Tuesday 13 December 2011
Selection strategy: Select those equity funds that have done well in both bear and bull markets
Selection strategy: Select those equity funds that have done well in both bear and bull markets
How does one identify the best equity mutual funds? Depending on the financial planner you approach, you will get a variety of answers. Some advocate an analysis of historical returns. Determine your investment tenure, they say, and pick the top funds in the given time frame.
So, if you want to invest for three years, the adviser will suggest the funds that have given the highest returns in the past three years. Some ask for your age and investment goals, and then offer a list of funds whose investment objectives match yours closely. If you are young and ready to bear high risk, the planner will suggest sectoral, mid- or small-cap funds. Yet others talk of statistics and risk-adjusted returns, supporting funds with high alpha, beta, Treynor or Sharpe ratios.
All these methods are useful, but fund performance varies in different market conditions. So, we have figured out another way to help identify the best equity funds. We zero in on those that have done well in both bear and bull markets. A fund that does well in a bull market may be affected the most in a bear phase because even stocks with good fundamentals are hammered during a bad phase.
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There may be no noticeable reason for a reduction in stock price, but it falls due to its high sensitivity to the market. Under such conditions, the fund managers who can shift from stocks to liquid instruments or cash tend to lose less than the market. Similarly, as the market turns bullish, the fund managers who have the ability to identify undervalued quality stocks gain more than the market.
Here's how we picked the funds that did well in both the bear and bull phases. For the bear market, we analysed the returns between 8 January 2008 and 5 March 2009. The Sensex fell from 20,800 to 8,200 during this period and lost 61%; the Nifty lost 59% and equity mutual funds (on an average) lost 62%. For the bull market, we considered the returns between 6 March 2009 and 3 January 2011. The Sensex went up from 8,200 to 20,500 in this period, gaining 147%. The Nifty gained 135%, while the equity mutual funds (on an average) gained 153% in the same period. All the returns are in absolute terms.
Next, we identified the funds that had lost less than their benchmarks and category averages in the bear phase and gained more in the bull phase. We analysed all equity mutual funds, including diversified, tax plans, sectoral funds, contra and dividend yield funds. Of the 366 funds, 25 satisfied the criterion. These were the true outperformers, having done so in both the bull and bear phases.
The HDFC AMC tops with its five funds. Fidelity and Reliance AMCs shared the second spot with four funds each. The ones from Birla Sun Life, Franklin and Religare shared the third spot with two funds each. Canara, IDFC, ING, Principal, Sahara and UTI AMCs have one fund each in the list.
How the role of fund manager differs from a planner
11 JUL, 2011, 01.30AM IST, UMA SHASHIKANT,
How the role of fund manager differs from a planner
The investors who have been worried about the lacklustre performance of equity markets are beginning to ask a simple question. If fund managers are experts in investment, shouldn't they have seen this coming and protected their portfolios?
After all, most people invest in mutual funds so that their money remains protected from uncertainty. This may be a common expectation from mutual funds, but it is completely wrong. Fund managers cannot directly manage risks for investors; they are not even privy to it. The confusion stems from the fact that the roles of a fund manager and financial adviser are often mixed.
Mutual fund products are not tailored to the needs of a specific investor. They are created to mimic an asset class. So a large-cap fund is expected to invest in a portfolio of large stocks and enable an investor to gain exposure to this asset class. What an active fund manager does is to try and perform better than a large-cap market index such as the Nifty.
An investor has the cheaper option of buying a passive index fund to get the same exposure. An active fund manager takes a higher fee to alter weightages in sectors and stocks in the large-cap universe to better the benchmark index. However, if this fund liquidates the equity portfolio and holds cash because the fund manager thinks that the market is due for a correction, the portfolio would actually move away from its mandate.
First, it will underperform the index if the cash call turns out to be wrong and the market moves up. Second, there is no reason for someone to pay a fee of 2.5% for holding cash when he can put it in a liquid fund at a cost of 0.35%.
It is the job of a financial adviser to review the investors' exposure to large-cap equity, take on board the downside risks at the time, consider the risk appetite of the investor, and recommend a tactical change in weightage. It is the adviser who is privy to the investor's return targets and risk preference, who should seek liquidation of the portfolio and advise the investor to hold cash. If the adviser has already done so, the fund manager's action is superfluous and can reduce exposure to equity more than is necessary.
The fund manager's specialisation is the bottom-up research in companies and sectors, as well as the selection, timing, assigning of weightages and rotation of stocks and sectors that he holds. The specialisation of the adviser is top-down research, which should indicate how asset classes will behave and, therefore, decide the weightage in an investor's portfolio. If the fund manager's job is to deliver relative performance, it is the work of the adviser to deliver absolute performance in line with the investor's needs.
http://economictimes.indiatimes.com/personal-finance/savings-centre/analysis/how-the-role-of-fund-manager-differs-from-a-planner/articleshow/9162198.cms
How the role of fund manager differs from a planner
The investors who have been worried about the lacklustre performance of equity markets are beginning to ask a simple question. If fund managers are experts in investment, shouldn't they have seen this coming and protected their portfolios?
After all, most people invest in mutual funds so that their money remains protected from uncertainty. This may be a common expectation from mutual funds, but it is completely wrong. Fund managers cannot directly manage risks for investors; they are not even privy to it. The confusion stems from the fact that the roles of a fund manager and financial adviser are often mixed.
Mutual fund products are not tailored to the needs of a specific investor. They are created to mimic an asset class. So a large-cap fund is expected to invest in a portfolio of large stocks and enable an investor to gain exposure to this asset class. What an active fund manager does is to try and perform better than a large-cap market index such as the Nifty.
An investor has the cheaper option of buying a passive index fund to get the same exposure. An active fund manager takes a higher fee to alter weightages in sectors and stocks in the large-cap universe to better the benchmark index. However, if this fund liquidates the equity portfolio and holds cash because the fund manager thinks that the market is due for a correction, the portfolio would actually move away from its mandate.
First, it will underperform the index if the cash call turns out to be wrong and the market moves up. Second, there is no reason for someone to pay a fee of 2.5% for holding cash when he can put it in a liquid fund at a cost of 0.35%.
It is the job of a financial adviser to review the investors' exposure to large-cap equity, take on board the downside risks at the time, consider the risk appetite of the investor, and recommend a tactical change in weightage. It is the adviser who is privy to the investor's return targets and risk preference, who should seek liquidation of the portfolio and advise the investor to hold cash. If the adviser has already done so, the fund manager's action is superfluous and can reduce exposure to equity more than is necessary.
The fund manager's specialisation is the bottom-up research in companies and sectors, as well as the selection, timing, assigning of weightages and rotation of stocks and sectors that he holds. The specialisation of the adviser is top-down research, which should indicate how asset classes will behave and, therefore, decide the weightage in an investor's portfolio. If the fund manager's job is to deliver relative performance, it is the work of the adviser to deliver absolute performance in line with the investor's needs.
http://economictimes.indiatimes.com/personal-finance/savings-centre/analysis/how-the-role-of-fund-manager-differs-from-a-planner/articleshow/9162198.cms
Monday 12 December 2011
Volatile stock markets, low contribution rates and increasing annuity prices will result in a longer working life or less money in retirement in UK.
Your pension will be £1,750 a year less
Private sector workers without gold-plated final salary pensions can expect to receive £145 less a month in retirement than was projected just two years ago.
Private sector workers without gold-plated final salary pensions can expect to receive £145 less a month in retirement than was projected just two years ago.
12:37PM GMT 12 Dec 2011
Volatile stock markets, low contribution rates and increasing annuity prices will result in a longer working life or less money in retirement.
According to Mercers, the actuarial consultancy, a 50 year-old can currently expect to receive £145 less a month, or £1,740 a year, in retirement income than was projected in 2009. A person in their thirties will be around £100 a month worse off.
The calculations showed that annuity prices – which dictate your pension income – have increased by an average of 20pc since 2009, hampering members' chances of obtaining a good retirement income.
This dramatic increase has meant that someone with a defined contribution pension pot of £200,000 at age 65 can now expect to get an annuity income of around only £5,800 a year, compared with £7,000 a year in 2009. Mercer said that a person nearing retirement might need to work for over three years longer in order to retire on the same income that they expected based on conditions back in 2009.
The decline in prospective pension values has been accentuated by a drop in contribution levels – employees are paying less in than they used to (an average of 4.2pc), while employers have frozen contribution rates, at an average of 7.2pc of a worker's salary, over the past year.
Tony Pugh of Mercer said: "When considering the financial and regulatory pressures pension schemes are facing, the stagnation in employer contributions doesn't come as a big surprise. With a double-dip recession looming things are likely to get worse before they get better.
"We expect, however, that rates will trend upwards again over the long term, as employers start to recognise that lowering contributions to defined contribution schemes will change the workforce profile as a result of older employees having to work longer. Equally, employee pressure to increase contributions is likely to have an impact.
He added: "The impact on individual members is significant, especially for those about to retire. Members should keep a close eye on how their pension pot is invested and make sure to shop around for annuities to get the best out of their retirement savings.
"Those eligible are likely to increasingly use drawdown options, but these are not without risk as investment values could fall."
Ask an expert: Shares v houses
Shares v houses
March 2, 2011
Question: The idea of common sense investing needs to be taught as a mandatory subject in our education system. But if you BUY Australian blue chips stocks and hold them over your lifetime the magic rule of 72, with marvelous compounding effects will return profits far in excess of an average residential home.
Take for example Westfield shopping Centers, if you invested just $1,000 back in 1960 and then reinvested the dividends, it would now be worth over $132 million dollars!!!
The average house purchased for $1,000 at that time would now only be worth around $500,000. That means shares outperform houses by a margin of over 264 times!!!
I not recommending buying Westfield shares, but what I'm saying is the investment thought process in this country is too biased towards real estate, through elements like our parents, media, political benefits, etc.
Over our lifetime there are much more rewarding investments we could make. The most intelligent advice I could give any young couple now would be something that most people don't want to hear!
Don't buy an OVERPRICED house, instead invest all your savings into the Big 4 Bank stocks, so you can retire much earlier from receiving Fully Franked TAX FREE dividends from all the other sheep in mortgage stress for the next 30+ years.
"Fortune favors the brave"
Answer: Australia seems to be divided into share lovers and property lovers and I tend to be on your side. The benefit of shares is that you can buy and sell quickly and in part and never have the worries of maintenance, land tax, vacancies, etc. On the other hand you can't generalise about the property market as some properties have done spectacularly well. For most people a diversified portfolio is still the way to go.
Read more: http://www.smh.com.au/money/ask-an-expert/blogs/ask-an-expert/shares-v-houses-20110301-1bcfu.html#ixzz1gHDqVARv
March 2, 2011
Question: The idea of common sense investing needs to be taught as a mandatory subject in our education system. But if you BUY Australian blue chips stocks and hold them over your lifetime the magic rule of 72, with marvelous compounding effects will return profits far in excess of an average residential home.
Take for example Westfield shopping Centers, if you invested just $1,000 back in 1960 and then reinvested the dividends, it would now be worth over $132 million dollars!!!
The average house purchased for $1,000 at that time would now only be worth around $500,000. That means shares outperform houses by a margin of over 264 times!!!
I not recommending buying Westfield shares, but what I'm saying is the investment thought process in this country is too biased towards real estate, through elements like our parents, media, political benefits, etc.
Over our lifetime there are much more rewarding investments we could make. The most intelligent advice I could give any young couple now would be something that most people don't want to hear!
Don't buy an OVERPRICED house, instead invest all your savings into the Big 4 Bank stocks, so you can retire much earlier from receiving Fully Franked TAX FREE dividends from all the other sheep in mortgage stress for the next 30+ years.
"Fortune favors the brave"
Answer: Australia seems to be divided into share lovers and property lovers and I tend to be on your side. The benefit of shares is that you can buy and sell quickly and in part and never have the worries of maintenance, land tax, vacancies, etc. On the other hand you can't generalise about the property market as some properties have done spectacularly well. For most people a diversified portfolio is still the way to go.
Read more: http://www.smh.com.au/money/ask-an-expert/blogs/ask-an-expert/shares-v-houses-20110301-1bcfu.html#ixzz1gHDqVARv
Investing an inheritance
March 9, 2011
Question: I am 23 years old and have recently inherited $100,000. I am uncertain as to whether I should simply leave this money in a high interest cash account, or invest in shares. Although I have studied some finance, I am unsure as to where I should go for impartial share advice. What is the best thing to do with this amount of cash at present?
Answer: Your best strategy depends on your goals because it is unwise to invest money in property or shares unless you have at least a seven to ten year timeframe in mind. Leave it in a high interest online cash account while you examine your options but cash is probably the best place for it if you are thinking about buying a house in the next three or four years.
Read more: http://www.smh.com.au/money/ask-an-expert/blogs/ask-an-expert/investing-an-inheritance-20110307-1bkop.html#ixzz1gHF0FT5a
Sunday 11 December 2011
Why invest directly?
Why invest directly?
Direct investment gives the investor control over those assets and investments, including the making of decisions relating to those investments and their day-to-day management and administration. Accordingly, direct investment will suit those investors with the time and expertise required to manage their own affairs, either by themselves, or in conjunction with an adviser.
Direct share investments offer a number of advantages:
Direct investment gives the investor control over those assets and investments, including the making of decisions relating to those investments and their day-to-day management and administration. Accordingly, direct investment will suit those investors with the time and expertise required to manage their own affairs, either by themselves, or in conjunction with an adviser.
Direct share investments offer a number of advantages:
- Liquidity (quick conversion to cash)
- Daily valuation of your investment
- Growth through new issues (e.g. bonus issues)
- Flexibility
- Safeguards/security
- Free and open market
- Convenient and easy transferred ownership, and
- Usually no holding cost once purchased.
Investment checklist: Liquidity, Valuation, Stock Exchange lsited, Cost effective
Share market investment strategies: General planning tips
Share market investment strategies: General planning tips
Never buy shares on tips or rumours alone. Try and understand the type of business the company is involved in before you invest.
Remember, the higher the potential return, the greater the risk. Real rates of return (i.e. adjusted for tax and inflation) average around 4 percent to 5 percent per annum over the longer term (seven to ten years). Don't be misled by apparently impressive historical investment statistics: past performance is no indication of things to come.
Keep your portfolio manageable by concentrating on a relatively small number of quality investments. To do this, avoid acquiring lots of speculative stocks.
Check the liquidity of each investment (how long it takes for your money to be returned if you decide to cash out).
Understand all transaction cost, including early withdrawal penalties and tax implications.
Always maintain an adequate cash reserve to cover unexpected expenditures, emergencies and new investment opportunities.
To minimise risk and maximise growth, you should assess how much risk you are prepared to take and spread your investments across several investment types and different companies.
http://www.asx.com.au/courses/shares/course_09/index.html?shares_course_09
Never buy shares on tips or rumours alone. Try and understand the type of business the company is involved in before you invest.
Remember, the higher the potential return, the greater the risk. Real rates of return (i.e. adjusted for tax and inflation) average around 4 percent to 5 percent per annum over the longer term (seven to ten years). Don't be misled by apparently impressive historical investment statistics: past performance is no indication of things to come.
Keep your portfolio manageable by concentrating on a relatively small number of quality investments. To do this, avoid acquiring lots of speculative stocks.
Check the liquidity of each investment (how long it takes for your money to be returned if you decide to cash out).
Understand all transaction cost, including early withdrawal penalties and tax implications.
Always maintain an adequate cash reserve to cover unexpected expenditures, emergencies and new investment opportunities.
To minimise risk and maximise growth, you should assess how much risk you are prepared to take and spread your investments across several investment types and different companies.
http://www.asx.com.au/courses/shares/course_09/index.html?shares_course_09
The objective of fundamental analysis is to determine a company's intrinsic value or its growth prospects.
Fundamental analysis
Fundamental analysis is the study of the various factors that affect a company's earnings and dividends. Fundamental analysis studies the relationship between a company's share price and the various elements of its financial position and performance.
Fundamental analysis also involves a detailed examination of the company's competitors, the industry or sector it is a member of and the broader economy.
Fundamental analysis is forward looking even though the data used is by and large historical. The objective of fundamental analysis is to determine a company's intrinsic value or its growth prospects. This intrinsic value can be compared to the current value of the company as measured by the share price. If the shares are trading at less than the intrinsic value then the shares may be seen as good value.
Many people use fundamental analysis to select a company to invest in, and technical analysis to help make their buy and sell decisions.
Factors affecting future earnings prospects of a company:
Analysing individual companies
The analysis of an individual company has two components:
- The 'story' - what the company does, what its outlook is
- The 'numbers' - the financials of the company, balance sheet and income statement and ratio analysis.
Unfortunately, balance sheet and ratio analysis is probably the most daunting part of fundamental analysis for non-professional investors. A large number of numerical techniques appear to be used. However, you can make it less painful by adopting a methodical approach and by always remembering that behind all the numbers is a real business run by real people producing real goods and services, this is the part we call "the story".
It is unlikely that you will need to do the number crunching for every company, your time will be more profitably spent developing the company story. Balance sheets and ratio analysis, both historical and forecast, can be obtained from either a full service or discount stockbroker.
What are you trying to learn about a company?
Before trying to leap into the calculations behind fundamental analysis there are some basic questions that are worth considering as a starting point:
Companies are multidimensional. For example, debt funding may have increased - this may be a positive move if the funds produce new productive assets.
Fundamental analysis (Summary)
When you buy shares you are becoming a part owner in that business.
To make an informed decision if you want to be an owner in that business, it is important to understand how that company operates and what its prospects are.
To understand a company, you can read its annual report which is one of the most important publications it releases to the market.
Analysing an annual report gives you the ability to build a good picture of how that business has performed over the past 12 months and what its prospects might be for the future.
To compare the annual reports and prospects of different companies, there are commonly used financial ratios, these include dividend per share, dividend yield, PE ratio and earnings per share.
http://www.asx.com.au/courses/shares/course_10/index.html?shares_course_10
Fundamental analysis is the study of the various factors that affect a company's earnings and dividends. Fundamental analysis studies the relationship between a company's share price and the various elements of its financial position and performance.
Fundamental analysis also involves a detailed examination of the company's competitors, the industry or sector it is a member of and the broader economy.
Fundamental analysis is forward looking even though the data used is by and large historical. The objective of fundamental analysis is to determine a company's intrinsic value or its growth prospects. This intrinsic value can be compared to the current value of the company as measured by the share price. If the shares are trading at less than the intrinsic value then the shares may be seen as good value.
Many people use fundamental analysis to select a company to invest in, and technical analysis to help make their buy and sell decisions.
Factors affecting future earnings prospects of a company:
- Change in senior management
- New efficiency measures
- Product innovations
- Acquisition of another business
- Industrial action
Analysing individual companies
The analysis of an individual company has two components:
- The 'story' - what the company does, what its outlook is
- The 'numbers' - the financials of the company, balance sheet and income statement and ratio analysis.
Unfortunately, balance sheet and ratio analysis is probably the most daunting part of fundamental analysis for non-professional investors. A large number of numerical techniques appear to be used. However, you can make it less painful by adopting a methodical approach and by always remembering that behind all the numbers is a real business run by real people producing real goods and services, this is the part we call "the story".
It is unlikely that you will need to do the number crunching for every company, your time will be more profitably spent developing the company story. Balance sheets and ratio analysis, both historical and forecast, can be obtained from either a full service or discount stockbroker.
What are you trying to learn about a company?
Before trying to leap into the calculations behind fundamental analysis there are some basic questions that are worth considering as a starting point:
- Where is the growth in the company coming from?
- Is the growth being achieved organically or through acquisition?
- Is turnover keeping pace with the sector and with competitors?
- What about the profit margin - is it growing? Is it too high compared to competitors? If it is too high then new competitors could enter on price reducing margins. Low earnings could suggest control of the cost base has been lost or factors outside the company's control are squeezing margins.
- To what extent do profits reflect one-off events?
- Will profits be sustainable over the long term?
Companies are multidimensional. For example, debt funding may have increased - this may be a positive move if the funds produce new productive assets.
Fundamental analysis (Summary)
When you buy shares you are becoming a part owner in that business.
To make an informed decision if you want to be an owner in that business, it is important to understand how that company operates and what its prospects are.
To understand a company, you can read its annual report which is one of the most important publications it releases to the market.
Analysing an annual report gives you the ability to build a good picture of how that business has performed over the past 12 months and what its prospects might be for the future.
To compare the annual reports and prospects of different companies, there are commonly used financial ratios, these include dividend per share, dividend yield, PE ratio and earnings per share.
http://www.asx.com.au/courses/shares/course_10/index.html?shares_course_10
The annual report should be an essential read for all current and potential shareholders to a company.
While the share price tables in the newspaper provide a useful summary of company information, they are limited because their price information is historical and the data only represents part of the company story.
The share price tables in the business section of the newspaper provide an excellent summary of key information on a company. They generally show the previous day's closing price, price range, upcoming dividends, yield and PE ratio. The detail will vary depending on the newspaper. By its nature this information is always going to be dated and does not provide an investor with other important elements to the company's story, such as management experience, recent business developments and what their competitors are doing.
What document are these crucial information sources found in: Director's report, company financial tables, corporate governance report, and largest shareholders table? Answer: Annual report.
The annual report should be an essential read for all current and potential shareholders to a company. It contains key information on the current and expected future health of a company.
http://www.asx.com.au/courses/shares/course_07/index.html?shares_course_07
The share price tables in the business section of the newspaper provide an excellent summary of key information on a company. They generally show the previous day's closing price, price range, upcoming dividends, yield and PE ratio. The detail will vary depending on the newspaper. By its nature this information is always going to be dated and does not provide an investor with other important elements to the company's story, such as management experience, recent business developments and what their competitors are doing.
What document are these crucial information sources found in: Director's report, company financial tables, corporate governance report, and largest shareholders table? Answer: Annual report.
The annual report should be an essential read for all current and potential shareholders to a company. It contains key information on the current and expected future health of a company.
http://www.asx.com.au/courses/shares/course_07/index.html?shares_course_07
Why is it important to regularly review your share portfolio?
Why is it important to regularly review your share portfolio?
Answer: To determine whether your investment goals are being met.
You need to review your portfolio regularly to ensure your investment goals are being met. To maximise your investment potential, you will want to be proactive rather than being forced to react to market trends. Speculative stocks will need to be monitored more frequently than blue chip stocks, but even the latter need regular review to ensure they are serving the purpose for which you bought them.
Answer: To determine whether your investment goals are being met.
You need to review your portfolio regularly to ensure your investment goals are being met. To maximise your investment potential, you will want to be proactive rather than being forced to react to market trends. Speculative stocks will need to be monitored more frequently than blue chip stocks, but even the latter need regular review to ensure they are serving the purpose for which you bought them.
An important skill when reading articles in the press is to identify the difference between fact and opinion.
FINANCIAL NEWS
THIS WEEK
STOCKS SET TO SIZZLE
Joe's BBQs Ltd shares are set to soar after the recent Consumer group survey revealed that 95% of all Australian households are set to update their outdoor entertaining facilities this summer.
A spokesperson for the Consumer Group survey stated "The survey results indicate a widespread consensus among Australians that it is time to update their BBQs."
Market analysts will be watching the share prices of outdoor furniture and accessory retailers with keen interest when the market opens this morning.
Test your knowledge.
1. In the "Stocks set to sizzle" article is the comment about the future movements of Joe's BBQs shares:
- Fact
- Opinion.
Feedback:
Answer: Opinion
While the information from the Consumer Group survey is fact, the comment about the future performance of Joe's BBQs Ltd shares is the opinion of the article's writer. An important skill when reading articles in the press is to identify the difference between fact and opinion. Before agreeing with a writer's opinion you may want to review the logic that they used to reach their conclusion.
WORLD NEWS
8.34am Reserve Bank drops interest rates.
At the Reserve Bank's monthly meeting yesterday it decided to ease Monetary Policy and reduce interest rates by a quarter of one percent.
The RBA quoted the reduced inflationary pressure in the economy and the falling levels of business investment as the key reasons behind the decision to lower interest rates.
Test your knowledge
2. Does a drop in interest rates generally have a
- Positive effect on the sharemarket
- Negative effect on the sharemarket.
Feedback
Answer: Positive effect on the sharemarket.
Interest Rates reflect the cost of borrowing. The higher interest rates are, the more expensive it is to borrow money. Higher interest rates also mean both individuals and companies have higher repayments on outstanding loans.
Test your knowledge
3. Do these two articles alone contain enough information to base a decision to buy shares in Joe's BBQs Ltd?
- Yes
- No
Feedback
Answer: No
While articles like these may provide the spark to motivate you to investigate, a crucial step before any share purchase is to review the company announcements released by your target company. First you will need to get more information about Joe's BBQs Ltd from the ASX website.
http://www.asx.com.au/courses/shares/course_06/index.html?shares_course_06
THIS WEEK
STOCKS SET TO SIZZLE
Joe's BBQs Ltd shares are set to soar after the recent Consumer group survey revealed that 95% of all Australian households are set to update their outdoor entertaining facilities this summer.
A spokesperson for the Consumer Group survey stated "The survey results indicate a widespread consensus among Australians that it is time to update their BBQs."
Market analysts will be watching the share prices of outdoor furniture and accessory retailers with keen interest when the market opens this morning.
Test your knowledge.
1. In the "Stocks set to sizzle" article is the comment about the future movements of Joe's BBQs shares:
- Fact
- Opinion.
Feedback:
Answer: Opinion
While the information from the Consumer Group survey is fact, the comment about the future performance of Joe's BBQs Ltd shares is the opinion of the article's writer. An important skill when reading articles in the press is to identify the difference between fact and opinion. Before agreeing with a writer's opinion you may want to review the logic that they used to reach their conclusion.
WORLD NEWS
8.34am Reserve Bank drops interest rates.
At the Reserve Bank's monthly meeting yesterday it decided to ease Monetary Policy and reduce interest rates by a quarter of one percent.
The RBA quoted the reduced inflationary pressure in the economy and the falling levels of business investment as the key reasons behind the decision to lower interest rates.
Test your knowledge
2. Does a drop in interest rates generally have a
- Positive effect on the sharemarket
- Negative effect on the sharemarket.
Feedback
Answer: Positive effect on the sharemarket.
Interest Rates reflect the cost of borrowing. The higher interest rates are, the more expensive it is to borrow money. Higher interest rates also mean both individuals and companies have higher repayments on outstanding loans.
Test your knowledge
3. Do these two articles alone contain enough information to base a decision to buy shares in Joe's BBQs Ltd?
- Yes
- No
Feedback
Answer: No
While articles like these may provide the spark to motivate you to investigate, a crucial step before any share purchase is to review the company announcements released by your target company. First you will need to get more information about Joe's BBQs Ltd from the ASX website.
http://www.asx.com.au/courses/shares/course_06/index.html?shares_course_06
The benefits of having an investment philosophy and strategy
The benefits of having a strategy to support your investing are:
- the removal of subjectivity
- consistency in your investment decisions
- the ability to repeat your successes and avoid repeating your mistakes.
A strategy is simply a set of rules or guidelines that are adopted consistently over time. Having a strategy does not prevent you from having losses though. By documenting your approach to investing you can help remove the emotive element to making a decision by ensuring that you have developed a solid argument to support your investment decision. Another advantage of having documented your approach to decision making means that your have a record of how you achieved your successful results to help you repeat them.
- the removal of subjectivity
- consistency in your investment decisions
- the ability to repeat your successes and avoid repeating your mistakes.
A strategy is simply a set of rules or guidelines that are adopted consistently over time. Having a strategy does not prevent you from having losses though. By documenting your approach to investing you can help remove the emotive element to making a decision by ensuring that you have developed a solid argument to support your investment decision. Another advantage of having documented your approach to decision making means that your have a record of how you achieved your successful results to help you repeat them.
How to decide what shares to buy?
How to decide what to buy?
When it comes to deciding what shares to buy, the most important thing to consider is your investment goals, in particular, the performance goals you set for the share investments portion of your portfolio.
For example, you might be aiming to achieve an average after-tax dividend yield of 4% p.a. and capital growth of 8% p.a. over the next 10 years. In that case, you could buy some shares that provide reliable, tax-effective dividends and the expectation of solid year-on-year growth.
Alongside long term investing, there are share trading opportunities that offer the chance to grow your investment capital more quickly. Active or daily trading carries with it certain risks that need to be considered carefully. With this in mind, looking at the range of categories that shares fall into can be a useful place to start.
(Long term investors aim to capture an upward trend in market value. Short term investors try to capture value from the volatility in the share market.)
Income shares - Pay larger dividends, compared to other types of shares, that can be used to generate income without selling the shares, but the share price generally does not rise very quickly.
Blue chip shares - Issued by companies with long histories of growth and stability. Blue chip shares usually pay regular dividends and generally maintain a fairly steady price trend.
Growth shares - Issued by entrepreneurial companies experiencing a faster rate of growth than their general industries. These shares normally pay little or no dividends because the company needs most or all of its earnings to finance expansion.
Cyclical shares - Issued by companies that are affected by general economic trends. The share prices tend to fall during periods of economic recession and rise during economic booms. For example, mining, heavy machinery, and home building companies.
Defensive shares - The opposite of cyclical shares. Companies producing staples such as food, beverages, pharmaceuticals and insurance issue defensive shares. They typically maintain their value during economic downturns.
http://www.asx.com.au/courses/shares/course_01/index.html?shares_course_01
When it comes to deciding what shares to buy, the most important thing to consider is your investment goals, in particular, the performance goals you set for the share investments portion of your portfolio.
For example, you might be aiming to achieve an average after-tax dividend yield of 4% p.a. and capital growth of 8% p.a. over the next 10 years. In that case, you could buy some shares that provide reliable, tax-effective dividends and the expectation of solid year-on-year growth.
Alongside long term investing, there are share trading opportunities that offer the chance to grow your investment capital more quickly. Active or daily trading carries with it certain risks that need to be considered carefully. With this in mind, looking at the range of categories that shares fall into can be a useful place to start.
(Long term investors aim to capture an upward trend in market value. Short term investors try to capture value from the volatility in the share market.)
Income shares - Pay larger dividends, compared to other types of shares, that can be used to generate income without selling the shares, but the share price generally does not rise very quickly.
Blue chip shares - Issued by companies with long histories of growth and stability. Blue chip shares usually pay regular dividends and generally maintain a fairly steady price trend.
Growth shares - Issued by entrepreneurial companies experiencing a faster rate of growth than their general industries. These shares normally pay little or no dividends because the company needs most or all of its earnings to finance expansion.
Cyclical shares - Issued by companies that are affected by general economic trends. The share prices tend to fall during periods of economic recession and rise during economic booms. For example, mining, heavy machinery, and home building companies.
Defensive shares - The opposite of cyclical shares. Companies producing staples such as food, beverages, pharmaceuticals and insurance issue defensive shares. They typically maintain their value during economic downturns.
http://www.asx.com.au/courses/shares/course_01/index.html?shares_course_01
Record keeping to monitor and manage the performance of your portfolio of shares.
Keeping records of your shares
Many investors put considerable time and effort into the initial planning of their portfolio and choosing the shares they buy. Yet for some reason, many don't put the same time and effort into monitoring and managing the performance of their portfolio once it has been established.
Regular review of your portfolio is vital to establish whether your investment goals are being met. # Many investors have a complacent attitude to investing. As a result, they lack the market information necessary to make informed investment decisions, are forced to behave reactively and may end up losing out. However by tracking your portfolio, you will give yourself the chance to plan ahead and take advantage of opportunities such as buying more shares in a particular company that, by your reckoning, is trading at a discount.
Example:
June - Check portfolio
July - Talk to accountant
August - Rebalance portfolio
September - Take sharemarket education course
October - Update dividend information in portfolio records
November -
December - Talk to advisor.
As the sharemarket is continually changing, it requires regular attention, yet there are no hard and fast rules as to how often a portfolio should be monitored. The performance of volatile shares may need to be checked several times a day, while more stable large capitalisation companies can be reviewed at longer intervals.
To track your portfolio effectively, you need to know where to locate useful information and be able to understand how it affects the shares you own.
You may be liable to pay tax on any money you make from shares in the form of income or capital gain in certain countries. These tax offices of these countries will need details of both income and capital gains (or losses) that you make to calculate the tax you may owe. However, by maintaining simple, accurate and complete records you will be able to ensure that you pay the appropriate tax without incurring large accounting fees.
If you do want to do the record keeping yourself, the 2 main types of records required to keep track of sharemarket investments are:
1. Records relating to income for income tax purposes, including, dividend, dividend reinvestment or interest payment advice slips all of which generally are issued by company share registries to the holder's registered address; and
2. Records relating to purchase and sale prices for capital gains tax purposes, including contract notes, copies of applications made for initial public offerings, dividend reinvestment and bonus shares plan advice slips.
Generally records are required to be kept for 5 years. However, the events that mark the beginning or the end of the retention period vary according to the relevant provisions of the particular law.
Computer software packages and ledger sheets are available to assist you with your record keeping. If you prefer to keep paper-based as opposed to computer-based records, an investment ledger will provide you with an easy and convenient way to keep records of your share transactions.
http://www.asx.com.au/courses/shares/course_07/index.html?shares_course_07
Download example spreadsheets for keeping track of your shares.
# For example, you might be aiming to achieve an average after-tax dividend yield of 4% p.a. and capital growth of 8% p.a. over the next 10 years. In that case, you could buy some shares that provide reliable, tax-effective dividends and the expectation of solid year-on-year growth.
Many investors put considerable time and effort into the initial planning of their portfolio and choosing the shares they buy. Yet for some reason, many don't put the same time and effort into monitoring and managing the performance of their portfolio once it has been established.
Regular review of your portfolio is vital to establish whether your investment goals are being met. # Many investors have a complacent attitude to investing. As a result, they lack the market information necessary to make informed investment decisions, are forced to behave reactively and may end up losing out. However by tracking your portfolio, you will give yourself the chance to plan ahead and take advantage of opportunities such as buying more shares in a particular company that, by your reckoning, is trading at a discount.
Example:
June - Check portfolio
July - Talk to accountant
August - Rebalance portfolio
September - Take sharemarket education course
October - Update dividend information in portfolio records
November -
December - Talk to advisor.
As the sharemarket is continually changing, it requires regular attention, yet there are no hard and fast rules as to how often a portfolio should be monitored. The performance of volatile shares may need to be checked several times a day, while more stable large capitalisation companies can be reviewed at longer intervals.
To track your portfolio effectively, you need to know where to locate useful information and be able to understand how it affects the shares you own.
You may be liable to pay tax on any money you make from shares in the form of income or capital gain in certain countries. These tax offices of these countries will need details of both income and capital gains (or losses) that you make to calculate the tax you may owe. However, by maintaining simple, accurate and complete records you will be able to ensure that you pay the appropriate tax without incurring large accounting fees.
If you do want to do the record keeping yourself, the 2 main types of records required to keep track of sharemarket investments are:
1. Records relating to income for income tax purposes, including, dividend, dividend reinvestment or interest payment advice slips all of which generally are issued by company share registries to the holder's registered address; and
2. Records relating to purchase and sale prices for capital gains tax purposes, including contract notes, copies of applications made for initial public offerings, dividend reinvestment and bonus shares plan advice slips.
Generally records are required to be kept for 5 years. However, the events that mark the beginning or the end of the retention period vary according to the relevant provisions of the particular law.
Computer software packages and ledger sheets are available to assist you with your record keeping. If you prefer to keep paper-based as opposed to computer-based records, an investment ledger will provide you with an easy and convenient way to keep records of your share transactions.
http://www.asx.com.au/courses/shares/course_07/index.html?shares_course_07
Download example spreadsheets for keeping track of your shares.
# For example, you might be aiming to achieve an average after-tax dividend yield of 4% p.a. and capital growth of 8% p.a. over the next 10 years. In that case, you could buy some shares that provide reliable, tax-effective dividends and the expectation of solid year-on-year growth.
The best time to buy shares is not about timing the market but rather about time in the market.
Many people who decide they need shares as part of their investment portfolio often hesitate when it comes to actually buying the shares; usually because they're not sure if it is the best time to buy or they feel they still have a lot to learn about the sharemarket.
The best time to buy shares is not about timing the market but rather about time in the market. No one, not even the famous sharemarket guru and one of the world's richest people, Warren Buffett, knows whether a particular share or the market as a whole will rise or fall in the near future. What he does know is that it will rise AND fall, and that short-term volatility does not matter as long as it rises over the medium to long term.
You can learn about the sharemarket by observing and keeping an eye on how your shares perform under different market conditions.
Long term investors aim to capture an upward trend in market value.
Short term investors try to capture value from the volatility in the sharemarket.
The best time to buy shares is not about timing the market but rather about time in the market. No one, not even the famous sharemarket guru and one of the world's richest people, Warren Buffett, knows whether a particular share or the market as a whole will rise or fall in the near future. What he does know is that it will rise AND fall, and that short-term volatility does not matter as long as it rises over the medium to long term.
You can learn about the sharemarket by observing and keeping an eye on how your shares perform under different market conditions.
Long term investors aim to capture an upward trend in market value.
Short term investors try to capture value from the volatility in the sharemarket.
Saturday 10 December 2011
Give a gift of financial knowledge to a child or grandchild.
Strategy: Give a gift of financial knowledge.
Best for: Gift-givers at all income levels.
Overview:
Even if you're not in a position to make a financial gift to a child or grandchild, you can still take time to impart financial wisdom.
Even for very young children, it's not too early to start discussing big-picture concepts such as the benefits of delaying gratification today for a greater payoff down the line.
And if a child is slightly older, you can share some specifics of your own approach to investing; it's amazing how many great investors say they got their starts by reading the stock tables with their grandparents.
You might also share a good basic book about investing: The Wall Street Journal Guide to Starting Your Financial Life is a fine entry-level book for new investors; The Bogleheads' Guide to Investing is another great basic tome for entry-level investors.
The Best Ways to Give a Financial Gift to Children
Help the kids establish a solid financial foundation with these four strategies.
Question: I'm not rich, but I'd like to set my grandchildren on the right path to saving, investing, and understanding their money. Do you have any tips for giving financial gifts this holiday season?
Christine Benz is Morningstar's director of personal finance and author of 30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances and the Morningstar Guide to Mutual Funds: 5-Star Strategies for Success. Follow Christine on Twitter: @christine_benz and on Facebook.
Answer: Wealthy individuals often go to great lengths to pass assets to their heirs, setting up trusts and using other elaborate mechanisms to ensure an efficient transfer of assets. But don't think you need to be a Rockefeller to have a meaningful impact on the financial futures of your children and grandchildren. You can fund various types of financial accounts with as little as $25 to start.Here are some of the key strategies to consider when giving children and grandchildren a financial boost. There's no one-size-fits-all answer: The right choice for your situation will depend on how much you intend to give as well as your grandchild's life stage and the goal of financial assistance.Strategy: Set up a UGMA/UTMA account.Best for: General savings and investing, particularly for relatively small dollar amounts.Overview: UGMA/UTMA accounts provide a way to save on behalf of a minor child without setting up trust funds or hiring attorneys. As a donor, you'd appoint yourself or other adults (such as the child's parents) to look after the account. One of the key advantages with UGMA/UTMA accounts is flexibility: You can put a huge range of investment options inside a UGMA/UTMA wrapper, including stocks and mutual funds.If you're saving fairly small sums, these accounts can be a decent way to go, but there are two major hitches. The first is that the assets become the child's property when he or she reaches the age of the majority--18 or 21, depending on state of residence--leaving the donor with no real control over where the money is spent. The second is that for college-bound children, substantial UGMA/UTMA assets will tend to work against them in financial-aid calculations. (This Investing Classroom unit discusses UGMA/UTMA accounts.)If you're setting up a UGMA/UTMA account, my advice is to keep it simple and choose a plain-vanilla, well-diversified fund. Total market stock market index funds can make sturdy anchor holdings for UGMA/UTMA accounts.Strategy: Contribute to a 529 PlanBest for: Building college savings while possibly obtaining a tax break at the same time.Overview: If you're saving for a college-bound child or grandchild, section 529 college-savings plans help you avoid the two key pitfalls of UGMA/UTMA accounts. First, the assets are the property of the account owner (in this case, you), not the child. So if your grandchild doesn't end up going to college, you can use the 529 assets for another grandchild. Second, because 529 plan assets are considered to be the property of the account owner, they have a relatively limited impact on financial-aid eligibility. In addition, you won't owe taxes on 529 plan investment earnings from year to year, and withdrawals from a 529 plan account will be tax-free provided you use them to pay for qualified higher-education expenses such as tuition and room and board. Finally, you may be eligible for a state tax break on your contribution; this article discusses the value of those tax advantages on a state-by-state basis.Even though 529s have generally improved over the years, their quality is still uneven and some plans are costly. Morningstar's 529 Plan Center helps you assess the pros and cons of your state's plan; the 529 plans from Maryland, Ohio, and Nevada are among our favorites.Strategy: Fund a Roth IRABest for: Saving for the long haul, especially for older children.Overview: If your grandchild is older and working, you can contribute an amount equal to his or her earned income, up to $5,000, to a Roth IRA. As with a UGMA/UTMA account, you can put a huge range of investments inside a Roth wrapper; there are no investment minimums or age limits on contributions. The money inside the Roth can grow tax-free until retirement, and the vehicle also offers some flexibility for withdrawals before that time. Specifically, contributions to a Roth IRA can be withdrawn at any time and for any reason, to pay for college or anything else. (Those who need to tap the investment-earnings piece of an IRA will owe income tax on that portion of the withdrawal, but they'll circumvent the 10% penalty on early withdrawals if they use the money for qualified college or certain other expenses.)
Despite the big tax benefits, Roth IRAs for children carry one of the key drawbacks that also accompany UGMA/UTMA accounts: The child maintains control over the assets and can use the money for whatever he or she wants at the age of majority (18 or 21, depending on the state.)Strategy: Give a gift of financial knowledge.Best for: Gift-givers at all income levels.Overview: Even if you're not in a position to make a financial gift to a child or grandchild, you can still take time to impart financial wisdom. Even for very young children, it's not too early to start discussing big-picture concepts such as the benefits of delaying gratification today for a greater payoff down the line. And if a child is slightly older, you can share some specifics of your own approach to investing; it's amazing how many great investors say they got their starts by reading the stock tables with their grandparents. You might also share a good basic book about investing: The Wall Street Journal Guide to Starting Your Financial Life is a fine entry-level book for new investors; The Bogleheads' Guide to Investing is another great basic tome for entry-level investors.
Despite the big tax benefits, Roth IRAs for children carry one of the key drawbacks that also accompany UGMA/UTMA accounts: The child maintains control over the assets and can use the money for whatever he or she wants at the age of majority (18 or 21, depending on the state.)Strategy: Give a gift of financial knowledge.Best for: Gift-givers at all income levels.Overview: Even if you're not in a position to make a financial gift to a child or grandchild, you can still take time to impart financial wisdom. Even for very young children, it's not too early to start discussing big-picture concepts such as the benefits of delaying gratification today for a greater payoff down the line. And if a child is slightly older, you can share some specifics of your own approach to investing; it's amazing how many great investors say they got their starts by reading the stock tables with their grandparents. You might also share a good basic book about investing: The Wall Street Journal Guide to Starting Your Financial Life is a fine entry-level book for new investors; The Bogleheads' Guide to Investing is another great basic tome for entry-level investors.
Friday 9 December 2011
Questor share tip: Tesco is solid not spectacular
Questor share tip: Tesco is solid not spectacular
Many of the retailers in the UK are having a tumultuous time – and Tesco is no exception. Short-term challenges remain, but the long-term growth story is intact.
Many of the retailers in the UK are having a tumultuous time – and Tesco is no exception. Short-term challenges remain, but the long-term growth story is intact.
7:00AM GMT 09 Dec 2011
Tesco
397.2p+0.3
Questor says BUY
397.2p+0.3
Questor says BUY
UK same-store sales fell by 0.9pc in the third quarter of the year when petrol and VAT are excluded – the fourth consecutive quarter this has happened. Obviously, the recent “Price Drop” has had a deflationary effect, but Tesco says that this has resulted in stronger food volume growth – adding 1pc to volumes. Under the scheme, Tesco cut the price of 4,000 items to attract new customers.
In April, Tesco’s new boss Philip Clarke admitted that the company’s UK performance wasn’t good enough.
“We didn’t achieve our planned growth in the year and this was only partly attributable to the deterioration in the consumer environment during the second half. We can do better and we are taking action in key areas – for example, to drive a faster rate of product innovation and to improve the sharpness of our communication to customers,” Mr Clarke said.
These results have demonstrated that the turnaround has not yet happened in the company’s home market – but Questor feels confident that a turnaround will eventually come. Indeed, if inflation behaves how analysts predict next year, this could be a positive for the whole retail sector as the squeeze on household budgets eases.
RBS is forecasting that price rises as measured by the Retail Price Index (RPI) will fall from 5.4pc in October to 2.4pc by the end of 2012 and hit 1.9pc in 2013.
The group’s operations in Thailand were also impacted by the disastrous floods last month. Like-for-like sales growth in the Asian nation fell to 1.4pc in the quarter compared with growth of 7.5pc in the second quarter of the year. In total, 100 of its Tesco Lotus stores in the country are still not operating, although they are all expected to reopen by January.
Results for the group as a whole were in line with market expectations. In the 13 weeks to November 26, sales including petrol rose 7.2pc and 5.4pc when fuel sales were excluded.
The one thing that differentiates Tesco from its UK competition is international footprint. This is arguably why Warren Buffett, the world’s most famous investor, bought in to the company in 2007. Last month, Mr Buffett picked Tesco as his top European investment for the long-term investor.“If the price came down some on Tesco I’d buy some more of that,” he told CNBC.
Like-for-like sales in the US rose 11.9pc, which is a slowdown on the 12.4pc seen in the second quarter. The operation is still not profitable.
Same-store sales in the Czech Republic fell 0.3pc, with like-for-likes in Turkey down 2.6pc and in Malaysia 5pc lower. Tesco put the falls in Turkey and Malaysia down to the later timing of Ramadan this year.
Management is comfortable with consensus expectations, but there is obviously a great deal of caution heading into the key Christmas trading period. As one analyst said yesterday, the results were “solid rather than spectacular.”
The current–year earnings multiple is 11.2, falling to 10.1 and the prospective yield is a respectable 4.9pc, rising to 4.3pc in the year to February 2013.
The shares were tipped as a buy on December 14, 2008, at 329¾p and they are up 20pc, compared with a FTSE 100 up 29pc. They have been tipped as high as 421.85p. The shares remain a buy.
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