Investment Mistakes in a Bear Market
This is a guest article by Ray, the owner and primary author of Financial Highway, where he discusses investing, saving and practical money management concepts.
Investing seems scary, and investing during a bear market is even scarier. Believe it or not bear markets are an important part of a healthy business cycle, corrections are needed to ensure prices are not overly inflated. It is true that market corrections put a little dent in our portfolios, however the big losses are due to our emotions and investment mistakes in a bear market where we try to reduce losses but actually are losing more. What are some of these mistakes?
Sell, Sell, Sell…
When markets tumble everyone gets freaked out and starts selling without any logical reasoning or attention to long-term goals. As the sell-off continues more investors jump on the train and sell their investments, often they all miss the fact that they are selling at the bottom to only repurchase them back at the top. Stop selling without a reason, only sell if the fundamentals have changed for the long term or the investment does not fit in your plan, not because everyone else is selling in the market.
Stop Investing
The only worse thing one can do than selling out in a bear market is stop investing during the bear market. People get scared and think the markets are falling apart and believe there is no point in investing. Would you stop shopping if retail prices dropped 30%? No. You would probably buy even more because everything is on sell now so you’ll take advantage of the good prices, same concept applies to investing. There is a huge sell going on in the financial markets during bear markets and you should take advantage of it and not hide from it. When you stop investing during a bear market you will miss out on many undervalued investment opportunities which can have great returns in the long run.
Look at Alternative Investment
Some investors start to look at alternative investments because they believe somehow these will perform better than the equity markets. In this recession the focus has been gold investment, gold is reaching all time highs and investors believe gold is a great place to invest. Frugal Dad recently answered a readers question regarding gold, here are my reasons why gold is a bad investment. Although alternative investments have their place in a portfolio the excessive focus during bear markets makes them dangerous.
Timing the Market
Unless you have a crystal ball or have some psychic abilities just stop wasting your time and money trying to time the markets. Investors are more likely to time the markets during a bear market, as there are often big swings, which are seen as opportunities by investors, this strategy will only hurt your portfolio.
I know bear markets hurt, but you trying to “improve” things will only make things worse. Successful investing is not magic, just keep things simple and maybe follow few investing and money rules of thumb and you’ll be fine in the long run.
What were your investment mistakes during this bear market? What have you learned from them? You know anyone who made these mistakes?
http://frugaldad.com/2009/10/20/investment-mistakes-bear-market/
Thursday, 22 October 2009
The Professionals' Trade Secrets or What Methods do They Use?
In order to make a profit in the stock market, an investor must have some ideas regarding how the prices of stocks behave. If he knows the behaviour patterns of stock prices, he may be able to forecast correctly what the price of a stock will be in the future.
If his forecasted price is higher than the present market price of a particular stock, he ought to buy and reap the profit when the price rises to his forecasted level. The reverse also applies in that if he thinks the price of a stock he is holding will decline in the future, he ought to sell it now and buy it back later on when the price will be lower.
Stock market investment has become a very sophisticated, very scientific pursuit in the West and several schools of thought, that is, ways of thinking regarding how the stock prices behave, have been developed. Each school is different from the other and may even be totally opposite; each attracting different supporters.
There are what may be termed THREE 'legitimate ' schools of thought and AN 'unofficial' one.
The unofficial school of thought is generally called
while the three legitimate schools are as follows:
Which of these four schools of thought is/are applicable to the local Malaysian market? I am of the bias opinion that the fundamentalist school of thought is the one most applicable here. It is most likely that many do not agree.
No expert agrees exactly with another regarding stock values.
"There is no such thing as a final answer to stock values. A dozen experts will arrive at twelve different conclusions" - Gerald Loeb
Ref: Stock Market Investment in Malaysia and Singapore by Neoh Soon Kean
If his forecasted price is higher than the present market price of a particular stock, he ought to buy and reap the profit when the price rises to his forecasted level. The reverse also applies in that if he thinks the price of a stock he is holding will decline in the future, he ought to sell it now and buy it back later on when the price will be lower.
Stock market investment has become a very sophisticated, very scientific pursuit in the West and several schools of thought, that is, ways of thinking regarding how the stock prices behave, have been developed. Each school is different from the other and may even be totally opposite; each attracting different supporters.
There are what may be termed THREE 'legitimate ' schools of thought and AN 'unofficial' one.
The unofficial school of thought is generally called
- 'The Greater Fool Theory' or'Buy from a Sucker and Sell to a Sucker'
while the three legitimate schools are as follows:
- (1) Random Walk / Efficient Market Theory (Hypothesis)
- (2) Technical/Chartist School; and
- (3) Fundamentalist School.
Which of these four schools of thought is/are applicable to the local Malaysian market? I am of the bias opinion that the fundamentalist school of thought is the one most applicable here. It is most likely that many do not agree.
No expert agrees exactly with another regarding stock values.
"There is no such thing as a final answer to stock values. A dozen experts will arrive at twelve different conclusions" - Gerald Loeb
Ref: Stock Market Investment in Malaysia and Singapore by Neoh Soon Kean
Comparing Investing And Gambling
Going All-In: Comparing Investing And Gambling
by Stephan Abraham (Contact Author | Biography)
How many times during a discussion with friends about investing have you heard someone utter: "Investing in the stock market is just like gambling at a casino"? Is this adage really true? Let's examine these two activities more closely and see if we can point out some of the key differences and also some surprising similarities.
Investing and gambling both involve risk and choice. Interestingly, both the gambler and the investor must decide how much they want to risk. Some traders typically risk 2-5% of their capital base on any particular trade. Longer-term investors constantly hear the virtues of diversification across different asset classes. This, in essence, is a risk management strategy, and spreading your dollars across different investments will likely help minimize potential losses.
Gamblers must also carefully weigh the amount of capital they want to put "in play." Pot odds are a way of assessing your risk capital versus your risk reward: the amount of money to call a bet compared to what is already in the pot. If the odds are favorable, the player is more likely to "call" the bet. Most professional gamblers are quite proficient at risk management. In both gambling and investing, a key principle is to minimize risk while maximizing profits. (To learn more, see Measuring And Managing Investment Risk.)
Throwing It in the Pot
Sports betting is probably one of the most common "gambling" activities in which the average person engages. From the weekly football office pool to the Final Four, sport betting is an American tradition. Only by thinking about your betting habits will you realize that you have no way to limit your losses. If you pony up $10 a week for the NFL office pool and you don't win, you lose all of your capital. When betting on sports (or really any other pure gambling activity), there are no loss-mitigation strategies.
This is a key difference between investing and gambling. Stock investors and traders have a variety of options to prevent total loss of risked capital. Setting stop losses on your stock investment is a simple way to avoid undue risk. If your stock drops 10% below its purchase price, you have the opportunity to sell that stock to someone else and still retain 90% of your risk capital. However, if you bet $100 that the Jacksonville Jaguars will win the Super Bowl this year, you cannot get part of your money back if they just make it to the Super Bowl. Betting on sports is truly a speculative activity which prevents individuals from minimizing losses.
Another key difference between the two activities has to do with the concept of time. Gambling is a time-bound event while an investment in a company can last several years. With gambling, once the game or hand is over, your opportunity to profit from your wager has come and gone. You either have won or lost your capital. Stock investing, on the other hand, can be time-rewarding. Investors who purchase shares in companies that pay dividends are actually rewarded for their risked dollars. Companies pay you money regardless of what happens to your risk capital, as long as you hold on to their stock. Savvy investors realize that returns from dividends are a key component to making money in stocks over the long term. (For more, see Dividend Facts You May Not Know.)
Playing the Odds
Both stock investors and gamblers look for an edge in order to help enhance their performance. Good gamblers and great stock investors study behavior in some form or another. Gamblers playing poker typically look for cues from the other players at the table, and great poker players can remember what their opponents wagered 20 hands back. They also study the mannerisms and betting patterns of their opponents with the hope of gaining useful information. This information may be just enough to help predict future behavior. Similarly, some stock traders study trading patterns by interpreting stock charts. Stock market technicians try to leverage the charts to glean where the stock is going in the future. This area of study dedicated to analyzing charts is commonly referred to as technical analysis. (To learn more, see our Technical Analysis Tutorial.)
Another difference between investing and gambling is the availability of information. Information is a valuable commodity in the world of poker as well as stock investing. Stock and company information is readily available for public use. Company earnings, financial ratios and management teams can be studied before committing capital. Stock traders who make hundreds of transactions a day can use the day's activities to help with future decisions. Nonetheless, stock information is far from perfect, otherwise, there would not be insider trading or the Securities and Exchange Commission (SEC).
If you sit down at a Blackjack table in Las Vegas, you have no information about what happened an hour, a day or a week ago at that particular table. You may hear that the table is either hot or cold, but that information is not quantifiable.
Conclusion
The next time you hear someone say that stock investing is the same as playing in a casino, remind them that in fact there are some similarities and some major differences.
(To learn more, check out our Investopedia Special Feature: Investing 101.)
by Stephan Abraham, (Contact Author | Biography)
Stephan Abraham graduated from University of Florida with a degree in economics. He has traded part time for about eight years with an emphasis on technicals. In his spare time, Abraham enjoys golfing, outdoor sports, photography and reading.
http://www.investopedia.com/articles/basics/09/compare-investing-gambling.asp?partner=ntu10
Sports betting is probably one of the most common "gambling" activities in which the average person engages. From the weekly football office pool to the Final Four, sport betting is an American tradition. Only by thinking about your betting habits will you realize that you have no way to limit your losses. If you pony up $10 a week for the NFL office pool and you don't win, you lose all of your capital. When betting on sports (or really any other pure gambling activity), there are no loss-mitigation strategies.
Both stock investors and gamblers look for an edge in order to help enhance their performance. Good gamblers and great stock investors study behavior in some form or another. Gamblers playing poker typically look for cues from the other players at the table, and great poker players can remember what their opponents wagered 20 hands back. They also study the mannerisms and betting patterns of their opponents with the hope of gaining useful information. This information may be just enough to help predict future behavior. Similarly, some stock traders study trading patterns by interpreting stock charts. Stock market technicians try to leverage the charts to glean where the stock is going in the future. This area of study dedicated to analyzing charts is commonly referred to as technical analysis. (To learn more, see our Technical Analysis Tutorial.)
The next time you hear someone say that stock investing is the same as playing in a casino, remind them that in fact there are some similarities and some major differences.
- Both activities involve risk of capital with hopes of future profit.
- Gambling is typically a short-lived activity, while stock investing can last a lifetime.
- Some companies actually pay you money in the form of dividends to go along with an ownership stake.
- In general, most average investors will do better investing in stocks over a lifetime than trying to win the World Series of Poker.
(To learn more, check out our Investopedia Special Feature: Investing 101.)
by Stephan Abraham, (Contact Author | Biography)
10 Jobs With High Pay, Low Education Requirements
10 Jobs With High Pay, Low Education Requirements
Posted: October 21, 2009 9:27AM by Michael Kling
Email Article Buzz up!Filed Under: Careers, Economy, Personal Finance
You don't have to go to college earn a decent living. Some professions pay good salaries without requiring post-secondary schooling.
A college degree can be a great path towards a well-paying, satisfying profession, but a bachelor's degree isn't for everyone. In fact, some see advanced education as overrated. A surge in the number of college graduates have dampened the value of a college education. College comes intact with high tuition, room and board, and supplies fees - and that's not even factoring in debt payments that usually last for years, if not decades. (Are old debts coming back to haunt you? We'll show you how to keep these zombies from eating you alive, in Dawn Of The Zombie Debt.)
Trusting the 'Net
Beware of online lists of top-paying professions with little schooling. Some lists cite obscure professions or ones requiring long-term on-the-job training. Just because a profession doesn't officially require a degree is no indicator that and education wouldn't be advantageous, especially for inexperienced applicants in today's competitive job market.
Your New Career
Here's a list of top-paying jobs requiring little schooling, and their median annual earnings as of 2006, using the latest data available from the Bureau of Labor Statistics. Keep in mind that these jobs have their own challenges and often require some type of specialized schooling - sometimes on-the-job training.
1.Air Traffic Controllers: $117,200
◦These workers make sure airplanes land and take off safely, and they typically top lists of this nature. The median 50% earned between $86,860-142,210, with good benefits. Air traffic controllers are eligible to retire at age 50 with 20 years of service, or after 25 years at any age.
Watching blinking dots on a radar screen that control the lives of hundreds can be stressful, and the job require specialized FAA schooling and on-the-job training. Typically, two to four years of training are needed in order to become fully certified, although previous military experience can cut that time down significantly.
2.Industrial Production Managers: $77,670
◦They oversee manufacturing activities. A college degree is preferred, but not necessarily mandatory. They often work in industries such as aviation and automobiles.
3.First-Line Police and Detective Supervisors: $69,300
◦Police officers can advance through the ranks to become supervisors by passing exams and achieving good performance reviews, and advanced training can help win promotions.
4.Funeral Director: $49,620
◦College programs in mortuary science usually last from two to four years. You typically must also serve a one-year apprenticeship, pass an exam and obtain a state license. Hours can be long and irregular. Dealing with dead bodies and crying relatives isn't for everyone.
5.Police and Sheriff Patrol Officers: $47,460
◦Police corporals had an average minimum annual base salary of $44,160, according to the International City-County Management Association. But total income can significantly exceed base salary because of overtime pay. And police officers can often retire at half-pay after 25-30 years of service.
Applicants usually must have at least a high school education, and some departments require a year or two of college or even a degree. Rookies are trained at police academies.
6.Advertising Sales Agents: $42,750
◦20% have a high school degree or less, and 10% have an Associate's degree.
7.Real Estate Brokers and Sales Agents: $39,760
◦Don't let that figure fool you; the highest 10% earned more than $111,500. While advanced coursework is not necessarily required, new entrants must pass an exam and get a state license. Connections in the community and a willingness to work hard are what really count, but experience and a good housing market also help.
8.Occupational Therapist Assistants: $42,060
◦These workers usually need an associate degree or a certificate. They work with occupational therapists, helping injured patients recover from, or compensate for, lost motor skills. Job prospects are good in the growing health care field, especially for those with some post-secondary education.
9.Occupational Therapist Aides: $25,000
◦These employees receive most training on the job. Under supervision of occupational therapists, they also work with injured people. Competition for jobs is tougher for those with only a high school diploma.
10.Physical Therapist Assistants: $41,360
◦These workers deal with physical therapists, helping patents improve mobility, relieve pain or overcome injuries or disabilities. Those working in home health care services tend to make more on average. Aides, earning an average of $22,000, are trained on the job. Assistants, who have greater responsibilities, typically need an associate's degree.
The Bottom Line
Despite a recession, plenty of career paths can lead to well-paying professions without spending four years or more hitting the books, including opportunities in law enforcement, health care and sales. The goal is to find a job that matches your own particular talents and preferences in addition to supporting your lifestyle. (Make your dream a reality. Find out what you can do to reach this financial goal, in How To Make A Million In Your Small Business.)
http://financialedge.investopedia.com/financial-edge/1009/10-Jobs-With-High-Pay-Low-Education-Requirements.aspx?partner=ntu10
Posted: October 21, 2009 9:27AM by Michael Kling
Email Article Buzz up!Filed Under: Careers, Economy, Personal Finance
You don't have to go to college earn a decent living. Some professions pay good salaries without requiring post-secondary schooling.
A college degree can be a great path towards a well-paying, satisfying profession, but a bachelor's degree isn't for everyone. In fact, some see advanced education as overrated. A surge in the number of college graduates have dampened the value of a college education. College comes intact with high tuition, room and board, and supplies fees - and that's not even factoring in debt payments that usually last for years, if not decades. (Are old debts coming back to haunt you? We'll show you how to keep these zombies from eating you alive, in Dawn Of The Zombie Debt.)
Trusting the 'Net
Beware of online lists of top-paying professions with little schooling. Some lists cite obscure professions or ones requiring long-term on-the-job training. Just because a profession doesn't officially require a degree is no indicator that and education wouldn't be advantageous, especially for inexperienced applicants in today's competitive job market.
Your New Career
Here's a list of top-paying jobs requiring little schooling, and their median annual earnings as of 2006, using the latest data available from the Bureau of Labor Statistics. Keep in mind that these jobs have their own challenges and often require some type of specialized schooling - sometimes on-the-job training.
1.Air Traffic Controllers: $117,200
◦These workers make sure airplanes land and take off safely, and they typically top lists of this nature. The median 50% earned between $86,860-142,210, with good benefits. Air traffic controllers are eligible to retire at age 50 with 20 years of service, or after 25 years at any age.
Watching blinking dots on a radar screen that control the lives of hundreds can be stressful, and the job require specialized FAA schooling and on-the-job training. Typically, two to four years of training are needed in order to become fully certified, although previous military experience can cut that time down significantly.
2.Industrial Production Managers: $77,670
◦They oversee manufacturing activities. A college degree is preferred, but not necessarily mandatory. They often work in industries such as aviation and automobiles.
3.First-Line Police and Detective Supervisors: $69,300
◦Police officers can advance through the ranks to become supervisors by passing exams and achieving good performance reviews, and advanced training can help win promotions.
4.Funeral Director: $49,620
◦College programs in mortuary science usually last from two to four years. You typically must also serve a one-year apprenticeship, pass an exam and obtain a state license. Hours can be long and irregular. Dealing with dead bodies and crying relatives isn't for everyone.
5.Police and Sheriff Patrol Officers: $47,460
◦Police corporals had an average minimum annual base salary of $44,160, according to the International City-County Management Association. But total income can significantly exceed base salary because of overtime pay. And police officers can often retire at half-pay after 25-30 years of service.
Applicants usually must have at least a high school education, and some departments require a year or two of college or even a degree. Rookies are trained at police academies.
6.Advertising Sales Agents: $42,750
◦20% have a high school degree or less, and 10% have an Associate's degree.
7.Real Estate Brokers and Sales Agents: $39,760
◦Don't let that figure fool you; the highest 10% earned more than $111,500. While advanced coursework is not necessarily required, new entrants must pass an exam and get a state license. Connections in the community and a willingness to work hard are what really count, but experience and a good housing market also help.
8.Occupational Therapist Assistants: $42,060
◦These workers usually need an associate degree or a certificate. They work with occupational therapists, helping injured patients recover from, or compensate for, lost motor skills. Job prospects are good in the growing health care field, especially for those with some post-secondary education.
9.Occupational Therapist Aides: $25,000
◦These employees receive most training on the job. Under supervision of occupational therapists, they also work with injured people. Competition for jobs is tougher for those with only a high school diploma.
10.Physical Therapist Assistants: $41,360
◦These workers deal with physical therapists, helping patents improve mobility, relieve pain or overcome injuries or disabilities. Those working in home health care services tend to make more on average. Aides, earning an average of $22,000, are trained on the job. Assistants, who have greater responsibilities, typically need an associate's degree.
The Bottom Line
Despite a recession, plenty of career paths can lead to well-paying professions without spending four years or more hitting the books, including opportunities in law enforcement, health care and sales. The goal is to find a job that matches your own particular talents and preferences in addition to supporting your lifestyle. (Make your dream a reality. Find out what you can do to reach this financial goal, in How To Make A Million In Your Small Business.)
http://financialedge.investopedia.com/financial-edge/1009/10-Jobs-With-High-Pay-Low-Education-Requirements.aspx?partner=ntu10
Returns on share investment in Malaysia
Over the long run, the return on an investment of shares is very much higher than the return on fixed deposits.
Historically, in Malaysia/Singapore, the return on share investment had been about twice as high than that obtainable on fixed deposit (based on past ten years' record).
However, since one can never get something for nothing, the much higher return has been accompanied by much greater riskiness of an investment in shares because much of the return from share investment has been in the form of capital gain which is highly unpredictable.
Historically, about three quarters of the total return obtainable from share investment has been obtained by a combination of good years when the return may be higher than 100 percent as well as bad years when the loss may exceed 50 percent.
The changes in the price of share have been so large that they totally swamp the small regular income one can get from shares (in the region of 2-4% on the value of the initial investment).
Historically, in Malaysia/Singapore, the return on share investment had been about twice as high than that obtainable on fixed deposit (based on past ten years' record).
However, since one can never get something for nothing, the much higher return has been accompanied by much greater riskiness of an investment in shares because much of the return from share investment has been in the form of capital gain which is highly unpredictable.
Historically, about three quarters of the total return obtainable from share investment has been obtained by a combination of good years when the return may be higher than 100 percent as well as bad years when the loss may exceed 50 percent.
The changes in the price of share have been so large that they totally swamp the small regular income one can get from shares (in the region of 2-4% on the value of the initial investment).
Regular Income versus Capital Gain
An investment usually produces a combination of regular income and a capital gain.
Different types of investment produce different combinations of these two types of return to the investor.
Some investments produce only a regular income without any capital gains; for example, fixed deposits. While at the other extreme, some investments produce no regular income but promise the possibility of high capital gain; for example, investment in gold or diamonds.
An investment which relies on capital gains alone is a much more risky investment than one which provideds a regular income.
An investment which relies on capital gains alone to reward its investors is less attractive than one which provides the investors with regular income because the former is much less certain than the latter. Furthermore, it is only received right at the end of the period of investment.
An investment which relies on capital gains to reward its investor usually (but not always) produces much higher return than one which relies on regular income.
The above principles are similarly applicable to share investment and putting money in long term fixed deposits. Over the long run, the return on an investment of shares is very much higher than the return on fixed deposits. Historically, in Malaysia/Singapore, the return on share investment had been about twice as high than that obtainable on fixed deposit (based on past ten years' record}.
Different types of investment produce different combinations of these two types of return to the investor.
Some investments produce only a regular income without any capital gains; for example, fixed deposits. While at the other extreme, some investments produce no regular income but promise the possibility of high capital gain; for example, investment in gold or diamonds.
An investment which relies on capital gains alone is a much more risky investment than one which provideds a regular income.
An investment which relies on capital gains alone to reward its investors is less attractive than one which provides the investors with regular income because the former is much less certain than the latter. Furthermore, it is only received right at the end of the period of investment.
An investment which relies on capital gains to reward its investor usually (but not always) produces much higher return than one which relies on regular income.
The above principles are similarly applicable to share investment and putting money in long term fixed deposits. Over the long run, the return on an investment of shares is very much higher than the return on fixed deposits. Historically, in Malaysia/Singapore, the return on share investment had been about twice as high than that obtainable on fixed deposit (based on past ten years' record}.
I always knew I was going to be rich. I don't think I doubted it for a minute.
In Buffett's own words:
"I always knew I was going to be rich. I don't think I doubted it for a minute. There was Western Insurance earning $16 a shae, and selling at $16. There was National Insurance selling at one time's earnings. How could it miss?"
Buffett worked from published information available to everyone by subscribing to all the financial and business journals and by writing to companies for their annual reports. He kept away from Wall Street on purpose so as not to be influenced by the crowd's market talks. He did his research work diligently and thought deeply about his investment. His purchases were never made in haste and were all based on the sound principle of high intrinsic value. Throughout the 1960s, when Wall Street was going mad over conglomerates and high technology stocks, Buffett stuck to smaller companies untouched by headlines and excitement. Of course, before the use of computers became widespread in the 1960's, it was relatively easy to pick undervalued stocks.
-----
This chap emulated Warren Buffett. He has done well.
http://www.dnaindia.com/money/interview_we-will-never-see-another-warren-buffett_1301088
'We will never see another Warren Buffett'
How did you get into investing business from information technology?
Around 1994 I heard about Warren Buffett for the first time accidentally. The first couple of biographies about him had just been published a year or two before that. I read those books and I was quite blown away by some data points that were coming out about him and the industry and so on. I didn't have any experience or even education in the investment business. But I was very intrigued by it.
I started to invest in the public equity markets using Buffett's model in 1994 and basically did extremely well, north of 70% a year, till about 1999. I was getting more and more interested in investment research and securities analysis and made a decision to leave my company. I brought in an outside CEO and decided that I would spend more time on investing and at the same time some friends of mine wanted me to manage their money for them. It started as a hobby in 1999 with about a million dollars from eight people. About a year later the business (TransTech) actually got sold, I wasn't running it anyway, but I was completely cashed out. And then I thought that let's make my hobby a real business, try to scale it up and get investors. We now manage about $500 million -- ten years later.
"I always knew I was going to be rich. I don't think I doubted it for a minute. There was Western Insurance earning $16 a shae, and selling at $16. There was National Insurance selling at one time's earnings. How could it miss?"
Buffett worked from published information available to everyone by subscribing to all the financial and business journals and by writing to companies for their annual reports. He kept away from Wall Street on purpose so as not to be influenced by the crowd's market talks. He did his research work diligently and thought deeply about his investment. His purchases were never made in haste and were all based on the sound principle of high intrinsic value. Throughout the 1960s, when Wall Street was going mad over conglomerates and high technology stocks, Buffett stuck to smaller companies untouched by headlines and excitement. Of course, before the use of computers became widespread in the 1960's, it was relatively easy to pick undervalued stocks.
-----
This chap emulated Warren Buffett. He has done well.
http://www.dnaindia.com/money/interview_we-will-never-see-another-warren-buffett_1301088
'We will never see another Warren Buffett'
How did you get into investing business from information technology?
Around 1994 I heard about Warren Buffett for the first time accidentally. The first couple of biographies about him had just been published a year or two before that. I read those books and I was quite blown away by some data points that were coming out about him and the industry and so on. I didn't have any experience or even education in the investment business. But I was very intrigued by it.
I started to invest in the public equity markets using Buffett's model in 1994 and basically did extremely well, north of 70% a year, till about 1999. I was getting more and more interested in investment research and securities analysis and made a decision to leave my company. I brought in an outside CEO and decided that I would spend more time on investing and at the same time some friends of mine wanted me to manage their money for them. It started as a hobby in 1999 with about a million dollars from eight people. About a year later the business (TransTech) actually got sold, I wasn't running it anyway, but I was completely cashed out. And then I thought that let's make my hobby a real business, try to scale it up and get investors. We now manage about $500 million -- ten years later.
Wednesday, 21 October 2009
3A: More details needed on potential JV
3A: More details needed on potential JV
Tags: InsiderAsia | Three-A Resources
Written by InsiderAsia
Tuesday, 20 October 2009 16:12
FOOD ingredient products manufacturer, Three-A Resources (3A, RM1.58) has hogged more than its fair share of the limelight over the past few weeks. Its share price has risen by more than five-fold in the year to date, most of its gains coming in the past month, on the back of high trading volumes.
The primarily catalyst was news that Singapore-listed Wilmar International Ltd will invest in the company via a private placement of 61.6 million shares. The shares were priced at 75 sen per share, which will raise RM46.2 million cash proceeds for 3A. Upon completion, Wilmar will hold a 16.67% equity stake in the company.
More importantly, the placement exercise is widely seen as the precursor to a closer business partnership in the future. 3A has suggested the possibility of the two companies setting up manufacturing facilities for food ingredient products in neighbouring countries, such as China.
Private placement a precursor to future JV?
Wilmar is one of the world's largest refiners and traders for crude palm oil. It is also a leading distributor of staple food, such as cooking oil, flour, rice and bottled mineral water, in China. Its extensive network, both upstream and downstream, is expected to work just as well for food ingredient products.
3A is already the leading ingredient products manufacturer in Malaysia. Its main products include caramel colour, glucose and maltose syrup as well as owning our country's only maltodextrin plant. Business has been growing at a rapid pace. The company's sales expanded at a compounded rate of 30% per annum between 2003-2008. Plans for the next few years will further underpin growth, forecast to be in the double-digit range annually.
Success in the overseas markets is another acknowledgement of the company's product quality. Its ingredient products are sold to countries such as Korea, Taiwan, Singapore, Australia and the Philippines. Exports currently account for about one-third of the company's sales.
In short, 3A has established a good reputation and track record after being in the business for more than three decades.
Partnership with Wilmar will help 3A penetrate the world's most populous market more effectively and significantly expand its business operations beyond the local shore.
Devil is in the details
Nonetheless, discussions on any overseas joint ventures are believed to be in very preliminary stages. It is certainly too early to quantify future earnings stream. While Wilmar will undoubtedly give 3A a leg up in the Chinese market, we expect it will take time to convince manufacturers of end consumer products — such as soya sauce, confectionery and dairy products manufacturers — to switch from their existing supply source. Customers will require assurances on consistency of quality, production and delivery. For instance, new plants often encounter teething problems.
In other words, the process is not as simple as getting products on the shelves. In this sense, the steep rise in 3A's share price may have been a little premature.
Good longer-term growth prospects
To be sure, 3A's earnings are set to expand going forward. Its new 7,000-tonne per month glucose plant, completed in the fourth quarter of 2008 (4Q08), is registering rising utilisation. The 1,200-tonne per month maltodextrin plant is almost running at full capacity, thanks to the availability of glucose feedstock.
It is planning for a second maltodextrin plant with up to 2,000 tonnes per month capacity. If all goes to plan, the new plant will be operational by 4Q2010. Additional feedstock requirement for the new maltodextrin plant was already taken into account when 3A was building its glucose plant last year. The glucose plant can easily be upgraded to produce up to 12,000 tonnes per month with the incurrence of just a small additional capex.
3A's net profit is forecast to grow by 34% to RM16.2 million this year and a further 25% to RM20.2 million in 2010. That translates into earnings per share of 4.4 sen and 5.5 sen for 2009-2010 (after adjusting for the additional shares issued).
But valuations-rich pending further information
However, following the strong price rally, the stock is now trading at a relatively rich price-to-earnings (P/E) of 36 times and 28.9 times our estimated earnings for the two years.
Our forecast has not taken into account earnings from any future partnership ventures with Wilmar, which may or may not materialise. Hence, pending more concrete details, we are inclined to downgrade our recommendation from buy to hold, at least for now.
Note: This report is brought to you by Asia Analytica Sdn Bhd, a licensed investment adviser. Please exercise your own judgment or seek professional advice for your specific investment needs. We are not responsible for your investment decisions. Our shareholders, directors and employees may have positions in any of the stocks mentioned.
http://www.theedgemalaysia.com/business-news/151748-3a-more-details-needed-on-potential-jv.html
Tags: InsiderAsia | Three-A Resources
Written by InsiderAsia
Tuesday, 20 October 2009 16:12
FOOD ingredient products manufacturer, Three-A Resources (3A, RM1.58) has hogged more than its fair share of the limelight over the past few weeks. Its share price has risen by more than five-fold in the year to date, most of its gains coming in the past month, on the back of high trading volumes.
The primarily catalyst was news that Singapore-listed Wilmar International Ltd will invest in the company via a private placement of 61.6 million shares. The shares were priced at 75 sen per share, which will raise RM46.2 million cash proceeds for 3A. Upon completion, Wilmar will hold a 16.67% equity stake in the company.
More importantly, the placement exercise is widely seen as the precursor to a closer business partnership in the future. 3A has suggested the possibility of the two companies setting up manufacturing facilities for food ingredient products in neighbouring countries, such as China.
Wilmar is one of the world's largest refiners and traders for crude palm oil. It is also a leading distributor of staple food, such as cooking oil, flour, rice and bottled mineral water, in China. Its extensive network, both upstream and downstream, is expected to work just as well for food ingredient products.
3A is already the leading ingredient products manufacturer in Malaysia. Its main products include caramel colour, glucose and maltose syrup as well as owning our country's only maltodextrin plant. Business has been growing at a rapid pace. The company's sales expanded at a compounded rate of 30% per annum between 2003-2008. Plans for the next few years will further underpin growth, forecast to be in the double-digit range annually.
Success in the overseas markets is another acknowledgement of the company's product quality. Its ingredient products are sold to countries such as Korea, Taiwan, Singapore, Australia and the Philippines. Exports currently account for about one-third of the company's sales.
In short, 3A has established a good reputation and track record after being in the business for more than three decades.
Partnership with Wilmar will help 3A penetrate the world's most populous market more effectively and significantly expand its business operations beyond the local shore.
Devil is in the details
Nonetheless, discussions on any overseas joint ventures are believed to be in very preliminary stages. It is certainly too early to quantify future earnings stream. While Wilmar will undoubtedly give 3A a leg up in the Chinese market, we expect it will take time to convince manufacturers of end consumer products — such as soya sauce, confectionery and dairy products manufacturers — to switch from their existing supply source. Customers will require assurances on consistency of quality, production and delivery. For instance, new plants often encounter teething problems.
In other words, the process is not as simple as getting products on the shelves. In this sense, the steep rise in 3A's share price may have been a little premature.
Good longer-term growth prospects
It is planning for a second maltodextrin plant with up to 2,000 tonnes per month capacity. If all goes to plan, the new plant will be operational by 4Q2010. Additional feedstock requirement for the new maltodextrin plant was already taken into account when 3A was building its glucose plant last year. The glucose plant can easily be upgraded to produce up to 12,000 tonnes per month with the incurrence of just a small additional capex.
3A's net profit is forecast to grow by 34% to RM16.2 million this year and a further 25% to RM20.2 million in 2010. That translates into earnings per share of 4.4 sen and 5.5 sen for 2009-2010 (after adjusting for the additional shares issued).
But valuations-rich pending further information
However, following the strong price rally, the stock is now trading at a relatively rich price-to-earnings (P/E) of 36 times and 28.9 times our estimated earnings for the two years.
Our forecast has not taken into account earnings from any future partnership ventures with Wilmar, which may or may not materialise. Hence, pending more concrete details, we are inclined to downgrade our recommendation from buy to hold, at least for now.
Note: This report is brought to you by Asia Analytica Sdn Bhd, a licensed investment adviser. Please exercise your own judgment or seek professional advice for your specific investment needs. We are not responsible for your investment decisions. Our shareholders, directors and employees may have positions in any of the stocks mentioned.
http://www.theedgemalaysia.com/business-news/151748-3a-more-details-needed-on-potential-jv.html
Financial jargon
November 26, 2007
The 50 weirdest terms of financial jargon – and what they actually mean
Flummoxed by front-end loading? Bamboozled by bridging? Don’t know if your cap is split or your asset orphaned?
Here is Times Money’s alternative guide, for anyone who blushes at the mention of cum-dividends, or thinks churning is something that only happens to dairy products.
1. AER – Annual Equivalent Rate refers to the actual rate of interest you will receive on savings and current accounts after a year. It is different to the gross rate because the AER takes into account how frequently the interest is applied. Daily is better than monthly, because of the effects of compounding. It is useful to know, because most accounts have a bonus rate for a few months, which is later replaced by more bog-standard rewards.
2. Amortisation – It sounds like something to do with death, and in fact, it is. It is to do with the depreciation of intangible assets, or alternatively, the process by which the decrease in value of an asset is calculated, ie. The intangible bit is important. Tangible assets, like Volvos, depreciate. Intangible assets, like a patent or brand, amortise.
3. Annuity – Not something that young people need to worry about, but anyone approaching or already in retirement definitely needs to care about these, because they will have to buy one. Annuities are Government-enforced income plans that you must buy with your pension to provide you with an income. They are enforced because people over a certain age cannot be trusted not to squander their retirement pots in one go, on things like round the world cruises or expensive drumkits. The Government doesn’t want this to happen because it would then be forced to pay out more state pension money.
4. APR – like AER, only it means the amount of interest you will pay on mortgages, loans and credit cards. You want a nice a low one. Mortgage lenders will quote a headline interest rate which lasts for a set time period, then a (usually much higher) APR, which is what you would pay if you stayed on that mortgage for the full term. If you thought that only dullards did not know what an APR was, note that 71 per cent of 16-18 year olds recently questioned thought that a high APR was a good attribute on a credit card. This does not necessarily disprove the point.
5. Bear – Not the grizzly kind. A way of describing the stock market or an attitude towards the economic outlook. Describing someone as bearish does not mean they are large and hairy, it means that they have a cautious and conservative outlook, and are more inclined to be pessimistic. A bear market is characterised by falling share prices and poor returns. Bear times are bad times.
6. Beta - Inexplicably, beta, in the finance world, measures the volatility of a share relative to other markets and is nothing to do with them being second rate, as Greek etymologists might assume. Something that has a beta of more than 1 is more volatile than other shares in the index, while something with a beta less than 1 is considered relatively stable. Risk-takers like betas. Buying a beta is the stock-market equivalent of magic mushrooms - you never know whether you will end up higher or lower.
7. Bonds Bonds is a restaurant in the heart of the City of London where top bankers meet, as well as a famous Australian underwear manufacturer. The term also refers to something altogether less exciting, a type of investment where the investor lends money to a company for a period of more than one year that is then repaid at a specified time, with interest. If it helps: Bonds are good, ie James Bond, but bills are bad, ie. Bill Clinton, an economics teacher once said. Bonds are not always good, however. They are safer than buying shares, but they do not have the potential to make you higher returns. They are for people who do not like surprises.
8. Bridging – A bridge is a structure spanning and providing passage over a gap or barrier, such as a river or roadway. It is also the upper bony ridge of the human nose. In finance however, bridging is a type of loan that provides short-term funding before long-term funding is secure. This could be particularly relevant if you are building your own house or setting up a business because this is what lenders are likely to offer if they don’t trust you completely, but think you might be on to something.
9. Bull - The opposite of bear. A bull market is strong, aggressive and opportunistic. Being bullish in the City is a good thing. It basically means optimistic about the outlook.
10. CAT – Short for catastrophe bond. These are issued by insurance companies to raise finance in the event of a catastrophe. Dead cats can also be bounced, according to stock market investors (see below).
11. Churning – Anchor butter does it to milk, but in finance, this refers to a fairly mercenary practice by stockbrokers and IFAs, whereby they buy and sell stocks for clients in large volumes frequently to make more money in commission. In business, a churn rate also refers to the attrition of customers. A high churn rate therefore means lots of new business coming in and going out, while a low one means customers stay put.
12. Compound Interest – There is no better illustration of the benefits of compound interest, which basically means earning interest on interest already paid, than here
13. Cum dividend – The word is latin for “with”, hence cum-dividend, benignly, relates to a share sale made close to the time that the dividend is due to be paid out that will still be eligible for the dividend. Nice if you can get it.
14. Dead cat bounce – Don't call the RSPCA, the bounce refers to a stock market phenomenon, where a temporary recovery in the market follows a long and pronounced period of decline. What this has to do with dead cats is unclear.
15. Endowment – If your mortgage broker says you are well-endowed, don’t slap him across the face straight away – he could be commenting on the performance of your mortgage investment vehicle. Endowments are investments that were originally sold alongside mortgages that are designed to grow in value by enough over the period to pay off the loan. They also provide some life insurance cover to the holder. However, endowments have a black mark against them, after a big misselling scandal left many homeowners without enough to pay off their mortgage.
16. Equity – another way of saying value, for instance, of a home or share. With homes, it relates to only that part which represents debt-free value. It also means impartial and fair, although these attributes do not necessarily apply.
17. Ex-dividend – Not a perk of divorce, a share sold ex-dividend means that the buyer is not entitled to any recent dividend payments on the share and has to wait until next time around. Thus, shares sold ex-dividend are often a bit cheaper than their cum-dividend cousins.
18. Front-end loading – In a lad’s mag, this could mean all sorts of things that have no place in a financial glossary. What it actually refers to, however, is the fee that advisers lump onto a mutual fund or insurance policy at the time they sell it to you, meaning you end up with a smaller investment at the beginning. Advisers argue it is the cost of their expertise, but the jury is very much out about whether loading is a good thing.
19. Future – Buying a future means entering into a contract to buy an asset at a certain time at its future selling price. It’s a bit of a gamble, since no one knows what that future price will be. Future traders would find one of these useful.
20. Gearing – It sounds like something Jeremy Clarkson might talk about, but it is actually just another word to describe borrowing. However with gearing, the borrowing is done expressly for the purpose of investing more. Investment trusts gear, for example.
21. Gilt – Gold-edging is not just an interior design feature. A gilt is also another word for a Government bond, also known as a risk-free bond, because when you are the Government and you owe people cash when their bonds mature, you can just print more.
22. Gross – Can describe slugs, eels and ugly people kissing. It also means amount received before tax is paid. For instance, your gross income will always be startlingly higher than your net income – by around 30 per cent in the UK according to one study. Much better to live in Dubai, where net income is only 5 per cent lower than gross, on average. Same applies to gross interest.
23. Hedging – Nothing to do with green leafy boundaries and everything to do with funds and betting. Hedging means taking two positions that will offset each other if prices change and so limiting financial risk. In Roulette, the ultimate hedge bet is putting your money on both red and black, however this is pointless and bound to lose half your money. Hedge fund managers are far more clever than that.
24. Illiquid – On the liquidity scale, think of cash as water and things like houses as rocks. Liquid assets are those which can be accessed easily to buy other things, Illiquid assets are harder to turn into ready money than things like cash and cheques.
25. Intestacy – A mistake Paul McCartney would definitely not have made. This means dying without a will, and is a big no-no for anyone with rich with a big family who do not get on. If you die intestate, then everything automatically goes to the next of kin, which can obviously cause major family rifts if the next of kin is a loathed step-mother or sibling.
26. Junk bond – These offer high interest but are high risk. The lyrics to this song should help you remember.
27. Leverage – A word that will provoke a wince from investment bankers right now, leveraging is the main reason that banks across the world are in so much trouble. It means borrowing to complete a transaction. Private equity houses do a lot of it when they buy out a company. The problem now is that since the credit crunch, no one trusts anyone to pay back the money they borrow. The general view is that too much leveraging has been going on and that banks are now at risk.
28. Liabilities – People running around with scissors, Britney Spears, and also debts. A liability is anything you owe to someone else. If you are in debt, the phrase “I have a few liabilities” sounds less controversial, if a bit silly.
29. LTV – If mortgage lenders owned their own Sky channel, this is what they would call it. It means loan-to-value, and is the maximum proportion of a property’s value that a lender is willing to lend on. High LTVs are for people who have not saved up much, and come with higher interest rates. Low LTVs come with much lower rates, but require big deposits of 30 per cent of the property’s value. A real headache for first-time buyers. It looks like mortgage TV is only one step away.
30. Margin – This is the difference between costs and revenue and basically means the amount of profit. Obviously, you want a nice big one, like him.
31. Mutual – Is a lovely word that conjures up all sorts of feelings of warmth and reciprocity, which is arguably why building societies, which are mutual, are apparently so well liked. A mutual company does not have shareholders. Instead, it shares out profits between its customers, or “members”. If you couldn't care less about mutual values, what you want is a demutualisation. This gives you a taste of what it must feel like to win the lottery, because you could get a nice big cash windfall.
32. NAV – Nothing to do with Satellite Navigation systems or these boys, a NAV is the Net Asset Value of a mutual fund share. This is calculated by subtracting a mutual fund’s liabilities from its assets.
33. Negative equity – Lots of people who took out mortgages for 100 per cent or more of the value of their properties are in danger of this, which translates as losing money on your house. During times when house prices are falling, more homeowners are at risk of this. So expect to hear lots about negative equity in coming months then, if this forecast comes true.
34. Net – simply means amount of money left after tax is paid. Usually looks pitiful when compared with your gross salary.
35. Nominal – means a value not adjusted to take account of inflation. Inflation is pretty high at the moment, and looks set to carry on rising, so nominal values should basically be ignored, as they might lead you to think that something is worth more than it actually is.
36. OEIC - pronounced OIK, like the word that tweedy men use to describe teenagers who play music on their iPods loudly in public. OEIC stands for an Open-ended investment company, which invests in other companies. It is open-ended because it can increase or decrease the amount of shares in issue at will.
37. Option – Unimaginatively titled, an option is a contract that gives a share buyer the right to buy or sell a stock at a given price until a specific date. Yet another way of making the stock market more interesting and lucrative. Do you ever get the feeling that city boys just make stuff up as they go along?
38. Orphan - The rather tragically-named orphan assets are so-called because they are the unclaimed pots of cash built up by with-profits funds, to which no-one is really entitled. What to do with these assets has become the subject of controversy. Can companies hold on to them to boost balance sheets or should they divide the spoils between policyholders and shareholders?
39. PEP – This stands for Personal Equity Plan. They are the O-levels of the tax efficient investment world - you can’t get them anymore – they were replaced by Isas in 1999, but some people still have them. Like Isas, they were designed as a tax-efficient way of investing in the stock market.
40. Preference – We all have them, but in finance, a preference is naturally more complicated than, say, favouring tea over coffee. A preference share is one which pays a fixed rate of interest. So, like insurance, it is only actually preferential in the bad times. They are lower risk than normal shares because if a company goes bust, then preference shareholders will be at the front of the queue for payouts. Good news, if you have preferential shares in Northern Rock, perhaps. But this rarely happens. On the downside, if a company does well, preference shareholders will not benefit as much as normal ones, who will receive bigger returns.
41. Price-earnings ratio – a company’s current share price compared to its earnings per share. That obviously still means nothing. So just remember that a high one means investors are expecting higher earnings growth in the future, whereas a low one is more pessimistic. Only compare the PE ratios of companies in the same industry.
42. Redemption – Hedonists and erring Christians seek it, and so do investors who want the money they put in bonds or shares back, thank you very much.
43. Scrip – It sounds cooler than it is. A way of paying something via a means other than money. Scrips are things like gift tokens, points and tickets that act as a subsititute for cash.
44. Sipp – SIPP stands for Self-Invested Personal Pension. In the pensions world, these are sexy. They are the Agent Provocateur lingerie of pensions, compared with other more Spanx-like products, such as stakeholders. This is because they are more flexible, as well as more expensive. They look prettier, because you can put things like your art collection in them. Pension advisers get very excited about these because they can make lots of money from selling them to you, but this doesn’t mean you should. Only those who think Agent Provacateur lingerie is a bargain need apply.
45. Split-cap – Can lead to pregnancy in another context, but investors are more likely to assume you are talking about a type of investment trust that splits capital growth from income. A full definition would take a while, but there is one here. A horrible misselling scandal in 2004 meant that they became as unpopular for a while, but there are reports that they are beginning to regain popularity.
46. Stagging – Where two male deer lock antlers? No. It describes the act of buying a share at its initial public offering price and selling it on immediately for a profit. It is also called flipping. Honestly, who invents these words?
47. Stagflation – The English language just keeps on giving. Stagflation describes an economic period of high inflation, low growth, rising unemployment and recession. The word comes from the marriage of stagnation and inflation, apparently. Expect to hear this word more often from taxi drivers and economists when debating whether the Bank of England should cut interest rates.
48. Serps – Not a sexually transmitted disease, SERPs was the State Earnings Related Pension Scheme set up provide a second pension income, on top of the basic state pension, for people who did not have occupational schemes. The system has now been replaced by the State Second Pension, or S2P, which is the Government’s way of making pension savings sound cool. Unfortunately however, it sounds too much like Y2K – the millennium computer bug that sparked fears of Armageddon, to ever go down well.
49. Underwriter – A company that stumps up the money behind insurance policies. These people have extraordinary power in society, because they can work out things like when you are likely to die.
50. Wind-up – It means something else to humourists, and Jeremy Beadle. In the world of money, it means when a company ceases activity with a view to shutting down altogether. It can also refer to a way of ending a pension scheme, or a relationship, if you want to dump someone: "I'd like to wind things up with you", should do the trick, or alternatively, do what this guy did. It's time to do that here too.
Compiled by Rebecca O'Connor
Posted by Rebecca O'Connor on November 26, 2007
http://timesbusiness.typepad.com/money_weblog/2007/11/the-top-50-mo-1.html
The 50 weirdest terms of financial jargon – and what they actually mean
Flummoxed by front-end loading? Bamboozled by bridging? Don’t know if your cap is split or your asset orphaned?
Here is Times Money’s alternative guide, for anyone who blushes at the mention of cum-dividends, or thinks churning is something that only happens to dairy products.
1. AER – Annual Equivalent Rate refers to the actual rate of interest you will receive on savings and current accounts after a year. It is different to the gross rate because the AER takes into account how frequently the interest is applied. Daily is better than monthly, because of the effects of compounding. It is useful to know, because most accounts have a bonus rate for a few months, which is later replaced by more bog-standard rewards.
2. Amortisation – It sounds like something to do with death, and in fact, it is. It is to do with the depreciation of intangible assets, or alternatively, the process by which the decrease in value of an asset is calculated, ie. The intangible bit is important. Tangible assets, like Volvos, depreciate. Intangible assets, like a patent or brand, amortise.
3. Annuity – Not something that young people need to worry about, but anyone approaching or already in retirement definitely needs to care about these, because they will have to buy one. Annuities are Government-enforced income plans that you must buy with your pension to provide you with an income. They are enforced because people over a certain age cannot be trusted not to squander their retirement pots in one go, on things like round the world cruises or expensive drumkits. The Government doesn’t want this to happen because it would then be forced to pay out more state pension money.
4. APR – like AER, only it means the amount of interest you will pay on mortgages, loans and credit cards. You want a nice a low one. Mortgage lenders will quote a headline interest rate which lasts for a set time period, then a (usually much higher) APR, which is what you would pay if you stayed on that mortgage for the full term. If you thought that only dullards did not know what an APR was, note that 71 per cent of 16-18 year olds recently questioned thought that a high APR was a good attribute on a credit card. This does not necessarily disprove the point.
5. Bear – Not the grizzly kind. A way of describing the stock market or an attitude towards the economic outlook. Describing someone as bearish does not mean they are large and hairy, it means that they have a cautious and conservative outlook, and are more inclined to be pessimistic. A bear market is characterised by falling share prices and poor returns. Bear times are bad times.
6. Beta - Inexplicably, beta, in the finance world, measures the volatility of a share relative to other markets and is nothing to do with them being second rate, as Greek etymologists might assume. Something that has a beta of more than 1 is more volatile than other shares in the index, while something with a beta less than 1 is considered relatively stable. Risk-takers like betas. Buying a beta is the stock-market equivalent of magic mushrooms - you never know whether you will end up higher or lower.
7. Bonds Bonds is a restaurant in the heart of the City of London where top bankers meet, as well as a famous Australian underwear manufacturer. The term also refers to something altogether less exciting, a type of investment where the investor lends money to a company for a period of more than one year that is then repaid at a specified time, with interest. If it helps: Bonds are good, ie James Bond, but bills are bad, ie. Bill Clinton, an economics teacher once said. Bonds are not always good, however. They are safer than buying shares, but they do not have the potential to make you higher returns. They are for people who do not like surprises.
8. Bridging – A bridge is a structure spanning and providing passage over a gap or barrier, such as a river or roadway. It is also the upper bony ridge of the human nose. In finance however, bridging is a type of loan that provides short-term funding before long-term funding is secure. This could be particularly relevant if you are building your own house or setting up a business because this is what lenders are likely to offer if they don’t trust you completely, but think you might be on to something.
9. Bull - The opposite of bear. A bull market is strong, aggressive and opportunistic. Being bullish in the City is a good thing. It basically means optimistic about the outlook.
10. CAT – Short for catastrophe bond. These are issued by insurance companies to raise finance in the event of a catastrophe. Dead cats can also be bounced, according to stock market investors (see below).
11. Churning – Anchor butter does it to milk, but in finance, this refers to a fairly mercenary practice by stockbrokers and IFAs, whereby they buy and sell stocks for clients in large volumes frequently to make more money in commission. In business, a churn rate also refers to the attrition of customers. A high churn rate therefore means lots of new business coming in and going out, while a low one means customers stay put.
12. Compound Interest – There is no better illustration of the benefits of compound interest, which basically means earning interest on interest already paid, than here
13. Cum dividend – The word is latin for “with”, hence cum-dividend, benignly, relates to a share sale made close to the time that the dividend is due to be paid out that will still be eligible for the dividend. Nice if you can get it.
14. Dead cat bounce – Don't call the RSPCA, the bounce refers to a stock market phenomenon, where a temporary recovery in the market follows a long and pronounced period of decline. What this has to do with dead cats is unclear.
15. Endowment – If your mortgage broker says you are well-endowed, don’t slap him across the face straight away – he could be commenting on the performance of your mortgage investment vehicle. Endowments are investments that were originally sold alongside mortgages that are designed to grow in value by enough over the period to pay off the loan. They also provide some life insurance cover to the holder. However, endowments have a black mark against them, after a big misselling scandal left many homeowners without enough to pay off their mortgage.
16. Equity – another way of saying value, for instance, of a home or share. With homes, it relates to only that part which represents debt-free value. It also means impartial and fair, although these attributes do not necessarily apply.
17. Ex-dividend – Not a perk of divorce, a share sold ex-dividend means that the buyer is not entitled to any recent dividend payments on the share and has to wait until next time around. Thus, shares sold ex-dividend are often a bit cheaper than their cum-dividend cousins.
18. Front-end loading – In a lad’s mag, this could mean all sorts of things that have no place in a financial glossary. What it actually refers to, however, is the fee that advisers lump onto a mutual fund or insurance policy at the time they sell it to you, meaning you end up with a smaller investment at the beginning. Advisers argue it is the cost of their expertise, but the jury is very much out about whether loading is a good thing.
19. Future – Buying a future means entering into a contract to buy an asset at a certain time at its future selling price. It’s a bit of a gamble, since no one knows what that future price will be. Future traders would find one of these useful.
20. Gearing – It sounds like something Jeremy Clarkson might talk about, but it is actually just another word to describe borrowing. However with gearing, the borrowing is done expressly for the purpose of investing more. Investment trusts gear, for example.
21. Gilt – Gold-edging is not just an interior design feature. A gilt is also another word for a Government bond, also known as a risk-free bond, because when you are the Government and you owe people cash when their bonds mature, you can just print more.
22. Gross – Can describe slugs, eels and ugly people kissing. It also means amount received before tax is paid. For instance, your gross income will always be startlingly higher than your net income – by around 30 per cent in the UK according to one study. Much better to live in Dubai, where net income is only 5 per cent lower than gross, on average. Same applies to gross interest.
23. Hedging – Nothing to do with green leafy boundaries and everything to do with funds and betting. Hedging means taking two positions that will offset each other if prices change and so limiting financial risk. In Roulette, the ultimate hedge bet is putting your money on both red and black, however this is pointless and bound to lose half your money. Hedge fund managers are far more clever than that.
24. Illiquid – On the liquidity scale, think of cash as water and things like houses as rocks. Liquid assets are those which can be accessed easily to buy other things, Illiquid assets are harder to turn into ready money than things like cash and cheques.
25. Intestacy – A mistake Paul McCartney would definitely not have made. This means dying without a will, and is a big no-no for anyone with rich with a big family who do not get on. If you die intestate, then everything automatically goes to the next of kin, which can obviously cause major family rifts if the next of kin is a loathed step-mother or sibling.
26. Junk bond – These offer high interest but are high risk. The lyrics to this song should help you remember.
27. Leverage – A word that will provoke a wince from investment bankers right now, leveraging is the main reason that banks across the world are in so much trouble. It means borrowing to complete a transaction. Private equity houses do a lot of it when they buy out a company. The problem now is that since the credit crunch, no one trusts anyone to pay back the money they borrow. The general view is that too much leveraging has been going on and that banks are now at risk.
28. Liabilities – People running around with scissors, Britney Spears, and also debts. A liability is anything you owe to someone else. If you are in debt, the phrase “I have a few liabilities” sounds less controversial, if a bit silly.
29. LTV – If mortgage lenders owned their own Sky channel, this is what they would call it. It means loan-to-value, and is the maximum proportion of a property’s value that a lender is willing to lend on. High LTVs are for people who have not saved up much, and come with higher interest rates. Low LTVs come with much lower rates, but require big deposits of 30 per cent of the property’s value. A real headache for first-time buyers. It looks like mortgage TV is only one step away.
30. Margin – This is the difference between costs and revenue and basically means the amount of profit. Obviously, you want a nice big one, like him.
31. Mutual – Is a lovely word that conjures up all sorts of feelings of warmth and reciprocity, which is arguably why building societies, which are mutual, are apparently so well liked. A mutual company does not have shareholders. Instead, it shares out profits between its customers, or “members”. If you couldn't care less about mutual values, what you want is a demutualisation. This gives you a taste of what it must feel like to win the lottery, because you could get a nice big cash windfall.
32. NAV – Nothing to do with Satellite Navigation systems or these boys, a NAV is the Net Asset Value of a mutual fund share. This is calculated by subtracting a mutual fund’s liabilities from its assets.
33. Negative equity – Lots of people who took out mortgages for 100 per cent or more of the value of their properties are in danger of this, which translates as losing money on your house. During times when house prices are falling, more homeowners are at risk of this. So expect to hear lots about negative equity in coming months then, if this forecast comes true.
34. Net – simply means amount of money left after tax is paid. Usually looks pitiful when compared with your gross salary.
35. Nominal – means a value not adjusted to take account of inflation. Inflation is pretty high at the moment, and looks set to carry on rising, so nominal values should basically be ignored, as they might lead you to think that something is worth more than it actually is.
36. OEIC - pronounced OIK, like the word that tweedy men use to describe teenagers who play music on their iPods loudly in public. OEIC stands for an Open-ended investment company, which invests in other companies. It is open-ended because it can increase or decrease the amount of shares in issue at will.
37. Option – Unimaginatively titled, an option is a contract that gives a share buyer the right to buy or sell a stock at a given price until a specific date. Yet another way of making the stock market more interesting and lucrative. Do you ever get the feeling that city boys just make stuff up as they go along?
38. Orphan - The rather tragically-named orphan assets are so-called because they are the unclaimed pots of cash built up by with-profits funds, to which no-one is really entitled. What to do with these assets has become the subject of controversy. Can companies hold on to them to boost balance sheets or should they divide the spoils between policyholders and shareholders?
39. PEP – This stands for Personal Equity Plan. They are the O-levels of the tax efficient investment world - you can’t get them anymore – they were replaced by Isas in 1999, but some people still have them. Like Isas, they were designed as a tax-efficient way of investing in the stock market.
40. Preference – We all have them, but in finance, a preference is naturally more complicated than, say, favouring tea over coffee. A preference share is one which pays a fixed rate of interest. So, like insurance, it is only actually preferential in the bad times. They are lower risk than normal shares because if a company goes bust, then preference shareholders will be at the front of the queue for payouts. Good news, if you have preferential shares in Northern Rock, perhaps. But this rarely happens. On the downside, if a company does well, preference shareholders will not benefit as much as normal ones, who will receive bigger returns.
41. Price-earnings ratio – a company’s current share price compared to its earnings per share. That obviously still means nothing. So just remember that a high one means investors are expecting higher earnings growth in the future, whereas a low one is more pessimistic. Only compare the PE ratios of companies in the same industry.
42. Redemption – Hedonists and erring Christians seek it, and so do investors who want the money they put in bonds or shares back, thank you very much.
43. Scrip – It sounds cooler than it is. A way of paying something via a means other than money. Scrips are things like gift tokens, points and tickets that act as a subsititute for cash.
44. Sipp – SIPP stands for Self-Invested Personal Pension. In the pensions world, these are sexy. They are the Agent Provocateur lingerie of pensions, compared with other more Spanx-like products, such as stakeholders. This is because they are more flexible, as well as more expensive. They look prettier, because you can put things like your art collection in them. Pension advisers get very excited about these because they can make lots of money from selling them to you, but this doesn’t mean you should. Only those who think Agent Provacateur lingerie is a bargain need apply.
45. Split-cap – Can lead to pregnancy in another context, but investors are more likely to assume you are talking about a type of investment trust that splits capital growth from income. A full definition would take a while, but there is one here. A horrible misselling scandal in 2004 meant that they became as unpopular for a while, but there are reports that they are beginning to regain popularity.
46. Stagging – Where two male deer lock antlers? No. It describes the act of buying a share at its initial public offering price and selling it on immediately for a profit. It is also called flipping. Honestly, who invents these words?
47. Stagflation – The English language just keeps on giving. Stagflation describes an economic period of high inflation, low growth, rising unemployment and recession. The word comes from the marriage of stagnation and inflation, apparently. Expect to hear this word more often from taxi drivers and economists when debating whether the Bank of England should cut interest rates.
48. Serps – Not a sexually transmitted disease, SERPs was the State Earnings Related Pension Scheme set up provide a second pension income, on top of the basic state pension, for people who did not have occupational schemes. The system has now been replaced by the State Second Pension, or S2P, which is the Government’s way of making pension savings sound cool. Unfortunately however, it sounds too much like Y2K – the millennium computer bug that sparked fears of Armageddon, to ever go down well.
49. Underwriter – A company that stumps up the money behind insurance policies. These people have extraordinary power in society, because they can work out things like when you are likely to die.
50. Wind-up – It means something else to humourists, and Jeremy Beadle. In the world of money, it means when a company ceases activity with a view to shutting down altogether. It can also refer to a way of ending a pension scheme, or a relationship, if you want to dump someone: "I'd like to wind things up with you", should do the trick, or alternatively, do what this guy did. It's time to do that here too.
Compiled by Rebecca O'Connor
Posted by Rebecca O'Connor on November 26, 2007
http://timesbusiness.typepad.com/money_weblog/2007/11/the-top-50-mo-1.html
How to detect some early financial warnings in companies
Wednesday October 21, 2009
How to detect some early financial warnings in companies
Personal Investing - By Ooi Kok Hwa
Or how to smell a rat
TRADING volume on the stock market has recently been getting higher again. Some retail investors, who were absent from the recent rally, have started to get excited.
Over the past few months, investors were mainly focusing on good quality stocks, selling at a cheap level. However, attention has started to switch to poor quality stocks lately. Even though sometimes investors may be able to make money by betting on those stocks, we still need to be careful about the fundamentals of the companies. In this article, we will look at how to detect some early financial warnings.
A lot of companies like to make corporate announcements during the bull market. We agree that some of the announcements were genuine, but many corporate proposals were simply too good to be true.
If we analyse further, we will notice that the proposals might be way beyond the capabilities of the companies. Sometimes, the management’s projections of sales and profits were far beyond the past history. The capital expenditure requirements were well above the companies’ borrowing capacities.
Besides, the time required to turn the projects into profits might be too long. Nevertheless, as a result of the announcements, the stock prices would surge and normally, the main sellers behind might be the key owners.
We have also seen some proposals that turned out to be profitable. The companies did make profits in the first few years. However, the high growth in expansion stretched the capabilities of the top management, who might not have the experience and ability to run big businesses. They might have the experience to manage RM100mil turnover businesses. However, when the turnover surged beyond RM1bil per year, they might have problems. In fact, the main concerns to the companies were the top management team which lacked skills and experience to run big businesses.
We need to be careful if there are any changes to the key managers of the companies, auditors or accounting firms. The key managers are referred to the positions like chief executive officers and financial controllers. Besides, frequent changes in auditors provide serious financial warnings, especially the change from a reputable audit firm to an unknown one.
How to smell a rat or how to detect some early financial warnings in companies
Companies will soon start to report their financial results for the period ended Sept 30. In Malaysia, often good companies will try to announce their results before the deadline of Nov 30. However, if they are having difficulties in providing their financial statements, normally, we will expect some bad news to be announced. One of the possible explanations behind the delay is that the companies need more time to rectify certain financial problems.
Another potential sign of financial warning is when the companies venture into unrelated businesses. Previously, we saw many Bursa Malaysia second board companies going into financial distress in 1997/98 when they departed from their core businesses in manufacturing and ventured into property development activities.
We need to understand that when the company owners enter into areas that are not their core competencies, they might not be able to apply the knowledge and experiences accumulated previously. Instead, they would have to go through the entire learning curve again, which would result in the management taking a lot of time in managing those unrelated businesses.
In such situations, investors will need to pay attention and analyse whether those new ventures will be able to add value to the shareholders’ wealth. Some companies like to change their names after venturing into new businesses. Too frequent name changes may also imply that the companies have been shifting their core business focus and directions, which may not be good news to the shareholders.
Litigation is also another warning sign. We need to pay attention to companies that are involved in litigations, which may be either attributed to the companies being sued or they are suing someone else. These litigations may divert the management’s attention from day-to-day business operations. As a result, they may affect the companies’ performance as well.
One of the common questions asked by shareholders during any AGM is the directors’ fees. We need to analyse whether the fees paid are in proportion to the companies’ profitability. Sometimes, certain companies make excessive perks for owners as well as their employees or the lifestyle of the key owners is simply not consistent with the companies’ profitability.
The above are a few of the more common financial warnings that potential or existing shareholders must pay attention to when analysing the companies for investment. More importantly, we need to remain vigilant at all times and pay attention to the latest development of the companies.
● Ooi Kok Hwa is an investment adviser and managing partner of MRR Consulting.
http://biz.thestar.com.my/news/story.asp?file=/2009/10/21/business/4940519&sec=business
How to detect some early financial warnings in companies
Personal Investing - By Ooi Kok Hwa
Or how to smell a rat
TRADING volume on the stock market has recently been getting higher again. Some retail investors, who were absent from the recent rally, have started to get excited.
Over the past few months, investors were mainly focusing on good quality stocks, selling at a cheap level. However, attention has started to switch to poor quality stocks lately. Even though sometimes investors may be able to make money by betting on those stocks, we still need to be careful about the fundamentals of the companies. In this article, we will look at how to detect some early financial warnings.
A lot of companies like to make corporate announcements during the bull market. We agree that some of the announcements were genuine, but many corporate proposals were simply too good to be true.
If we analyse further, we will notice that the proposals might be way beyond the capabilities of the companies. Sometimes, the management’s projections of sales and profits were far beyond the past history. The capital expenditure requirements were well above the companies’ borrowing capacities.
Besides, the time required to turn the projects into profits might be too long. Nevertheless, as a result of the announcements, the stock prices would surge and normally, the main sellers behind might be the key owners.
We have also seen some proposals that turned out to be profitable. The companies did make profits in the first few years. However, the high growth in expansion stretched the capabilities of the top management, who might not have the experience and ability to run big businesses. They might have the experience to manage RM100mil turnover businesses. However, when the turnover surged beyond RM1bil per year, they might have problems. In fact, the main concerns to the companies were the top management team which lacked skills and experience to run big businesses.
We need to be careful if there are any changes to the key managers of the companies, auditors or accounting firms. The key managers are referred to the positions like chief executive officers and financial controllers. Besides, frequent changes in auditors provide serious financial warnings, especially the change from a reputable audit firm to an unknown one.
How to smell a rat or how to detect some early financial warnings in companies
Companies will soon start to report their financial results for the period ended Sept 30. In Malaysia, often good companies will try to announce their results before the deadline of Nov 30. However, if they are having difficulties in providing their financial statements, normally, we will expect some bad news to be announced. One of the possible explanations behind the delay is that the companies need more time to rectify certain financial problems.
Another potential sign of financial warning is when the companies venture into unrelated businesses. Previously, we saw many Bursa Malaysia second board companies going into financial distress in 1997/98 when they departed from their core businesses in manufacturing and ventured into property development activities.
We need to understand that when the company owners enter into areas that are not their core competencies, they might not be able to apply the knowledge and experiences accumulated previously. Instead, they would have to go through the entire learning curve again, which would result in the management taking a lot of time in managing those unrelated businesses.
In such situations, investors will need to pay attention and analyse whether those new ventures will be able to add value to the shareholders’ wealth. Some companies like to change their names after venturing into new businesses. Too frequent name changes may also imply that the companies have been shifting their core business focus and directions, which may not be good news to the shareholders.
Litigation is also another warning sign. We need to pay attention to companies that are involved in litigations, which may be either attributed to the companies being sued or they are suing someone else. These litigations may divert the management’s attention from day-to-day business operations. As a result, they may affect the companies’ performance as well.
One of the common questions asked by shareholders during any AGM is the directors’ fees. We need to analyse whether the fees paid are in proportion to the companies’ profitability. Sometimes, certain companies make excessive perks for owners as well as their employees or the lifestyle of the key owners is simply not consistent with the companies’ profitability.
The above are a few of the more common financial warnings that potential or existing shareholders must pay attention to when analysing the companies for investment. More importantly, we need to remain vigilant at all times and pay attention to the latest development of the companies.
● Ooi Kok Hwa is an investment adviser and managing partner of MRR Consulting.
http://biz.thestar.com.my/news/story.asp?file=/2009/10/21/business/4940519&sec=business
Get two things right: Make the money and Keep its real value
Diary of a private investor: 'The bears have taken the wrong course'
Right now, the same pundits who were wrong six months ago are continuing to offer bearish opinions.
By James Bartholemew
Published: 9:09AM BST 21 Oct 2009
THERE are, I suppose, some people who have never heard of Tom Watson, rather like there are those who have never heard of President Kennedy or Marilyn Monroe.
For those to whom the name means nothing, let me give a brief introduction. He is one of the greatest golfers ever to have walked onto a tee.
He won the Open five times and three other majors. Even more remarkable, this year he came back to Britain at the age of 59, when virtually no golfer is competitive at the highest level, and nearly won the Open again.
He had the equal lowest score and was only beaten in a play-off. What technique!
Deeply impressed by that last thought, I bought one of his old books – published in 1992 – to try to improve my unreliable swing.
The dust-jacket proclaimed, obviously with the expectation that readers would be dazzled, that his career winnings had amounted to over $5million (about £3million).
What struck me about this sum – given his huge success – was how relatively small it was. Admittedly prize money and sponsorship deals have increased. But the value of what was considered a fortune at the time has been destroyed by inflation.
What did he do with his winnings? Did he invest them in shares and property or did he put them in a deposit account at a bank? I don't know, but if he did the latter, the real value has been squished (as my daughter would say). If he invested it, he will have remained a very wealthy man.
He had a key decision in his life. Having achieved fabulous success in the Seventies and Eighties, would he let the fruits fade as he got older?
Being American – share investment is much more normal there – he probably did the right thing. But I have met several intelligent, well-educated people in recent years who seem to have no idea what is at stake.
You can have a wonderfully successful career or a hugely profitable divorce, but the value can be whittled away. You have to get two things right; not just one. You have to make the money and then keep its real value; that is, its purchasing power.
You may say that inflation is yesterday's story. True, it is a fraction of what it used to be. But you need remarkable trust in British governments to be completely confident that it won't come back.
And even if inflation were to stay at a mere 2.5pc a year, the value of your cash would halve over 28 years. Cash is not safe. Inflation means it is a slow crushing of your wealth.
All of which brings me to one of the most remarkable things about this astonishing year in investment.
The massive rise in the stock market and the abrupt recovery in the housing market in certain areas of Britain – particularly London – have been achieved in the face of almost total opposition from pundits in newspapers and financial circles.
Your Money has been a notable exception to that consensus view, but I don't think I have lived through a bull market which took place in the face of such an overwhelming opinion that it would not happen.
Even back in the dark days of 1974, opinion moved in favour of a bull market so fast that I remember that call options – a way of betting on a market rise – became phenomenally expensive.
Right now, the same pundits who were wrong six months ago are continuing to offer bearish opinions.
There are a few who occasionally mention something along the lines of "the short term market strength has been surprising but the fundamental problems remain the same and could lead to major downturn anytime soon".
But most of them seem unabashed. They do not apologise for getting it wrong. It is almost as though some of them live in a parallel world where they remain, in some magical sense, right despite the fact that the market has not – for the time being – done as instructed.
They turn a blind eye to the fact that thousands of people are influenced by them and have, as a consequence, missed out on a major bull run.
There is one financial newspaper – which I worked for years ago – which I cannot remember recommending buying shares at any time over the past 35 years.
My guess is that it has always thought it would look knowing and sophisticated by casting doubt on their prospects. But this has not been clever at all. It has put false sophistication above good advice.
http://www.telegraph.co.uk/finance/personalfinance/investing/6394158/Diary-of-a-private-investor-The-bears-have-taken-the-wrong-course.html
Right now, the same pundits who were wrong six months ago are continuing to offer bearish opinions.
By James Bartholemew
Published: 9:09AM BST 21 Oct 2009
THERE are, I suppose, some people who have never heard of Tom Watson, rather like there are those who have never heard of President Kennedy or Marilyn Monroe.
For those to whom the name means nothing, let me give a brief introduction. He is one of the greatest golfers ever to have walked onto a tee.
He won the Open five times and three other majors. Even more remarkable, this year he came back to Britain at the age of 59, when virtually no golfer is competitive at the highest level, and nearly won the Open again.
He had the equal lowest score and was only beaten in a play-off. What technique!
Deeply impressed by that last thought, I bought one of his old books – published in 1992 – to try to improve my unreliable swing.
The dust-jacket proclaimed, obviously with the expectation that readers would be dazzled, that his career winnings had amounted to over $5million (about £3million).
What struck me about this sum – given his huge success – was how relatively small it was. Admittedly prize money and sponsorship deals have increased. But the value of what was considered a fortune at the time has been destroyed by inflation.
What did he do with his winnings? Did he invest them in shares and property or did he put them in a deposit account at a bank? I don't know, but if he did the latter, the real value has been squished (as my daughter would say). If he invested it, he will have remained a very wealthy man.
He had a key decision in his life. Having achieved fabulous success in the Seventies and Eighties, would he let the fruits fade as he got older?
Being American – share investment is much more normal there – he probably did the right thing. But I have met several intelligent, well-educated people in recent years who seem to have no idea what is at stake.
You can have a wonderfully successful career or a hugely profitable divorce, but the value can be whittled away. You have to get two things right; not just one. You have to make the money and then keep its real value; that is, its purchasing power.
You may say that inflation is yesterday's story. True, it is a fraction of what it used to be. But you need remarkable trust in British governments to be completely confident that it won't come back.
And even if inflation were to stay at a mere 2.5pc a year, the value of your cash would halve over 28 years. Cash is not safe. Inflation means it is a slow crushing of your wealth.
All of which brings me to one of the most remarkable things about this astonishing year in investment.
The massive rise in the stock market and the abrupt recovery in the housing market in certain areas of Britain – particularly London – have been achieved in the face of almost total opposition from pundits in newspapers and financial circles.
Your Money has been a notable exception to that consensus view, but I don't think I have lived through a bull market which took place in the face of such an overwhelming opinion that it would not happen.
Even back in the dark days of 1974, opinion moved in favour of a bull market so fast that I remember that call options – a way of betting on a market rise – became phenomenally expensive.
Right now, the same pundits who were wrong six months ago are continuing to offer bearish opinions.
There are a few who occasionally mention something along the lines of "the short term market strength has been surprising but the fundamental problems remain the same and could lead to major downturn anytime soon".
But most of them seem unabashed. They do not apologise for getting it wrong. It is almost as though some of them live in a parallel world where they remain, in some magical sense, right despite the fact that the market has not – for the time being – done as instructed.
They turn a blind eye to the fact that thousands of people are influenced by them and have, as a consequence, missed out on a major bull run.
There is one financial newspaper – which I worked for years ago – which I cannot remember recommending buying shares at any time over the past 35 years.
My guess is that it has always thought it would look knowing and sophisticated by casting doubt on their prospects. But this has not been clever at all. It has put false sophistication above good advice.
http://www.telegraph.co.uk/finance/personalfinance/investing/6394158/Diary-of-a-private-investor-The-bears-have-taken-the-wrong-course.html
To win, the first thing you have to do is not lose.
Warren Buffett worked from the first principle he had learned from Graham:
To win, the first thing you have to do is not lose.
If one were to buy shares at depressed level, one is fairly confident that one will not lose, even if the loss is only on paper. Buffett's principle rule for trading is this:
Never count on making a good sale, have the purchase price be so attractive that even a mediocre sale gives good results.
To win, the first thing you have to do is not lose.
If one were to buy shares at depressed level, one is fairly confident that one will not lose, even if the loss is only on paper. Buffett's principle rule for trading is this:
Never count on making a good sale, have the purchase price be so attractive that even a mediocre sale gives good results.
Ignore the Market!
Benjamin Graham's final words of advice are: "Ignore the market!" He suggested that each investor should try to think of investment as if you were in business with a mad partner called 'Mr. Market'. Occasionally, 'Mr. Market' is highly optimistic and he is willing to buy your share of the partnership at any price you name. At other times, 'Mr. Market' is highly pessimistic and is willing to sell you his share of the partnership at any price you offer.
How can one behave rationally in such a situation?
The best approach will be to accept his offer when he is optimistic and buy it back from him when he is pessimistic. Each time your share of the partnership cycles back and forth, you will make a handsome profit. Since the stock market is indeed completely manic-depressive, the only right thing to do is to buy and sell on your own terms and not that of the market.
How can one behave rationally in such a situation?
The best approach will be to accept his offer when he is optimistic and buy it back from him when he is pessimistic. Each time your share of the partnership cycles back and forth, you will make a handsome profit. Since the stock market is indeed completely manic-depressive, the only right thing to do is to buy and sell on your own terms and not that of the market.
Good stock selection and timing works well in any stock market
The stock markets are very unpredictable. It can collapse in the midst of prosperity just as it can zoom upwards in the midst of recession. Some stock markets are often subjected to manipulations. The small investors can lose a very large percentage of their capital if they invest blindly. On the other hand, if the small investors can pick the correct stocks at the correct time, they can make a great deal of money.
Good stock selection and timing works well in any stock market, whether it is American, British or Malaysian. However, good stock selection usually requires careful and meticulous work. Some of the masters of the art take more time while others take less but they all have to work at it consistently. The amount of work they need to put in would depend on how gifted they are. Even the great Warren Buffett works onit on a full-time basis.
Many are very interested in buying shares as an investment. However, many do not have the time or inclination to spend a few hours on it every day. Even if they have the time and inclination, some may not have the necessary training to read company or economic reports and understand what has been written.
It would be much easier for them if they can just pick up newspapers or magazines and follow their advice and recommendations. Almost all newspapers have a columnist or two writing on business or stock market affairs. In addition, there are business magazines which also carry regular features on the stock market and individual companies.
However, experts are also not immune to making serious errors of judgement. In the final analysis, investors will have to draw their conclusions regarding the usefulness of relying upon professional advice.
Arrested for insider trading
Tough boss, brilliant investor, family man, and now under probe
NEW YORK, Oct 21 — On the outside, Raj Rajaratnam was rock hard: a driven, demanding hedge fund boss who called his talented employees “idiots” and worse.
A brilliant player on the world’s technology and health-care markets, he made hundreds of millions of dollars by betting correctly on the direction of stocks and bonds.
Inside, though, was a family man who kept his ageing parents in his sumptuous residence in Manhattan’s Upper East Side, where he lived with his wife and three children.
He loved seeing his kids wear Indian clothes at festivals like Deepavali and donated generously to causes as varied as the Harlem Children’s Zone, the tsunami relief effort in Sri Lanka and the Gates Foundation’s efforts to curb the spread of HIV in India.
Such were the twin worlds that came crashing down around the Sri Lanka- born billionaire last week when New York prosecutors arrested him for insider trading.
As head of Galleon Group, Rajaratnam, 52, presided over an investment empire that totalled some US$7 billion (RM23.8 billion) at its peak last year, perhaps the world’s biggest technology fund.
His own net worth, after he lost about a third of it during the carnage on Wall Street last year, was placed at US$1.3 billion earlier this year just as the recovery was starting.
“When you met him socially, he didn’t let on easily how big a man he was,” says an American private equity specialist who shared a lunch table with Rajaratnam in New York last year. “But then there also were people like Bill Clinton and Jim Wolfenson in the room, so there was no shortage of big egos around the place and it was easy not to be noticed.”
The journey to the top of the hedge fund world for Rajaratnam began in the early 1970s at St Thomas’ Preparatory School in Colombo, the capital of Sri Lanka. The alma mater of all three sons of President Mahinda Rajapakse, the school also has a strong rugby tradition.
Not surprisingly, the burly investor frequently described his role at Galleon as that of a “quarterback”.
At the time, the ethnic conflict that bloodied Sri Lanka for a quarter century had not yet begun, so his days were spent mixing freely with boys from the Sinhala majority although he himself was a Tamil.
That probably explains why three decades later, despite bazaar gossip that he funded the separatist Liberation Tigers of Tamil Eelam (LTTE), Rajaratnam has extended his giving to charitable causes to all groups in Sri Lanka.
When the Boxing Day tsunami hit large parts of Asia in 2004, for instance, he was on holiday with his family in Sri Lanka and had luckily left a beach resort the previous day. He gave US$5 million of his own money for tsunami resettlement that would benefit Sinhalas, Tamils and the smaller Muslim community.
More recently, he offered US$1 million to help resettle young Tamil Tiger guerrillas who had been drafted into the movement — an offer Colombo has been slow to accept.
From Colombo, Rajaratnam moved to Sussex in Britain, and then to the Wharton School of Finance. Since then, he has lived in the United States, and now holds dual nationality, retaining his Sri Lankan passport.
Joining Needham & Co after Wharton, Rajaratnam was promoted to president of the firm when he was just 34.
A few months later, bored with pushing people around, he began a small hedge fund with US$15 million.
Five years later, he bought the fund from Needham, renamed it Galleon and launched out on his own with a bunch of handpicked partners.
Driven by Rajaratnam, Galleon showed impressive results. He was so confident of what he was doing that he sometimes invited key clients to sit in on his 8.45am meetings with his analysts and investment teams.
“They came away impressed,” says a New York-based investment manager who has known some big money figures who attended those meetings.
“This guy clearly had all the smarts in a meeting where some of the fund managers were people with top engineering degrees themselves.”
Yet, all was not well inside Galleon’s galley.
One initial partner, Krishen Sud, quit in 2001, even though he is said to have earned US$48 million that year. Rajaratnam had accused him of removing client lists without authorisation.
Despite the loss of his top health-care investment manager, Rajaratnam prospered. In 2006, his best year, he reputedly made as much as US$400 million.
Thanks in part to his wife, Asha, he also had a rich social life. The Rajaratnams gave freely to charities and became trustees of the America India Foundation. Indeed, in Asian circles in New York, many see Rajaratnam as more Indian than Sri Lankan.
One of his donations however raised eyebrows — a US$400,000 gift in 2005 to the US-based Tamils Rehabilitation Organisation, a Maryland-based NGO. At the time it was a legitimate outfit, but two years later the US government, under pressure from Colombo, shut it down as a front for the LTTE.
It was around that time that the Federal Bureau of Investigation (FBI) assigned a man named B.J. Kang to investigate Rajaratnam. It is possible that it wanted to probe his Tamil Tiger connections, given that the Feds had permission to use wiretaps on him.
Soon, the FBI believed it had stumbled on enough evidence to nail the speculator for insider trading.
“It appears that Raj was careful not to use e-mail for the suspect trades but only the phone,” says a person who has studied transcripts of the phone conversations. “The phone chats, if accurate, could be damning for him.”
To be sure, insider trading charges are not easy to prove. Certainly, the quarterback himself is in no mood to see the opposition slip through.
Yesterday, in a note to clients, Rajaratnam vowed to defend himself.
“I am entirely innocent,” he said. — The Straits Times
NEW YORK, Oct 21 — On the outside, Raj Rajaratnam was rock hard: a driven, demanding hedge fund boss who called his talented employees “idiots” and worse.
A brilliant player on the world’s technology and health-care markets, he made hundreds of millions of dollars by betting correctly on the direction of stocks and bonds.
Inside, though, was a family man who kept his ageing parents in his sumptuous residence in Manhattan’s Upper East Side, where he lived with his wife and three children.
He loved seeing his kids wear Indian clothes at festivals like Deepavali and donated generously to causes as varied as the Harlem Children’s Zone, the tsunami relief effort in Sri Lanka and the Gates Foundation’s efforts to curb the spread of HIV in India.
Such were the twin worlds that came crashing down around the Sri Lanka- born billionaire last week when New York prosecutors arrested him for insider trading.
As head of Galleon Group, Rajaratnam, 52, presided over an investment empire that totalled some US$7 billion (RM23.8 billion) at its peak last year, perhaps the world’s biggest technology fund.
His own net worth, after he lost about a third of it during the carnage on Wall Street last year, was placed at US$1.3 billion earlier this year just as the recovery was starting.
“When you met him socially, he didn’t let on easily how big a man he was,” says an American private equity specialist who shared a lunch table with Rajaratnam in New York last year. “But then there also were people like Bill Clinton and Jim Wolfenson in the room, so there was no shortage of big egos around the place and it was easy not to be noticed.”
The journey to the top of the hedge fund world for Rajaratnam began in the early 1970s at St Thomas’ Preparatory School in Colombo, the capital of Sri Lanka. The alma mater of all three sons of President Mahinda Rajapakse, the school also has a strong rugby tradition.
Not surprisingly, the burly investor frequently described his role at Galleon as that of a “quarterback”.
At the time, the ethnic conflict that bloodied Sri Lanka for a quarter century had not yet begun, so his days were spent mixing freely with boys from the Sinhala majority although he himself was a Tamil.
That probably explains why three decades later, despite bazaar gossip that he funded the separatist Liberation Tigers of Tamil Eelam (LTTE), Rajaratnam has extended his giving to charitable causes to all groups in Sri Lanka.
When the Boxing Day tsunami hit large parts of Asia in 2004, for instance, he was on holiday with his family in Sri Lanka and had luckily left a beach resort the previous day. He gave US$5 million of his own money for tsunami resettlement that would benefit Sinhalas, Tamils and the smaller Muslim community.
More recently, he offered US$1 million to help resettle young Tamil Tiger guerrillas who had been drafted into the movement — an offer Colombo has been slow to accept.
From Colombo, Rajaratnam moved to Sussex in Britain, and then to the Wharton School of Finance. Since then, he has lived in the United States, and now holds dual nationality, retaining his Sri Lankan passport.
Joining Needham & Co after Wharton, Rajaratnam was promoted to president of the firm when he was just 34.
A few months later, bored with pushing people around, he began a small hedge fund with US$15 million.
Five years later, he bought the fund from Needham, renamed it Galleon and launched out on his own with a bunch of handpicked partners.
Driven by Rajaratnam, Galleon showed impressive results. He was so confident of what he was doing that he sometimes invited key clients to sit in on his 8.45am meetings with his analysts and investment teams.
“They came away impressed,” says a New York-based investment manager who has known some big money figures who attended those meetings.
“This guy clearly had all the smarts in a meeting where some of the fund managers were people with top engineering degrees themselves.”
Yet, all was not well inside Galleon’s galley.
One initial partner, Krishen Sud, quit in 2001, even though he is said to have earned US$48 million that year. Rajaratnam had accused him of removing client lists without authorisation.
Despite the loss of his top health-care investment manager, Rajaratnam prospered. In 2006, his best year, he reputedly made as much as US$400 million.
Thanks in part to his wife, Asha, he also had a rich social life. The Rajaratnams gave freely to charities and became trustees of the America India Foundation. Indeed, in Asian circles in New York, many see Rajaratnam as more Indian than Sri Lankan.
One of his donations however raised eyebrows — a US$400,000 gift in 2005 to the US-based Tamils Rehabilitation Organisation, a Maryland-based NGO. At the time it was a legitimate outfit, but two years later the US government, under pressure from Colombo, shut it down as a front for the LTTE.
It was around that time that the Federal Bureau of Investigation (FBI) assigned a man named B.J. Kang to investigate Rajaratnam. It is possible that it wanted to probe his Tamil Tiger connections, given that the Feds had permission to use wiretaps on him.
Soon, the FBI believed it had stumbled on enough evidence to nail the speculator for insider trading.
“It appears that Raj was careful not to use e-mail for the suspect trades but only the phone,” says a person who has studied transcripts of the phone conversations. “The phone chats, if accurate, could be damning for him.”
To be sure, insider trading charges are not easy to prove. Certainly, the quarterback himself is in no mood to see the opposition slip through.
Yesterday, in a note to clients, Rajaratnam vowed to defend himself.
“I am entirely innocent,” he said. — The Straits Times
Tulipomania: A tulip bulb priced an equivalent of 12 acres of good land became as worthless as an onion
17th century Holland.
Belonging to the onion family, the tulip flowers are grown from bulbs. Propagation is very slow for it takes a season for a plant to reproduce itself.
The 17th century Dutchmen developed a great passion for tulips and rich people showed off their tulip collection with as much pride as their rare paintings.l
As is usual for all speculative manias, there were sound economic reasons to begin with. Tulips are indeed beautiful flowers and were in much demand all over Europe. Growing tulips was indeed a very profitable industry. However, as with all manias, the profits of the pioneers attracted more and more people into the business. (Reminds me of the MLM model too.) The latecomers, not willing to undergo the long period necessary for the establishment of a nursery, bidded up the price of the existing limited supply.
By the 1620s, some of the rare varieties were beginning to command astronomical prices. Semper Augustus (a beautiful white and blue flower with red stripes) were being sold for 1,200 florins. In perspective, this was equivalent to the cost of 10,000 pounds of cheese or 120 sheep! At this price level, the earlier entrants to the business were making incredible profits and tales of such gains naturally pulled in even more people. By 1634, the race among the Dutch to cultivate tulips was so great that the ordinary businesses of the country were neglected. The same Sempler Augustus had by then reached an incredible price of 5,500 florins, an equivalent of 12 acres of good land.
By 1636, the trade in tulips became so great that regular markets were established for them in Amsterdam, Rotterdam, Harleem, Leyden, Alkmar and other towns. For the first time, symptoms of gambling became apparent. The stock brokers, always alert for a new speculation, switched to tulips and used every means at their disposal to cause fluctuations in prices.
As in all manias, confidence and prices soared to their highest just before the collapse of the market. Everyone imagined that the passion for tulips would last forever. Wealthy people from all over the world sent in large sums of money to Holland to invest in the boom. Houses, land, and valuables were sold at ruinously low prices so that their owners could take part in tulip speculation.
However, the seed of its destruction had by then been sown. The huge increase in money supply and the sense of prosperity created by populace's holding of tulip bulbs caused the prices of everyday necessities to increase by considerable degrees.
Like all wonderful dreams or delightful parties, good things do eventually come to an end. On a day in February 1637, about FIFTEEN years after the beginning of the mania, a speculator bought a bulb and found that he could not resell it for a higher price. He was then forced to reduce its price to dispose of it. This move caused a panic among all other speculators and the rush to sell became increasingly intense. The prices fell drastically and within a short time, tulips which once commanded the price of houses became as worthless as onions.
Ref: Stock Market Investment in Malaysia and Singapore by Neoh Soon Kean
Belonging to the onion family, the tulip flowers are grown from bulbs. Propagation is very slow for it takes a season for a plant to reproduce itself.
The 17th century Dutchmen developed a great passion for tulips and rich people showed off their tulip collection with as much pride as their rare paintings.l
As is usual for all speculative manias, there were sound economic reasons to begin with. Tulips are indeed beautiful flowers and were in much demand all over Europe. Growing tulips was indeed a very profitable industry. However, as with all manias, the profits of the pioneers attracted more and more people into the business. (Reminds me of the MLM model too.) The latecomers, not willing to undergo the long period necessary for the establishment of a nursery, bidded up the price of the existing limited supply.
By the 1620s, some of the rare varieties were beginning to command astronomical prices. Semper Augustus (a beautiful white and blue flower with red stripes) were being sold for 1,200 florins. In perspective, this was equivalent to the cost of 10,000 pounds of cheese or 120 sheep! At this price level, the earlier entrants to the business were making incredible profits and tales of such gains naturally pulled in even more people. By 1634, the race among the Dutch to cultivate tulips was so great that the ordinary businesses of the country were neglected. The same Sempler Augustus had by then reached an incredible price of 5,500 florins, an equivalent of 12 acres of good land.
By 1636, the trade in tulips became so great that regular markets were established for them in Amsterdam, Rotterdam, Harleem, Leyden, Alkmar and other towns. For the first time, symptoms of gambling became apparent. The stock brokers, always alert for a new speculation, switched to tulips and used every means at their disposal to cause fluctuations in prices.
As in all manias, confidence and prices soared to their highest just before the collapse of the market. Everyone imagined that the passion for tulips would last forever. Wealthy people from all over the world sent in large sums of money to Holland to invest in the boom. Houses, land, and valuables were sold at ruinously low prices so that their owners could take part in tulip speculation.
However, the seed of its destruction had by then been sown. The huge increase in money supply and the sense of prosperity created by populace's holding of tulip bulbs caused the prices of everyday necessities to increase by considerable degrees.
Like all wonderful dreams or delightful parties, good things do eventually come to an end. On a day in February 1637, about FIFTEEN years after the beginning of the mania, a speculator bought a bulb and found that he could not resell it for a higher price. He was then forced to reduce its price to dispose of it. This move caused a panic among all other speculators and the rush to sell became increasingly intense. The prices fell drastically and within a short time, tulips which once commanded the price of houses became as worthless as onions.
Ref: Stock Market Investment in Malaysia and Singapore by Neoh Soon Kean
Warren Buffett on What's Next in the Payments Industry
Oct 20, 2009, 10:00am
Transcript: Warren Buffett on What's Next in the Payments Industry
To kick off the launch of PYMNTS.com, the "Oracle from Omaha" weighs in on what's next in the payment industry and the economy at large. Business Wire CEO Cathy Baron Tamraz sits down with Mr. Buffett in an exclusive interview. The following is a transcript of the video.
CATHY BARON TAMRAZ: Greetings from San Diego, where we have just completed the Fortune Most Powerful Women’s Summit. I am Cathy Baron Tamraz, CEO of Business Wire, and I am here with the only male that is allowed into this conference and that is Warren Buffett, Chairman of Berkshire Hathaway, which is also the parent company of Business Wire. Warren has graciously agreed to answer some questions today, and kick off a conference that Business Wire and Market Platform Dynamics are holding in New York City, to launch a new Web site about the payment industry callexd PYMNTS.com. We are really excited about this new portal, which will be a primary source of news for the payments industry. It will havebreaking news and regulatory news in the payment industry, new technology and new products.
Because the payment industry is so vital to the economy, we thought it would be relevant to talk to Warren and hear his views on the state of the economy and what we can do to revitalize it. So thank you, Warren, for speaking with us today and agreeing to be interviewed by me.
WARREN BUFFETT: You are my favorite interviewer!
CBT: Thank you very much. That’s on tape, by the way. So, the first question I have for you is about the near-term future of our economy. The last 12 months feels like a really bad dream. This year has been the year that shook the world. It’s been a year since the bankruptcy of Lehman Brothers and it almost sent the economy over a cliff. We had the Bear Stearns fallout, Merrill Lynch sold to Bank of America, the AIG crisis, Fannie and Freddie falling under government control. It’s been a really difficult year. So, what do you think is going to happen now in the fourth quarter of 2009 and also in 2010?
WB: I am not sure about exact quarters or anything of the sort. Who knows about next week or next month? We made enormous progress since a year ago. We had a real panic. And if you didn’t panic, you didn’t understand what was going on. What happened in September and October of 2008 will particularly be remembered for a long, long time. And while the governmental authorities malign things sometimes, they fortunately did some very right things, very important things. They did them properly, and they kept us from going over the cliff. The fallout from that financial panic hit the regular economy in the fourth quarter like a ton of bricks. We are coming back from that. The patient really went into the emergency room and it won’t come out of the hospital entirely for a while.
There are things that have to be cured in the system, but this system works. If you look at this country, we have gone through the Great Depression, we have gone through world wars, we have gone through civil war, and we have progressed like no country in the world. We have the right system. It doesn’t avoid all the problems, but it overcomes all the problems.
CBT: Do you see consumer-spending increasing in the near term?
WB: No, and not for a while. I think people had an experience a year ago that they are not going to get over quickly. But the factories are there, the human potential is there, the system is there. It works over time. Your kids will live better than you and I live, and our grandchildren will live better than they do. This country moves forward.
If you take the 20th century, we had a Great Depression, world wars, a nuclear bomb, a flu epidemic. We had all these things, and at the end of the 20th century, the average American was living seven times better than at the start of the century. It’s amazing. The Dow Jones Average had gone from 66 to 11,400. So the country works, you don’t have to worry about that.
CBT: This latest debacle has also been called a “crisis of confidence.” Five trillion dollars of American wealth has vanished. If confidence is what’s needed to stimulate the economy, how do we put trust back into the financial system? Does the government need to retain a stronger hand?
WB: Well, people became afraid a year ago, and confidence is not going to exist when fear exists. Fear is very contagious. It spreads very quickly, and that’s what happened in the start of the fourth quarter last year. The confidence doesn’t come back as fast as it’s lost, but it does come back. It’s come back a long way already, but it has a ways to go. As people see and really get re‑affirmed about the fact that this system works. We are still tossing out 14 trillion worth of product a year. It will return. It’s already returned with most people in most ways, but it’s not back 100%. It’ll get there.
CBT: Do you have any comment on the unemployment rate?
WB: Well, the unemployment rate will turn around late. It always lags. People who have gone through a period like this are slow to rehire until they really have to. On the other hand, the time will come when they have to. There will be more people working in housing a year or two from now. We have a brick company. We have companies in the carpet business. We have had to let people go in those businesses in the last year, year and a half. We will be adding people at some point, but we won’t do it until we see the demand come back. It’ll be a little slow because we don’t want to go through what we did before. Although, I will guarantee you that three years from now, our brick companies, our carpet company, and our insulation company will all be employing far more people than now.
CBT: That’s good to hear. The next question is about the government. Congress and the administration have been working on reforming financial regulation. Do you think they are on the right track? And will reforms and new rules to protect consumers help restore confidence?
WB: Well, the new rules won out, so the things they have done during the last year fell pretty short of confidence. Not everything is done perfectly, but nobody can do them perfectly. The important thing is that they got things done and people do believe in them, and they’ll believe in them more and more as it goes along. Government has a real role to play and it will not prevent bubbles forever. Human beings do crazy things from time to time, and the real question is how they recover from it. You and I have done things in our life, and the truth is that we came back from them. That’s the important thing.
You can’t rule out human emotions. When people get greedy as a pack, strange things happen. When they get fearful as a pack, strange things happen. (My comment: groupthink) That isn’t the way they exist most of the time, but they do give into that. So rules will help us avoid some of the problems. They’ll help us modify some of the problems, but they won’t eliminate all future problems.
CBT: I was watching a little TV this week and I was listening to William Cohen, who is the author of “The House of Cards.” He said that if you don’t change compensation and how Wall Street is incented, the same thing is going happen all over again. And yet, I recently heard that Wall Street is hiring, and they are also guaranteeing big bonuses and compensation packages, which is a little bit alarming if you ask me. What’s your view is on that?
WB: Well, Wall Street is about trying to make a lot of money. It’s the nature of the system. You get a huge capitalist system, and it raises lots of money and it makes lots of big deals and people – some people get paid very well for it. What you have to change in Wall Street is you have to make sure that in addition to carrots, there are sticks. And it can’t be a one‑way street where they are making ungodly amounts of money when things are good and then they move on to someplace else for a while when things are bad. You have to create a downside. I hope there are some practices put into place – and I’ll have a few thoughts on them myself – but Congress undoubtedly will have a few thoughts too. You have to put in something where there is downside to people who really mess up large institutions and we need some new help in that. Too many people have walked away from the troubles they have created for society, not just for their own institution, and they have walked away rich. They may not be as rich as they were before, but they have walked away better than they should have. There have to be incentives – not only to get rich, but to behave well.
CBT: President Obama said this week that the financial firms “owe a debt to the American people.” And I wasn’t exactly sure how, how they could pay that back to the American people.
WB: It’s interesting. Exactly a year ago when I was at this conference, I had a proposal for the so‑called “toxic assets.” I called three people in the financial world who were going to write Secretary Paulson about it. I wrote them on October 6th. I called three people to help out on this, and it would have required a lot of effort on their part and some commitment of money and time and energy. I asked all three of them if this went forward to do it absolutely pro‑bono. I asked them not to make one dime out of it. And they all said yes to me. So, they are good people. Many are motivated by greed. None of us are perfect, you know? I always say that, “Every saint has a past, every sinner has a future.” We have got some sinners back there, but they are not all bad. They went along with a bubble that they helped create – but the whole American public did. You still have to have the right rewards and penalties for behavior. That’s how you get decent behavior. So, I don’t look at Wall Street as “evil.” I look at Wall Street as given to huge excess sometimes. I don’t want to get rid of it. We need something to allocate capital and distribute securities and all of that throughout the system. We have got a big capitalist system and we have to have a big capital market – but there is plenty of room for improvement.
CBT: Looking into your crystal ball, what will the stock market look like a year from now?
WB: Well, I don’t know about a year from now. Five years from now, it’ll be higher, yeah. Ten years from now, it’ll be higher. One year from now, I don’t know.
CBT: Fair enough. Moving a little bit more closely to the payment and card system. On September 3rd, the The Wall Street Journal had an articled titled “Wal‑Mart to Pay via Check Cards.” Wal‑Mart isn’t going to issue paychecks anymore. So it’s all going to be through a card system, which is actually good for the payment industry and the card industry. And it seems to be a growing movement to use cards to dispense payments. I noticed that on some airlines, if you don’t have a card – a credit card of some kind – you can’t eat or drink anything if you are sitting in economy because they don’t take cash anymore. So that, that’s kind of interesting…
WB: Some restaurant just announced that in New York too, that they weren’t going to take cash.
CBT: That brings us to the next question: Do you think cash is ever going to disappear as a form of payment?
WB: It won’t disappear, but in the end – and that’s the genius of the American system – we do give the consumer what they want. If people want to use the convenience of cards, they will do it. Now there will be enough people that want to use cash, so consumers won’t turn their back on it entirely. They haven’t given up landline phones entirely for cell phones. The American consumer – in the end – is king. You can push them around for a week or a month maybe, but you either figure out what’s in your customers’ mind and decide you are going to serve them; or you are not going to be in business. They are right, and you are wrong. It’s what made this country, to some extent, what it is. Our market system where the customer – 300 million Americans – tell people what to make, where to serve them, and how to do business. Compare that to some totalitarian system, where somebody decides what people are going eat for lunch and we win.
CBT: Well, we are certainly not used to that…
WB: Oh yeah. Mm‑hmm.
CBT: The credit card industry is about 50 years old, and it’s pretty safe to say that it’s going to transform in the next 10 or 15 years. Sometimes I think we’ll have chips in our hands to scan and pay for things. All kinds of things will be transacted electronically.
WB: Cathy, I met Ralph Schneider who was the founder of the Diners Club back in the 1950s. He had just designed an IRA, and they are just using it around New York. They used to charge the merchants 10 percent and the card was very low priced then. American Express went into the business originally defensively. They had the Travelers Check and they were worried about what the credit card would do to it. In 1964, when American Express had what they called the great Salad Oil Scandal, we became this little outfit in Omaha and became the largest shareholders of the American Express Company. I went around to restaurants and service stations, and asked people about whether the Card was losing its appeal because of the scandal that was going around. They said the Card wasn’t losing it but that it was growing in appeal. So, I watched the credit card industry almost from the beginning in that respect. We got in early. I could see it was a powerful tool. First Data was in Omaha, and I have watched them all. Carte Blanche, the Hilton Card – some of those have disappeared over the years. Of course, Visa and MasterCard have been successful. There have been all kinds of developments, but the truth is, the American public likes to be able to go into their pocket and pull out a card.
CBT: Well, that was a really great lead into a question I had about American Express. Everyone knows here that Berkshire Hathaway has an investment in American Express, as you just said. So, you obviously know a lot about the payment industry and that company in particular. Can you tell us what attracted you to that company?
WB: Well, what originally attracted me back in 1964 was that Diners Club got the jump. They were way ahead of American Express. American Express came in with a very interesting market and concept. People already were carrying Diners Club, and American Express wanted to enter the field. They charged more than Diners Club did for their product. Diners Club had this card that had a bunch of flashy little symbols and everything on it. American Express brought out that centurion, and originally it was the green card with the guy that looked like Mr. Integrity. If you went into a restaurant, and you were buying dinner for somebody, and you had a choice of pulling out this Diners Club card that looked like you were giving a check from your mother or pulling out this centurion that made it look you were J.P. Morgan or something – you went with Mr. Integrity. They actually took over the field by establishing themselves not as the low‑priced competitor but, but as the class competitor. It was a great marketing arrangement. Then it swept the country. The card I carry in my pocket says, “Member Since 1964.”
CBT: Mine says “Member Since 1983.”
WB: Well, that was the year you were born, I was 40 years old or something when I did this.
CBT: Last question. We would like you to impart a little bit of advice and tell us what is the one lesson that we should take away from this economic Pearl Harbor?
WB: Well, I think that it goes back what I have told my manager to do: Just keep taking care of the customer. We have got a lot of customers in this country. Since 1886, Coca‑Cola has been selling a product that people like, and they just keep taking care of them. It’s what you have done at Business Wire. In the end, nobody that’s ever taken good care of the customer has ever lost; I mean, that, that is the name of the game.
CBT: That is great advice. I want to thank you for your time, Warren, it’s been a pleasure talking to you, and allowing me to interview you.
WB: It's been fun. Thanks, Cathy.
http://pymnts.com/transcript-warren-buffett-on-what-s-next-in-the-payments-industry/
Transcript: Warren Buffett on What's Next in the Payments Industry
To kick off the launch of PYMNTS.com, the "Oracle from Omaha" weighs in on what's next in the payment industry and the economy at large. Business Wire CEO Cathy Baron Tamraz sits down with Mr. Buffett in an exclusive interview. The following is a transcript of the video.
CATHY BARON TAMRAZ: Greetings from San Diego, where we have just completed the Fortune Most Powerful Women’s Summit. I am Cathy Baron Tamraz, CEO of Business Wire, and I am here with the only male that is allowed into this conference and that is Warren Buffett, Chairman of Berkshire Hathaway, which is also the parent company of Business Wire. Warren has graciously agreed to answer some questions today, and kick off a conference that Business Wire and Market Platform Dynamics are holding in New York City, to launch a new Web site about the payment industry callexd PYMNTS.com. We are really excited about this new portal, which will be a primary source of news for the payments industry. It will havebreaking news and regulatory news in the payment industry, new technology and new products.
Because the payment industry is so vital to the economy, we thought it would be relevant to talk to Warren and hear his views on the state of the economy and what we can do to revitalize it. So thank you, Warren, for speaking with us today and agreeing to be interviewed by me.
WARREN BUFFETT: You are my favorite interviewer!
CBT: Thank you very much. That’s on tape, by the way. So, the first question I have for you is about the near-term future of our economy. The last 12 months feels like a really bad dream. This year has been the year that shook the world. It’s been a year since the bankruptcy of Lehman Brothers and it almost sent the economy over a cliff. We had the Bear Stearns fallout, Merrill Lynch sold to Bank of America, the AIG crisis, Fannie and Freddie falling under government control. It’s been a really difficult year. So, what do you think is going to happen now in the fourth quarter of 2009 and also in 2010?
WB: I am not sure about exact quarters or anything of the sort. Who knows about next week or next month? We made enormous progress since a year ago. We had a real panic. And if you didn’t panic, you didn’t understand what was going on. What happened in September and October of 2008 will particularly be remembered for a long, long time. And while the governmental authorities malign things sometimes, they fortunately did some very right things, very important things. They did them properly, and they kept us from going over the cliff. The fallout from that financial panic hit the regular economy in the fourth quarter like a ton of bricks. We are coming back from that. The patient really went into the emergency room and it won’t come out of the hospital entirely for a while.
There are things that have to be cured in the system, but this system works. If you look at this country, we have gone through the Great Depression, we have gone through world wars, we have gone through civil war, and we have progressed like no country in the world. We have the right system. It doesn’t avoid all the problems, but it overcomes all the problems.
CBT: Do you see consumer-spending increasing in the near term?
WB: No, and not for a while. I think people had an experience a year ago that they are not going to get over quickly. But the factories are there, the human potential is there, the system is there. It works over time. Your kids will live better than you and I live, and our grandchildren will live better than they do. This country moves forward.
If you take the 20th century, we had a Great Depression, world wars, a nuclear bomb, a flu epidemic. We had all these things, and at the end of the 20th century, the average American was living seven times better than at the start of the century. It’s amazing. The Dow Jones Average had gone from 66 to 11,400. So the country works, you don’t have to worry about that.
CBT: This latest debacle has also been called a “crisis of confidence.” Five trillion dollars of American wealth has vanished. If confidence is what’s needed to stimulate the economy, how do we put trust back into the financial system? Does the government need to retain a stronger hand?
WB: Well, people became afraid a year ago, and confidence is not going to exist when fear exists. Fear is very contagious. It spreads very quickly, and that’s what happened in the start of the fourth quarter last year. The confidence doesn’t come back as fast as it’s lost, but it does come back. It’s come back a long way already, but it has a ways to go. As people see and really get re‑affirmed about the fact that this system works. We are still tossing out 14 trillion worth of product a year. It will return. It’s already returned with most people in most ways, but it’s not back 100%. It’ll get there.
CBT: Do you have any comment on the unemployment rate?
WB: Well, the unemployment rate will turn around late. It always lags. People who have gone through a period like this are slow to rehire until they really have to. On the other hand, the time will come when they have to. There will be more people working in housing a year or two from now. We have a brick company. We have companies in the carpet business. We have had to let people go in those businesses in the last year, year and a half. We will be adding people at some point, but we won’t do it until we see the demand come back. It’ll be a little slow because we don’t want to go through what we did before. Although, I will guarantee you that three years from now, our brick companies, our carpet company, and our insulation company will all be employing far more people than now.
CBT: That’s good to hear. The next question is about the government. Congress and the administration have been working on reforming financial regulation. Do you think they are on the right track? And will reforms and new rules to protect consumers help restore confidence?
WB: Well, the new rules won out, so the things they have done during the last year fell pretty short of confidence. Not everything is done perfectly, but nobody can do them perfectly. The important thing is that they got things done and people do believe in them, and they’ll believe in them more and more as it goes along. Government has a real role to play and it will not prevent bubbles forever. Human beings do crazy things from time to time, and the real question is how they recover from it. You and I have done things in our life, and the truth is that we came back from them. That’s the important thing.
You can’t rule out human emotions. When people get greedy as a pack, strange things happen. When they get fearful as a pack, strange things happen. (My comment: groupthink) That isn’t the way they exist most of the time, but they do give into that. So rules will help us avoid some of the problems. They’ll help us modify some of the problems, but they won’t eliminate all future problems.
CBT: I was watching a little TV this week and I was listening to William Cohen, who is the author of “The House of Cards.” He said that if you don’t change compensation and how Wall Street is incented, the same thing is going happen all over again. And yet, I recently heard that Wall Street is hiring, and they are also guaranteeing big bonuses and compensation packages, which is a little bit alarming if you ask me. What’s your view is on that?
WB: Well, Wall Street is about trying to make a lot of money. It’s the nature of the system. You get a huge capitalist system, and it raises lots of money and it makes lots of big deals and people – some people get paid very well for it. What you have to change in Wall Street is you have to make sure that in addition to carrots, there are sticks. And it can’t be a one‑way street where they are making ungodly amounts of money when things are good and then they move on to someplace else for a while when things are bad. You have to create a downside. I hope there are some practices put into place – and I’ll have a few thoughts on them myself – but Congress undoubtedly will have a few thoughts too. You have to put in something where there is downside to people who really mess up large institutions and we need some new help in that. Too many people have walked away from the troubles they have created for society, not just for their own institution, and they have walked away rich. They may not be as rich as they were before, but they have walked away better than they should have. There have to be incentives – not only to get rich, but to behave well.
CBT: President Obama said this week that the financial firms “owe a debt to the American people.” And I wasn’t exactly sure how, how they could pay that back to the American people.
WB: It’s interesting. Exactly a year ago when I was at this conference, I had a proposal for the so‑called “toxic assets.” I called three people in the financial world who were going to write Secretary Paulson about it. I wrote them on October 6th. I called three people to help out on this, and it would have required a lot of effort on their part and some commitment of money and time and energy. I asked all three of them if this went forward to do it absolutely pro‑bono. I asked them not to make one dime out of it. And they all said yes to me. So, they are good people. Many are motivated by greed. None of us are perfect, you know? I always say that, “Every saint has a past, every sinner has a future.” We have got some sinners back there, but they are not all bad. They went along with a bubble that they helped create – but the whole American public did. You still have to have the right rewards and penalties for behavior. That’s how you get decent behavior. So, I don’t look at Wall Street as “evil.” I look at Wall Street as given to huge excess sometimes. I don’t want to get rid of it. We need something to allocate capital and distribute securities and all of that throughout the system. We have got a big capitalist system and we have to have a big capital market – but there is plenty of room for improvement.
CBT: Looking into your crystal ball, what will the stock market look like a year from now?
WB: Well, I don’t know about a year from now. Five years from now, it’ll be higher, yeah. Ten years from now, it’ll be higher. One year from now, I don’t know.
CBT: Fair enough. Moving a little bit more closely to the payment and card system. On September 3rd, the The Wall Street Journal had an articled titled “Wal‑Mart to Pay via Check Cards.” Wal‑Mart isn’t going to issue paychecks anymore. So it’s all going to be through a card system, which is actually good for the payment industry and the card industry. And it seems to be a growing movement to use cards to dispense payments. I noticed that on some airlines, if you don’t have a card – a credit card of some kind – you can’t eat or drink anything if you are sitting in economy because they don’t take cash anymore. So that, that’s kind of interesting…
WB: Some restaurant just announced that in New York too, that they weren’t going to take cash.
CBT: That brings us to the next question: Do you think cash is ever going to disappear as a form of payment?
WB: It won’t disappear, but in the end – and that’s the genius of the American system – we do give the consumer what they want. If people want to use the convenience of cards, they will do it. Now there will be enough people that want to use cash, so consumers won’t turn their back on it entirely. They haven’t given up landline phones entirely for cell phones. The American consumer – in the end – is king. You can push them around for a week or a month maybe, but you either figure out what’s in your customers’ mind and decide you are going to serve them; or you are not going to be in business. They are right, and you are wrong. It’s what made this country, to some extent, what it is. Our market system where the customer – 300 million Americans – tell people what to make, where to serve them, and how to do business. Compare that to some totalitarian system, where somebody decides what people are going eat for lunch and we win.
CBT: Well, we are certainly not used to that…
WB: Oh yeah. Mm‑hmm.
CBT: The credit card industry is about 50 years old, and it’s pretty safe to say that it’s going to transform in the next 10 or 15 years. Sometimes I think we’ll have chips in our hands to scan and pay for things. All kinds of things will be transacted electronically.
WB: Cathy, I met Ralph Schneider who was the founder of the Diners Club back in the 1950s. He had just designed an IRA, and they are just using it around New York. They used to charge the merchants 10 percent and the card was very low priced then. American Express went into the business originally defensively. They had the Travelers Check and they were worried about what the credit card would do to it. In 1964, when American Express had what they called the great Salad Oil Scandal, we became this little outfit in Omaha and became the largest shareholders of the American Express Company. I went around to restaurants and service stations, and asked people about whether the Card was losing its appeal because of the scandal that was going around. They said the Card wasn’t losing it but that it was growing in appeal. So, I watched the credit card industry almost from the beginning in that respect. We got in early. I could see it was a powerful tool. First Data was in Omaha, and I have watched them all. Carte Blanche, the Hilton Card – some of those have disappeared over the years. Of course, Visa and MasterCard have been successful. There have been all kinds of developments, but the truth is, the American public likes to be able to go into their pocket and pull out a card.
CBT: Well, that was a really great lead into a question I had about American Express. Everyone knows here that Berkshire Hathaway has an investment in American Express, as you just said. So, you obviously know a lot about the payment industry and that company in particular. Can you tell us what attracted you to that company?
WB: Well, what originally attracted me back in 1964 was that Diners Club got the jump. They were way ahead of American Express. American Express came in with a very interesting market and concept. People already were carrying Diners Club, and American Express wanted to enter the field. They charged more than Diners Club did for their product. Diners Club had this card that had a bunch of flashy little symbols and everything on it. American Express brought out that centurion, and originally it was the green card with the guy that looked like Mr. Integrity. If you went into a restaurant, and you were buying dinner for somebody, and you had a choice of pulling out this Diners Club card that looked like you were giving a check from your mother or pulling out this centurion that made it look you were J.P. Morgan or something – you went with Mr. Integrity. They actually took over the field by establishing themselves not as the low‑priced competitor but, but as the class competitor. It was a great marketing arrangement. Then it swept the country. The card I carry in my pocket says, “Member Since 1964.”
CBT: Mine says “Member Since 1983.”
WB: Well, that was the year you were born, I was 40 years old or something when I did this.
CBT: Last question. We would like you to impart a little bit of advice and tell us what is the one lesson that we should take away from this economic Pearl Harbor?
WB: Well, I think that it goes back what I have told my manager to do: Just keep taking care of the customer. We have got a lot of customers in this country. Since 1886, Coca‑Cola has been selling a product that people like, and they just keep taking care of them. It’s what you have done at Business Wire. In the end, nobody that’s ever taken good care of the customer has ever lost; I mean, that, that is the name of the game.
CBT: That is great advice. I want to thank you for your time, Warren, it’s been a pleasure talking to you, and allowing me to interview you.
WB: It's been fun. Thanks, Cathy.
http://pymnts.com/transcript-warren-buffett-on-what-s-next-in-the-payments-industry/
Revenue Growth is Key
Digesting Earnings: Revenue Growth is Key
Published: Monday, 19 Oct 2009 | 3:14 AM ET Text Size
Michael Yoshikami
President & Chief Investment Strategist
YCMNET Advisors
It's a busy week ahead for earnings from US Bellwethers and investors will be watching for indications that optimism in the markets is justified by corporate results.
We are fast leaving behind the time that beating earnings because of cost efficiencies is sufficient to justify current multiples. Revenue growth must also return.
No one is looking for a return to revenue numbers from two years ago, but improvement during the last six or 12 months is certainly needed; this outcome would fuel further optimism in the market if these numbers are exceeded.
However, as you listen to the numbers, it's just important to watch for the language used by management.
And don't, for a second, assume that they will be necessarily transparent when they describe what they see the future to be in terms of earnings potential.
Company executives tend to be fairly conservative after a dramatic downturn as evidenced by the earnings calls from Caterpillar [CAT 59.61 1.76 (+3.04%) ]over the last two quarters.
Management was extremely gloomy six months ago when discussing future prospects. Now they appear to have evolved to cautious which is a vast psychological improvement. It's no wonder Caterpillar stock has done well the last 6 months - their outlook has become less dire and management was conscious in discussing future prospects.
Douglas C. Pizac / AP
--------------------------------------------------------------------------------
With Microsoft [MSFT 26.37 0.01 (+0.04%) ]releasing Windows 7 this week, there will be a major impact on technology players in the retail segment if the operating system is adopted widely. Watch for indications from Microsoft that they are beginning to see light in business segments despite last quarter's tough report.
Apple [AAPL 198.76 8.90 (+4.69%) ]reports this week and everyone wonders if iPhone momentum will start to slow. The company has been priced to perfection and at this point that's what's been occurring in the earnings numbers - almost perfection. We shall see this week if that trend continues.
Other companies to monitor include Texas Instruments [TXN 23.66 0.14 (+0.6%) ]and 3M[MMM 75.92 -0.40 (-0.52%) ]. They will both provide a view on the health of the overall economy as both companies fortunes are tied to macro economic growth.
So watch for revenue versus earnings performance, company comments, and future projections about business and industry recovery expectations. The answers to these questions will drive earnings results. And very well could drive market returns.
___________________
Michael A. Yoshikami, Ph.D., CFP®, is Founder, President, and Chief Investment Strategist of YCMNET Advisors, Inc., a registered investment advisory firm (www.ycmnet.com). He oversees all investment and research activities of YCMNET. He is a respected lecturer speaking frequently on market issues, tactical asset allocation, and investment strategy. Michael and YCMNET were ranked as one of the top investment 100 advisors in the United States for 2009 by Barrons. He appears regularly on CNBC and CNBC Asia and can be reached directly at m@ycmnet.com.
http://www.cnbc.com/id/33375612
Published: Monday, 19 Oct 2009 | 3:14 AM ET Text Size
Michael Yoshikami
President & Chief Investment Strategist
YCMNET Advisors
It's a busy week ahead for earnings from US Bellwethers and investors will be watching for indications that optimism in the markets is justified by corporate results.
We are fast leaving behind the time that beating earnings because of cost efficiencies is sufficient to justify current multiples. Revenue growth must also return.
No one is looking for a return to revenue numbers from two years ago, but improvement during the last six or 12 months is certainly needed; this outcome would fuel further optimism in the market if these numbers are exceeded.
However, as you listen to the numbers, it's just important to watch for the language used by management.
And don't, for a second, assume that they will be necessarily transparent when they describe what they see the future to be in terms of earnings potential.
Company executives tend to be fairly conservative after a dramatic downturn as evidenced by the earnings calls from Caterpillar [CAT 59.61 1.76 (+3.04%) ]over the last two quarters.
Management was extremely gloomy six months ago when discussing future prospects. Now they appear to have evolved to cautious which is a vast psychological improvement. It's no wonder Caterpillar stock has done well the last 6 months - their outlook has become less dire and management was conscious in discussing future prospects.
Douglas C. Pizac / AP
--------------------------------------------------------------------------------
With Microsoft [MSFT 26.37 0.01 (+0.04%) ]releasing Windows 7 this week, there will be a major impact on technology players in the retail segment if the operating system is adopted widely. Watch for indications from Microsoft that they are beginning to see light in business segments despite last quarter's tough report.
Apple [AAPL 198.76 8.90 (+4.69%) ]reports this week and everyone wonders if iPhone momentum will start to slow. The company has been priced to perfection and at this point that's what's been occurring in the earnings numbers - almost perfection. We shall see this week if that trend continues.
Other companies to monitor include Texas Instruments [TXN 23.66 0.14 (+0.6%) ]and 3M[MMM 75.92 -0.40 (-0.52%) ]. They will both provide a view on the health of the overall economy as both companies fortunes are tied to macro economic growth.
So watch for revenue versus earnings performance, company comments, and future projections about business and industry recovery expectations. The answers to these questions will drive earnings results. And very well could drive market returns.
___________________
Michael A. Yoshikami, Ph.D., CFP®, is Founder, President, and Chief Investment Strategist of YCMNET Advisors, Inc., a registered investment advisory firm (www.ycmnet.com). He oversees all investment and research activities of YCMNET. He is a respected lecturer speaking frequently on market issues, tactical asset allocation, and investment strategy. Michael and YCMNET were ranked as one of the top investment 100 advisors in the United States for 2009 by Barrons. He appears regularly on CNBC and CNBC Asia and can be reached directly at m@ycmnet.com.
http://www.cnbc.com/id/33375612
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