prefer reading in your hammock while enjoying the safety of your backyard? Your risk tolerance will vary according to your age, income requirements and financial goals. For more insight read Risk Tolerance Only Tells Half The Story,  Personalizing Risk Tolerance and Determining Risk And The Risk Pyramid.

Step 5: Find Your Investing Style

Now that you know your risk tolerance and goals, what is your investing style? Many first-time investors will find that their goals and risk tolerance will often not match up. For example, if you love fast cars but are looking for safety of capital, you're better off taking a more conservative approach to investing. Conservative investors will generally invest 70-75% of their money in low-risk, fixed-income securities such as Treasury bills, with 15-20% dedicated to blue chip equities. On the other hand, very aggressive investors will generally invest 80-100% of their money in equities. Find your fit in Achieving Optimal Asset Allocation.

Step 6: Learn The Costs

It is equally important to learn the costs of investing, as certain costs can cut into your investment returns. As a whole, passive investing strategies tend to have lower fees than active investing strategies such as trading stocks. Stock brokers charge commissions. For investors starting out with a smaller investment, a discount broker is probably a better choice because they charge a reduced commission. On the other hand, if you are purchasing mutual funds, keep in mind that funds charge various management fees, which is the cost of operating the fund, and some funds charge load fees. Read The Lowdown On No-Load Mutual Funds.

Step 7: Find A Broker Or Advisor

The type of advisor that is right for you depends on the amount of time you are willing to spend on your investments and your risk tolerance. Choosing a financial advisor is a big decision. Factors to consider include their reputation and performance, what designations they hold, how much they plan on communicating with you and what additional services they can offer. For more tips, read Shopping For A Financial Advisor and Picking Your First Broker.

Step 8: Choose Investments

Now comes the fun part: choosing the investments that will become a part of your investment portfolio. If you have a conservative investment style, your portfolio should consist mainly of low-risk, income-producing securities such as federal bonds and money market funds. Key concepts here are asset allocation and diversification. In asset allocation, you are balancing risk and reward by dividing your money between the three asset classes: equities, fixed-income and cash. By diversifying among different asset classes, you avoid the issues associated with putting all of your eggs in one basket. Learn more in A Guide To Portfolio Construction and Introduction To Diversification.

Step 9: Keep Emotions At Bay

Don't let fear or greed limit your returns or inflate your losses. Expect short-term fluctuations in your overall portfolio value. As a long-term investor, these short-term movements should not cause panic. Greed can lead an investor to hold on to a position too long in the hope of an even higher price – even if it falls. Fear can cause an investor to sell an investment too early, or prevent an investor from selling a loser. If your portfolio is keeping you awake at night, it might be best to reconsider your risk tolerance and adopt a more conservative approach. Read When Fear And Greed Take Over  for more.

Step 10: Review and Adjust

The final step in your investing journey is reviewing your portfolio. Once you've established an asset-allocation strategy, you may find that your asset weightings have changed over the course of the year. Why? The market value of the various securities within your portfolio has changed. This can be modified easily through rebalancing. Read more on this topic, and the consequences for ignoring these changes, in Rebalance Your Portfolio To Stay On Track.

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Investing 101: Introduction

Printer friendly version (PDF format)

Have you ever wondered how the rich got their wealth and then kept it growing? Do you dream of retiring early (or of being able to retire at all)? Do you know that you should invest, but don't know where to star

If you answered "yes" to any of the above questions, you've come to the right place. In this tutorial we will cover the practice of investing from the ground up. The world of finance can be extremely intimidating, but we firmly believe that the stock market and greater financial world won't seem so complicated once you learn some of the lingo and major concepts. 

We should emphasize, however, that investing isn't a get-rich-quick scheme. Taking control of your personal finances will take work, and, yes, there will be a learning curve. But the rewards will far outweigh the required effort. Contrary to popular belief, you don't have to allow banks, bosses or investment professionals to push your money in directions that you don't understand. After all, no one is in a better position than you are to know what is best for you and your money.

Regardless of your personality type, lifestyle or interests, this tutorial will help you to understand what investing is, what it means and how time earns money through compounding. But it doesn't stop there. This tutorial will also teach you about the building blocks of the investing world and the markets, give you some insight into techniques and strategies and help you think about which investing strategies suit you best. So do yourself a lifelong favor and keep reading.

One last thing: remember: there are no "stupid" questions. If after reading this tutorial you still have unanswered questions, we'd love to hear from you.

Next: Investing 101: What Is Investing?

Table of Contents

1) Investing 101: Introduction

2) Investing 101: What Is Investing?

3) Investing 101: The Concept Of Compounding

4) Investing 101: Knowing Yourself

5) Investing 101: Preparing For Contradictions

6) Investing 101: Types Of Investments

7) Investing 101: Portfolios And Diversification

8) Investing 101: Conclusion

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Warren Buffett's Worst Mistakes

Warren Buffett's Worst Mistakes
by Eric Fontinelle
Monday, February 22, 2010


Warren Buffett is widely regarded as one of the most successful investors of all time. Yet, as Buffett is willing to admit, even the best investors make mistakes. Buffett's legendary annual letters to his Berkshire Hathaway (BRK-A) shareholders tell the tales of his biggest investing mistakes.

There is much to be learned from Buffett's decades of investing experience, so I have selected three of Buffett's biggest mistakes to analyze.

Conoco Phillips

Mistake: Buying at the wrong price

In 2008, Buffett bought a large stake in the stock of Conoco Phillips (COP) as a play on future energy prices. I think many might agree that an increase in oil prices is likely over the long term and that Conoco Phillips will likely benefit. However, this turned out to be a bad investment, because Buffett bought in at too high of a price, resulting in a multibillion-dollar loss to Berkshire. The difference between a great company and a great investment is the price at which you buy stock, and this time around Buffett was "dead wrong." Since crude oil prices were well over $100 a barrel at the time, oil company stocks were way up.


Lesson Learned


It's easy to get swept up in the excitement of big rallies and buy in at a prices that you should not have -- in retrospect. Investors who control their emotions can perform a more objective analysis. A more detached investor might have recognized that the price of crude oil has always exhibited tremendous volatility and that oil companies have long been subject to boom and bust cycles.


Buffett says: "When investing, pessimism is your friend, euphoria the enemy."

U.S. Air

Mistake: Confusing revenue growth with a successful business

Buffett bought preferred stock in U.S. Air (LCC) in 1989 -- no doubt attracted by the high revenue growth it had achieved up until that point. The investment quickly turned sour on Buffett, as U.S. Air did not achieve enough revenues to pay the dividends due on his stock. With luck on his side, Buffett was later able to unload his shares at a profit. Despite this good fortune, Buffett realizes that this investment return was guided by lady luck and the burst of optimism for the industry.


Lesson Learned


As Buffett points out in his 2007 letter to Berkshire shareholders, sometimes businesses look good in terms of revenue growth but require large capital investments all along the way to enable this growth. This is the case with airlines, which generally require additional aircraft to significantly expand revenues. The trouble with these capital-intensive business models is that by the time they achieve a large base of earnings, they are heavily laden with debt. This can leave little left for shareholders and makes the company highly vulnerable to bankruptcy if business declines.


Buffett says: "Investors have poured money into a bottomless pit, attracted by growth when they should have been repelled by it."

Dexter Shoes

Mistake: Investing in a company without a sustainable competitive advantage

In 1993, Buffett bought a shoe company called Dexter Shoes. Buffett's investment in Dexter Shoes turned into a disaster because he saw a durable competitive advantage in Dexter that quickly disappeared. According to Buffett, "What I had assessed as durable competitive advantage vanished within a few years." Buffett claims that this investment was the worst he has ever made, resulting in a loss to shareholders of $3.5 billion.


Lesson Learned


Companies can only earn high profits when they have some sort of a sustainable competitive advantage over other firms in their business area. Wal-Mart (WMT) has incredibly low prices. Honda (HMC) has high-quality vehicles. As long as these companies can deliver on these things better than anyone else, they can maintain high profit margins. If not, the high profits attract many competitors that will slowly eat away at the business and take all the profits for themselves.


Buffett says: "A truly great business must have an enduring "moat" that protects excellent returns on invested capital."

The Bottom Line

While making mistakes with money is always painful, paying a few "school fees" now and then doesn't have to be a total loss. If you analyze your mistakes and learn from them, you might very well make the money back next time. All investors, even Warren Buffett, must acknowledge that mistakes will be made along the way.


Click: Warren Buffett's Worst Mistakes

Read: The Buffett Philosophy

The Buffett Philosophy

Warren Buffett is a proponent of value investing, which looks to find stocks that are undervalued compared to their intrinsic value. Financial metrics like price/book (P/B), price/earnings (P/E), return on equity (ROE) and dividend yield carry the most weight on the Buffett scales. In addition, he seeks out companies that have what he calls "economic moats" - high barriers to entry for a competitor who may wish to invade the market and erode profit margins.

The Bottom Line

There's no shame in being a coattail investor, especially when that coat belongs to Warren Buffett. While all stock investing comes with some risk, a basket of these six stocks is a diversified way to participate in an economy that is by all accounts growing after the worst recession in decades. These market leaders have high barriers to competition, are fairly priced and, regardless of what short-term stock prices say, should deliver long-term value to shareholders. As Buffett himself said, in the short term the market is a voting machine, in the long term, it is a weighing machine. Buffett has an uncanny ability to pick the stocks with the greatest potential for growth, ensuring that the profit scale will always tip in his favor.
   
Baby Buffett Portfolio: His 6 Best Long-Term Picks
Berkshire Hathaway’s 15 Biggest Stock Holdings