Investor of marketable shares has a double status, with the privilege of taking advantage of either at his choice.

The impact of market fluctuations upon the investor’s true situation may be considered also from the standpoint of the shareholder as the part owner of various businesses.

The holder of marketable shares actually has a double status, and with it the privilege of taking advantage of either at his choice. 

1.  On the one hand his position is analogous to that of a minority shareholder or silent partner in a private business.

• Here his results are entirely dependent on the profits of the enterprise or on a change in the underlying value of its assets. 
• He would usually determine the value of such a private-business interest by calculating his share of the net worth as shown in the most recent balance sheet. 

2.  On the other hand, the common-stock investor holds a piece of paper, an engraved stock certificate.

• This stock certificate can be sold in a matter of minutes at a price which varies from moment to moment—when the market is open, that is—and often is far removed from the balance sheet value.

Substantial rise in the market: Practical questions and psychological problems confronting the investors

A serious investor is not likely to believe that the day-to-day or even month-to-month fluctuations of the stock market make him richer or poorer.


But what about the longer-term and wider changes in the stock market? Here practical questions present themselves, and the psychological problems are likely to grow complicated.

A substantial rise in the market is 

• at once a legitimate reason for satisfaction and 
• a cause for prudent concern, 
• but it may also bring a strong temptation toward imprudent action.

Your shares have advanced, good!  You are richer than you were, good!

• But has the price risen too high, and should you think of selling? 
• Or should you kick yourself for not having bought more shares when the level was lower? 
• Or— worst thought of all—should you now give way to the bull-market atmosphere, become infected with the enthusiasm, the overconfidence and the greed of the great public (of which, after all, you are a part), and make larger and dangerous commitments? 

Presented thus in print, the answer to the last question is a self-evident no, but even the intelligent investor is likely to need considerable will power to keep from following the crowd.

It is for these reasons of human nature, even more than by calculation of financial gain or loss, that we favor some kind of mechanical method for varying the proportion of bonds to stocks in the investor’s portfolio.

• The chief advantage, perhaps, is that such a formula will give him something to do. 
• As the market advances he will from time to time make sales out of his stockholdings, putting the proceeds into bonds; as it declines he will reverse the procedure. 
• These activities will provide some outlet for his otherwise too-pent-up energies. 
• If he is the right kind of investor he will take added satisfaction from the thought that his operations are exactly opposite from those of the crowd.*

* For today’s investor, the ideal strategy for pursuing this “formula” is rebalancing.

Every investor who owns common stocks must expect to see them fluctuate in value over the years.

Market Fluctuations of the Investor’s Portfolio

Every investor who owns common stocks must expect to see them fluctuate in value over the years. 

The behavior of the DJIA since our last edition was written in 1964 probably reflects pretty well what has happened to the stock portfolio of a conservative investor who limited his stock holdings to those of large, prominent, and conservatively financed corporations.

• The overall value advanced from an average level of about 890 to a high of 995 in 1966 (and 985 again in 1968), fell to 631 in 1970, and made an almost full recovery to 940 in early 1971. 
• (Since the individual issues set their high and low marks at different times, the fluctuations in the Dow Jones group as a whole are less severe than those in the separate components.) 
• We have traced through the price fluctuations of other types of diversified and conservative common-stock portfolios and we find that the overall results are not likely to be markedly different from the above. 
• In general, the shares of second-line companies* fluctuate more widely than the major ones, but this does not necessarily mean that a group of well established but smaller companies will make a poorer showing over a fairly long period. 

In any case the investor may as well resign himself in advance to the probability rather than the mere possibility that most of his holdings will advance, say, 50% or more from their low point and decline the equivalent one-third or more from their high point at various periods in the next five years.†




* Today’s equivalent of what Graham calls “second-line companies” would be any of the thousands of stocks not included in the Standard & Poor’s 500-stock index. A regularly revised list of the 500 stocks in the S & P index is available at www.standardandpoors.com.

† Note carefully what Graham is saying here. It is not just possible, but probable, that most of the stocks you own will gain at least 50% from their lowest price and lose at least 33% from their highest price—regardless of which stocks you own or whether the market as a whole goes up or down. 

• If you can’t live with that—or you think your portfolio is somehow magically exempt from it—then you are not yet entitled to call yourself an investor. 
• (Graham refers to a 33% decline as the “equivalent one-third” because a 50% gain takes a $10 stock to $15. From $15, a 33% loss [or $5 drop] takes it right back to $10, where it started.

Ref:  Intelligent Investor by Benjamin Graham

Various methods of taking advantage of the stock market’s cycles: "Formula Investment Plans"

Formula Plans

In the early years of the stock-market rise that began in 1949–50 considerable interest was attracted to various methods of taking advantage of the stock market’s cycles. These have been known as “formula investment plans.” 

• The essence of all such plans—except the simple case of dollar averaging—is that the investor automatically does  some selling of common stocks when the market advances substantially. 
• In many of them a very large rise in the market level would result in the sale of all common-stock holdings; others provided for retention of a minor proportion of equities under all circumstances.

This approach had the double appeal of sounding logical (and conservative) and of showing excellent results when applied retrospectively to the stock market over many years in the past. Unfortunately, its vogue grew greatest at the very time when it was destined to work least well.

• Many of the “formula planners” found themselves entirely or nearly out of the stock market at some level in the middle 1950s. 
• True, they had realized excellent profits, but in a broad sense the market “ran away” from them thereafter, an their formulas gave them little opportunity to buy back a commonstock position.*

There is a similarity between the experience of those adopting the formula-investing approach in the early 1950s and those who embraced the purely mechanical version of the Dow theory some 20 years earlier.

• In both cases the advent of popularity marked almost the exact moment when the system ceased to work well. 
• We have had a like discomfiting experience with our own “central value method” of determining indicated buying and selling levels of the Dow Jones Industrial Average. 
• The moral seems to be that any approach to moneymaking in the stock market which can be easily described and followed by a lot of people is by its terms too simple and too easy to last.† 
• Spinoza’s concluding remark applies to Wall Street as well as to philosophy: “All things excellent are as difficult as they are rare.”

* Many of these “formula planners” would have sold all their stocks at the  end of 1954, after the U.S. stock market rose 52.6%, the second-highest  yearly return then on record. Over the next five years, these market-timers would likely have stood on the sidelines as stocks doubled.

† Easy ways to make money in the stock market fade for two reasons: 

• the 
  natural tendency of trends to reverse over time, or “regress to the mean,” and,
• the rapid adoption of the stock-picking scheme by large numbers of people, who pile in and spoil all the fun of those who got there first. 

(Note that, in referring to his “discomfiting experience,” Graham is—as always— honest in admitting his own failures.) 

Ref:  Chap 8 Intelligent Investor by Benjamin Graham

Can the average investors benefit by buying AFTER each major decline and selling out AFTER each major advance?

Buy-Low–Sell-High Approach

We are convinced that the average investor cannot deal successfully with price movements by endeavoring to forecast them. Can he benefit from them after they have taken place—i.e., by buying after each major decline and selling out after each major advance?

The fluctuations of the market over a period of many years prior to 1950 lent considerable encouragement to that idea.

• In fact, a classic definition of a “shrewd investor” was “one who bought in a bear market when everyone else was selling, and sold out in a bull market when everyone else was buying.” 
• If we examine the fluctuations of the Standard & Poor’s composite index between 1900 and 1970, we can readily see why this viewpoint appeared valid until fairly recent years.

Between 1897 and 1949 there were ten complete market cycles, running from bear-market low to bull-market high and back to bear-market low.

• Six of these took no longer than four years, four ran for six or seven years, and one—the famous “new-era” cycle of 1921–1932—lasted eleven years. 
• The percentage of advance from the lows to highs ranged from 44% to 500%, with most between about 50% and 100%. 
• The percentage of subsequent declines ranged from 24% to 89%, with most found between 40% and 50%. (It should be remembered that a decline of 50% fully offsets a preceding advance of 100%.)

Nearly all the bull markets had a number of well-defined characteristics in common, such as 

• (1) a historically high price level, 
• (2) high price/earnings ratios, 
• (3) low dividend yields as against bond yields, 
• (4) much speculation on margin, and 
• (5) many offerings of new common-stock issues of poor quality. 

Thus to the student of stock-market history it appeared that the intelligent investor should have been able 

• to identify the recurrent bear and bull markets,
• to buy in the former and sell in the latter, and 
• to do so for the most part at reasonably short intervals of time. 

Various methods were developed for determining buying and selling levels of the general market, based on either 

• value factors or 
• percentage movements of prices or 
• both. 

But we must point out that even prior to the unprecedented bull market that began in 1949, there were sufficient variations in the successive market cycles to complicate and sometimes frustrate the desirable process of buying low and selling high. 

• The most notable of these departures, of course, was the great bull market of the late 1920s, which threw all calculations badly out of gear.* 
• Even in 1949, therefore, it was by no means a certainty that the investor could base his financial policies and procedures mainly on the endeavor to buy at low levels in bear markets and to sell out at high levels in bull markets. 

It turned out, in the sequel, that the opposite was true. 

• The market’s behavior in the past 20 years has not followed the former pattern, nor obeyed what once were well-established danger signals, nor permitted its successful exploitation by applying old rules for buying low and selling high. 
• Whether the old, fairly regular bull-and-bear-market pattern will eventually return we do not know. 
• But it seems unrealistic to us for the investor to endeavor to base his present policy on the classic formula—i.e., to wait for demonstrable bear-market levels before buying  any common stocks. 

Our recommended policy has, however, 

• made provision for changes in the  proportion of common stocks to bonds in the portfolio, 
• if the investor chooses to do so, 
• according as the level  of stock prices appears less or more attractive by value standards.*

Dow Theory for Timing Purchases and Sales - As their acceptance increases, their reliability tends to diminish

In this respect the famous Dow theory for timing purchases and sales has had an unusual history.* Briefly, this technique takes its signal to buy from a special kind of “breakthrough” of the stock averages on the up side, and its selling signal from a similar breakthrough on the down side. 

• The calculated—not necessarily actual—results of using this method showed an almost unbroken series of profits in operations from 1897 to the early 1960s. 
• On the basis of this presentation the practical value of the Dow theory would have appeared firmly established; the doubt, if any, would apply to the dependability of this published “record” as a picture of what a Dow theorist would actually have done in the market.

A closer study of the figures indicates that the quality of the results shown by the Dow theory changed radically after 1938—a few years after the theory had begun to be taken seriously on Wall Street.

• Its spectacular achievement had been in giving a sell signal, at 306, about a month before the 1929 crash and in keeping its followers out of the long bear market until things had pretty well righted themselves, at 84, in 1933. 
• But from 1938 on the Dow theory operated mainly by taking its practitioners out at a pretty good price but then putting them back in again at a higher price.  
• For nearly 30 years thereafter, one would have done appreciably better by just buying and holding the DJIA.

In our view, based on much study of this problem, the change in the Dow-theory results is not accidental. It demonstrates an inherent characteristic of forecasting and trading formulas in the fields of business and finance. 

• Those formulas that gain adherents and importance do so because they have worked well over a period, or sometimes merely because they have been plausibly adapted to the statistical record of the past. 

But as their acceptance increases, their reliability tends to diminish. This happens for two reasons:

• First, the passage of time brings new conditions which the old formula no longer fits. 
• Second, in stock-market affairs the popularity of a trading theory has itself an influence on the market’s behavior which detracts in the long run from its profit-making possibilities. 
• (The popularity of something like the Dow theory may seem to create its own vindication, since it would make the market advance or decline by the very action of its followers when a buying or selling signal is given. A “stampede” of this kind is, of course, much more of a danger than an advantage to the public trader.)

Timing is of no real value to the investor unless it coincides with pricing

The farther one gets from Wall Street, the more skepticism one will find, we believe, as to the pretensions of stock-market forecasting or timing. 

• The investor can scarcely take seriously the innumerable predictions which appear almost daily and are his for the asking. 
• Yet in many cases he pays attention to them and even acts upon them. 

Why? Because he has been persuaded that

•  it is important for him to form some opinion of the future course of the stock market, and 
• because he feels that the brokerage or service forecast is at least more dependable than his own.*

A great deal of brain power goes into this field, and undoubtedly some people can make money by being good stockmarket analysts. But it is absurd to think that the general public can ever make money out of market forecasts. 

• For who will buy when the general public, at a given signal, rushes to sell out at a profit? 
• If you, the reader, expect to get rich over the years by following some system or leadership in market forecasting, you must be expecting to try to do what countless others are aiming at, and to be able to do it better than your numerous competitors in the market. 
• There is no basis either in logic or in experience for assuming that any typical or average investor can anticipate market movements more successfully than the general public, of which he is himself a part.

There is one aspect of the “timing” philosophy which seems to have escaped everyone’s notice.

• Timing is of great psychological importance to the speculator because he wants to make his profit in a hurry. 
• The idea of waiting a year before his stock moves up is repugnant to him. 

But a waiting period, as such, is of no consequence to the investor. 

• What advantage is there to him in having his money uninvested until he receives some (presumably) trustworthy signal that the time has come to buy? 
• He enjoys an advantage only if by  waiting he succeeds in buying later at a sufficiently lower price to offset his loss of dividend income. 
• What this means is that timing is of no real value to the investor unless it coincides with pricing—that is, unless it enables him to repurchase his shares at substantially under his previous selling price.

Two ways to profit from the market swings: Timing or Pricing

Since common stocks, even of investment grade, are subject to recurrent and wide fluctuations in their prices, the intelligent investor should be interested in the possibilities of profiting from these pendulum swings. There are two possible ways by which  he may try to do this:

• the way of timing and 
• the way of  pricing.

By timing we mean the endeavor to anticipate the action of the stock market—

• to buy or hold when the future course is deemed to be upward, 
• to sell or refrain from buying when the course is downward. 

By pricing we mean the endeavor

• to buy stocks when they are quoted below their fair value and 
• to sell them when they rise above such value. 

A less ambitious form of pricing is  the simple effort to make sure that when you buy you do not  pay too much for your stocks. 

• This may suffice for the defensive investor, whose emphasis is on long-pull holding; but as  such it represents an essential minimum of attention to market levels.

We are convinced that the intelligent investor can derive satisfactory results from pricing of either type. 

We are equally sure that if he places his emphasis on timing, in the sense of forecasting, he will end up as a speculator and with a speculator’s financial results. 

This distinction may seem rather tenuous to the layman, and it is not commonly accepted on Wall Street. As a matter of business practice, or perhaps of thoroughgoing conviction, the stock brokers and the investment services seem wedded to the principle that both investors and speculators in common stocks should devote careful attention to market forecasts.

The Investor and Market Fluctuations

To the extent that the investor’s funds are placed

• in high-grade bonds of relatively short maturity—say, of seven years or less—he will not be affected significantly by changes in market prices and need not take them into account. 
• (This applies also to his holdings of U.S. savings bonds, which he can always turn in at his cost price or more.) 
• His longer-term bonds may have relatively wide price swings during their lifetimes, and 
• his common-stock portfolio is almost certain to fluctuate in value over any period of several years.

The investor should know about these possibilities and should be prepared for them both financially and psychologically.  He will want to benefit from changes in market levels—

• certainly through an advance in the value of his stock holdings as time goes on, and 
• perhaps also by making purchases and sales at advantageous prices. 

This interest on his part is inevitable, and legitimate enough. But it involves the very real danger that it will lead him into speculative attitudes and activities. 

• It is easy for us to tell you not to speculate; the hard thing will be for you to follow this advice. 
• Let us repeat what we said at the outset: If you want to speculate do so with your eyes open, knowing that you will probably lose money in the end; be sure to limit the amount at risk and to separate it completely from your investment program.

What can the past record of the market actions promises the investor—

• in either the form of long-term appreciation of a portfolio held relatively unchanged through successive rises and declines, 
• or in the possibilities of buying near bear-market lows and selling not too far below bull-market highs?

Ref:  Intelligent Investor by Benjamin Graham.

Public Bank Berhad (At a Glance)

Public Bank Berhad 2011 2010               Change Operating revenue 12756.360 11035.597 15.6% Interest income 4974.931 4597.420 8.2% Net income (Islamic banking) 868.342 781.288 11.1% 5843.273 5378.708 8.6% Net fee & commission income 1118.909 1031.770 8.4% Net income 7408.570 6838.500 8.3% Operating profit  5199.886 4738.265 9.7% Allowance for impairment -594.061 -659.566 -9.9% Profit before tax and zakat 4610.633 4086.197 12.8% Profit for the year 3524.024 3099.077 13.7% Earning per RM 1 share (sen) 99.500 87.200 14.1% Total assets 249410.982 226328.976 10.2% Total equity 15560.706 13685.088 13.7% Net assets per share 4.24 3.72 14.0% Net profit margin 27.63% 28.08% -1.6% Asset turnover 0.051 0.049 4.9% Financial leverage 16.0 16.5 -3.1% ROA 1.41% 1.37% 3.2% ROE 22.65% 22.65% 0.0% Share Information and Valuation Share Information Per share (sen) Basic earnings 99.5 Diluted earnings 99.5 Net dividend -Cash dividend  48.0 sen -Share dividend  - Net assets 424.4 Share price as at 31.12.2011 (RM) - Local 13.38 - Foreign 13.20 Market capitalisation (RM Million)  47,066 Valuation (Local Share) Net dividend yield (%)  3.6 Net dividend yield (including share dividend) [%] 3.6 Dividend payout ratio (%) 48.3 Dividend payout ratio (including share dividend) [%] 48.3 Price to earnings multiple (times)  13.4 Price to book multiple (times)  3.2 Historical EPS & Net Dividends (sen) 2011 EPS  99.5 Cash Dividend  48.0 Share Dividend - 2010  EPS  87.2 Cash Dividend 45.5 Share Dividend - 2009 EPS  73.3 Cash Dividend  41.3 - Share Dividend  1 for 68 2008 EPS  76.9 Cash Dividend 41.0 Share Dividend  1 for 35 2007 EPS  63.3 Cash  Dividend  55.3 Share Dividend -

Recent Financial Results

Announcement Date		Financial Yr. End		Qtr	Period End		Revenue RM '000		Profit/Lost RM'000		EPS		Amended
30-Jan-12		31-Dec-11		4	31-Dec-11		3,321,633		886,054		25.04		-
17-Oct-11		31-Dec-11		3	30-Sep-11		3,272,466		907,897		25.66		-
25-Jul-11		31-Dec-11		2	30-Jun-11		3,170,654		891,444		25.14		-
18-Apr-11		31-Dec-11		1	31-Mar-11		2,991,607		838,629		23.63		Amended