The Rule of Five and The 5 Basic Steps of Portfolio Management

When do you sell and replace a stock?

(1)  Stocks with long term serious quality issues.  Sell Urgently.

Short term quality issues like slowing sales, pre-tax profit, or EPS growth rates or declining pre-tax profit margins should be investigated.
Stocks with long term serious quality issues should be sold outright and replaced.

Holding a stock with a serious quality problem will prevent you from being in a quality stock whose fundamentals and price are advancing thus costing you that stock's price appreciation.


(2)  Stocks that become too overvalued. 

When the stock becomes so overvalued that there is little five year price appreciation left you may wish to replace it with a stock of equal or greater value and greater potential return.

In essence this is similar to the reason you need to sell stocks with fundamental flaws in the previous quality sections.

There you missed price appreciation because the stock had failed to meet you expectations. You lost money because you were in a stock with little price appreciation when you could have been in another stock with good quality and price appreciation.

Here the price has gotten way ahead of the fundamentals and it will take time for the fundamentals to catch up. You could replace this stock, capture the excess profits, and invest in another stock of equal or greater value whose price is in line with or behind its fundamentals. You'd have lost money because you were in a stock whose price was too high and going nowhere when you could have locked in the excess profit and moved to another stock with price appreciation potential.



Portfolio Management - The 5 Basic Steps
Perhaps the best way to approach this would be to develop an outline for Portfolio Management. Anyone want to propose something?

Portfolio Design - Write out your philosopy, methods, & growth and diversification goals.

Planting - Researching, comparing, and purchasing stocks.

Weeding - Defense - Monitor the quality (growth + efficiency)

Feeding### - Adding to positions of stock with continued good quality whose anticipated return will add to the portfolio's desired rate of return.

Pruning - Offense - Monitor for grossly overvalued stocks that could be replaced with stock of equal or higher value and better return potential.

          

http://biwiki.editme.com/PM0


### Remember to continue feeding your portfolio

Why You Should Invest in Growth, Not Value

by Alexander Green, Investment U Chief Investment Strategist

Tuesday, September 25, 2012

Patrick Henry famously declared that he knew no way of judging the future but by the past.

So if you're putting together a long-term investment portfolio, it might be wise to look at the historical returns for various types of assets. Not just for the past few years, or for several decades, but for the past couple centuries...

When you do this, you'll notice something interesting:

·        Owning a portfolio of businesses (stocks) has generally been much more rewarding than making loans to corporations or Uncle Sam (bonds) or sticking your money in the bank (cash).

·        Look closer at the clear winner (equities) and you'll also find that value stocks have outperformed growth stocks over the long haul and that small-cap value has beaten large-cap value by a substantial margin.

It therefore follows that an investor seeking maximum capital appreciation might focus on identifying undervalued small-cap stocks.

But there's only one problem with this: It won't work for most investors, even if the future is very much like the past. Here's why...

Beware the Infamous Value Trap

Value stocks require something that growth stocks don't: Patience.

When a stock - either large or small - is in the cellar, it's there for a reason. Typical ones are that the company is:

·        Losing market share...

·        Seeing its margins fall...

·        Is losing money...

·        Or is experiencing flattish sales and declining profits.

As a value investor, you don't know when this state of affairs will end, but you might be tempted to invest in a company if it's relatively cheap in relation to sales, earnings, or book value (i.e. net worth) in the hope that management will set things right.

The problem is this can take quite a long time. Or it may never happen at all. As the stock gets cheaper and cheaper, you may believe it's becoming an even better bargain. This is the classic "value trap." And if you keep buying a stock on the way down, it may very well have your name on it when it hits rock bottom.

Dead Money With Decent Dividends 

Even if a value stock is destined to generate a good return over, say, a three- to five-year horizon, most investors won't be around to enjoy it.

How do I know this? Because as a former money manager, I've dealt with thousands of "typical investors." And regardless of what they say in their initial interview about their willingness to stay the course and think long term, it all goes out the window for 90% of them when the road gets bumpy. Or if things don't kick into gear right away.

A client who sits on a stock - or even a stock fund - for six months and doesn't see a spark will remind you with every conversation that he or she is sitting on "dead money."

No argument there - they are (at least temporarily). But value stocks often pay decent dividends that help compensate for this. Early in my career, however, I got tired of holding hands and counseling patience and switched from a value to a growth methodology.

It was a good move. If you want action, you should have it...

There's No Shortage of Excitement With Growth Stocks 

Buy the best growth stocks you can find. Given that they tend to be twice as volatile as the market (and twice as expensive), there is generally no shortage of day-to-day excitement.

But if you use a trailing stop, you can generate results that are much better than historical long-term returns (which always assume a buy-and-hold approach) and with less risk because your positions are fully protected.

So unless you have the patience of Job - and most investors don't - you're better off owning growth stocks than value stocks and, of course, using a trailing stop. 

Good Investing,

Alex

Guan Chong

Guan Chong					Period (Yrs)	6
	Dec-05		Dec-11		Change	CAGR
	millions		millions
Equity	80.27		262.11		226.54%	21.80%
LT Assets	63.63		249.83		292.63%	25.60%
Current Assets	131.11		644.42		391.51%	30.39%
LT Liabilities	8.7		22.28		156.09%	16.97%
Current Liabilities	104.74		603.48		476.17%	33.89%
Sales	412.7		1382.8		235.06%	22.33%
Earnings	16.8		123		632.14%	39.35%
Interest expense	3.95		6.6		67.09%	8.93%
D/E	0.96		1.67
ROA	8.63%		13.75%
ROE	20.93%		46.93%
Market cap	154.8		319.74		106.55%	12.85%
P/E	9.21		2.60
Earnings Yield	10.85%		38.47%
P/BV	1.93		1.22
DPO ratio (historical)	31.50%
Dividend Yield range	High		Low
	7.20%		3.20%

Analabs

ANALABS					Period (Yrs)	4
	Apr-07		Apr-11		Change	CAGR
	millions		millions
Equity	95.61		148.86		55.70%	11.70%
LT Assets	63.4		115.2		81.70%	16.10%
Current Assets	44.29		64.95		46.65%	10.04%
LT Liabilities	6.81		10.57		55.21%	11.62%
Current Liabilities	5.22		20.72		296.93%	41.15%
Sales	35.4		138.32		290.73%	40.60%
Earnings	8.36		17.67		111.36%	20.58%
Interest expense	0.04		0.27		575.00%	61.19%
D/E	0.00		0.00
ROA	7.76%		9.81%
ROE	8.74%		11.87%
Market cap	54.62		93.04		70.34%	14.24%
P/E	6.53		5.27
Earnings Yield	15.31%		18.99%
P/BV	0.57		0.63
DPO ratio (historical)	16.63%
Dividend Yield range	High		Low
	3.90%		2.50%
Capital changes	-

Year	Sales		Earnings		Net Pr Marg		Interest Exp
2006	34.14		2.7		7.9%		0.05
2007	35.4		8.36		23.6%		0.04
2008	42.63		9.33		21.9%		0.14
2009	54.65		9.19		16.8%		0.23
2010	112.96		15.39		13.6%		0.21
2011	138.32		17.67		12.8%		0.27

GSB

GSB					Period (Yrs)	3
	Mar-09		Mar-12		Change	CAGR
	millions		millions
Equity	37.093		41.66		12.31%	3.95%
LT Assets	35.169		37.011		5.24%	1.72%
Current Assets	21.837		27.033		23.79%	7.37%
LT Liabilities	12.305		8.48		-31.08%	-11.67%
Current Liabilities	7.607		26.646		250.28%	51.87%
Sales	29.373		27.239		-7.27%	-2.48%
Earnings	0.3123		3.813		1120.94%	130.27%
Interest expense	1.035		0.62		-40.10%	-15.70%
D/E	0.37		0.19
ROA	0.55%		5.95%
ROE	0.84%		9.15%
No of shares
Market cap	14		28		100.00%	25.99%
P/E	44.83		7.34
Earnings Yield	2.23%		13.62%
P/BV	0.38		0.67
DPO ratio (historical)	0.00%
Dividend Yield range	High		Low
	0.00%		0.00%
Capital changes	-

Favelle Favco

Favelle Favco					Period (Yrs)	4
	Dec-07		Dec-11		Change	CAGR
	millions		millions
Equity	132.74		237.95		79.26%	15.71%
LT Assets	72.8		117.22		61.02%	12.65%
Current Assets	466.07		561.42		20.46%	4.76%
LT Liabilities	20.19		9.2		-54.43%	-17.84%
Current Liabilities	385.94		427.93		10.88%	2.62%
Sales	456.62		485.1		6.24%	1.52%
Earnings	18.94		47.6		151.32%	25.91%
Interest expense	7.92		7.17		-9.47%	-2.46%
D/E	1.12		0.22
ROA	3.51%		7.01%
ROE	14.27%		20.00%
Market cap	170.36		250.84		47.24%	10.16%
P/E	8.99		5.27
Earnings Yield	11.12%		18.98%
P/BV	1.28		1.05
DPO ratio (historical)	20.31%
Dividend Yield range	High		Low
	5.20%		2.70%
Capital changes	-
2006 1 to 2 Share Split

IMF tells how Malaysia escaped worst effects of global crisis

By Rupa Damodaran

Published: 2012/09/27

KUALA LUMPUR: Malaysia's low foreign bank presence and the "very" low level of foreign assets in its banks' balance sheets may have helped the country avert the worst effects of the global financial crisis, says the International Monetary Fund (IMF).

Malaysia has low reliance on foreign liabilities compared with its peers, the fund said in is latest Global Financial Stability Report.

The report highlighted Australia, Canada, India and Malaysia as having a relatively low degree of exposure to international banking and avoided the worst effects of the worldwide crisis.

"India and Malaysia appear insulated from foreign banks by almost all indicators when compared with all peer groups except developing Asia and the economies (besides India) that make up the BRIC group (Brazil, Russia and China)."

Besides examining whether the regulatory reforms designed to make the financial system safer are moving in the correct direction, the report looked at banking system "openness" and regulatory frameworks.

It described Australia, Canada, India and Malaysia as less globally integrated, all of which fared relatively well in the financial crisis.
Australia and Canada have limited foreign bank presence and low foreign claims when compared with the euro area and advanced Asia, the IMF said.

However, when the international positions of their banks are used, international integration becomes more evident.

One policy they have in common is the de facto prohibition of mergers among the major domestic banks which may have been a factor limiting their banks' international activities.
Both economies also impose restrictions on shareholder ownership, which limits acquisition of domestic banks by either other domestic banks or foreign ones.

Both India and Malaysia have low foreign bank presence, and banks there have a very low level of foreign assets in their balance sheet.

Although India and Malaysia explicitly restrict entry by foreign banks, both economies have relaxed the policy somewhat.

In Malaysia, branches of foreign banks are prohibited, and approvals for establishing banking subsidiaries are rare with no new entry having been approved until recently.

The number of branches a subsidiary can set up had also been restricted, while the maximum foreign ownership stake in a domestic bank is 30 per cent.
The IMF also said the data suggested that prudential regulatory requirements placed on entry of foreign banks may be less important for financial stability than the funding structure of domestic banks.

All four economies reviewed here follow the pattern of other peer groups on average, especially Australia and Malaysia.

"The positive experience of these four economies could be attributable not only to their regulatory approaches but also to the funding structure of the banks," the fund said.

Read more: IMF tells how Malaysia escaped worst effects of global crisis http://www.btimes.com.my/Current_News/BTIMES/articles/rup2611/Article/index_html#ixzz27g71yNDj

Southern Acids strikes cautiously optimistic note

By Ooi Tee Ching

Published: 2012/09/27

SUBANG JAYA: Southern Acids (M) Bhd is cautiously optimistic of its business prospects as its oil palm estates in Indonesia and oleochemical operations in Malaysia suffer from the impact of Indonesia's palm oil tax restructure.

Since August 2011, the Indonesian government has raised palm oil export taxes drastically to boost refining capacity and downstream activities there.

"With cheaper feedstock available to Indonesia's oleochemical producers, the playing field is no longer level," said chairman Tan Sri Low Boon Eng.

"Our oleochemical manufacturing business here suffered substantial margin erosion," he said after the company's shareholders' meeting here yesterday.
Southern Acids operates a 100,000-tonne-a-year oleochemical plant in Kapar, Klang. Its products are mainly exported to Europe, East Asia and South Asia.

Last month, the Palm Oil Refiners Association of Malaysia (Poram) highlighted that the Malaysian government, in allowing five million tonnes of duty-free crude palm oil exports and remaining indifferent towards the plight of palm oil refiners here, had risked the loss of further investment and talent in its oleochemical, specialty fats and biodiesel sectors.

Poram said the government's indecision for the past 12 months had eroded investors' confidence to further value add Malaysia's palm oil downstream sector. This also meant opportunity loss in retaining and attracting highly-skilled knowledge workers.

Low concurred with Poram that the government needs to take a more discerning approach. "The government must do something about the current situation. It has been more than a year already," he said.

Southern Acids, via PT Mustika Agro Sari and PT Wanasari Nusantara, has 7,870ha of oil palm plantations in Indonesia.

Low noted the Indonesia's palm oil tax restructure, in encouraging downstream investment there, had pulled down palm oil prices. "So, our oil palm plantation and milling business had to contend with lower selling prices," he said.

Despite operating in challenging circumstances caused by the restructure of Indonesian palm oil taxes, Low said the group is cautiously optimistic of remaining profitable in the current year ending March 2013.

"We'll continue to focus on our Indonesian operations. So far, we've planted up around 4,700ha. We'll continue to embark on new planting and replanting in Riau," he said.

Read more: Southern Acids strikes cautiously optimistic note http://www.btimes.com.my/Current_News/BTIMES/articles/sab/Article/#ixzz27gA0jrqB

Carlsberg

From Year 1996 to Year 2007

Carlsberg					Period (Yrs)	11
	Dec-96		Dec-07		Change	CAGR
	millions		millions
Equity	329.65		471.38		42.99%	3.30%
LT Assets	169.87		171.92		1.21%	0.11%
C. Assets	320		418.61		30.82%	2.47%
LT Liabilities	12.03		19.65		63.34%	4.56%
C. Liabilities	148.19		99.5		-32.86%	-3.56%
Sales	672.24		897.53		33.51%	2.66%
Earnings	91.69		78.49		-14.40%	-1.40%
Interest exp.	0		0		#DIV/0!	#DIV/0!
Market cap	1271.6		1259.680		-0.94%	-0.09%
D/E ratio	0		0.000		#DIV/0!
ROE	27.81%		16.65%		-40.13%
P/E	13.87		16.05
P/BV	3.86		2.67
Dividends
DPO ratio	98.62%
DY range	HIGH		LOW
	6.50%		5.50%

From Year 2007 to Year 2011

Carlsberg					Period (Yrs)	4
	Dec-07		Dec-11		Change	CAGR
	millions		millions
Equity	471.38		627.13		33.04%	7.40%
LT Assets	171.92		591.32		243.95%	36.18%
C. Assets	418.61		365.84		-12.61%	-3.31%
LT Liabilities	19.65		76		286.77%	40.24%
C. Liabilities	99.5		250.11		151.37%	25.91%
Sales	897.53		1489.36		65.94%	13.50%
Earnings	78.49		166.16		111.70%	20.62%
Interest exp.	0		4.39		#DIV/0!	#DIV/0!
Market cap	1259.680		3283.730		160.68%	27.07%
D/E ratio	0.000		0.040		#DIV/0!
ROE	16.65%		26.50%		59.12%
P/E	16.05		19.76
P/BV	2.67		5.24
Dividends
DPO ratio	90.00%
DY range	HIGH		LOW
	5.60%		4.00%

Income Statement

Year	Revenue		Earnings		Net Margin		Interest Exp
2011	1489.36		166.16		11.2%		4.3
2010	1368.16		133.24		9.7%		4.59
2009	1045.48		76.14		7.3%		0.88
2008	960.21		76.15		7.9%		0
2007	897.53		78.49		8.7%		0
2006	929.74		85.9		9.2%		0
2005	867.23		88.68		10.2%		0

Southern Acids up 8.93% on hope of bonus issue, corporate actions

Hot Stocks Southern Acids up 8.93% on hope of bonus issue, corporate actions
Business & Markets 2012

Written by Cindy Yeap of theedgemalaysia.com
Thursday, 27 September 2012 14:35

KUALA LUMPUR: Tightly-held oleochemical processor Southern Acids Malaysia Bhd rose 8.93% in the morning session, a day after its chairman told shareholders the board will consider having a bonus issue to help improve trading liquidity.

Southern Acids’ chairman Tan Sri Low Boon Eng told shareholders present at the company’s annual general meeting (AGM) that the board will consider their suggestion of a bonus issue in response to questions over the company’s thin share volume, theedgemalaysia.com reported yesterday.

At midday today (Thursday), Southern Acids added 20 sen or 8.93% to RM2.44 with 26,700 shares done. Its latest unaudited net assets stood at RM3.16 per share.

The counter is rarely traded as close to 85% of its shares are in the hands of its top 30 shareholders. Prior to today’s trades, Southern Acids last closed at RM2.24 on September 19.

At yesterday’s AGM, shareholders had also asked if the group would go into property development with Paramount Corp Bhd.

They also asked if Southern Acids would build more hospitals or dispose of the Sri Kota Specialist Medical Centre (SKMC) in Klang and use proceeds to raise dividend payouts.

Low told shareholders no firm decision had been made on these matters but said Southern Acids has no intention of disposing its investment in Paramount as it sees “synergies” in the investment. Southern Acids owns 4.57% of property developer Paramount as at April 13, according to Paramount’s latest annual report.
However, Southern Acids’ largest shareholders -- Southern Palm Industries Sdn Bhd and Southern Realty (Malaya) Sdn Bhd –which own some 40% of the group, are deemed interested in about 16% of Paramount.

In response to persistent questioning by minority shareholders, Low yesterday also said Southern Acids is still evaluating its options, including going into property development to unlock value of the 644.49 acres of PLANTATION [] land called the “Thangamallay Estate” in Klang. The land borders Kota Kemuning in Shah Alam and is carried at RM141.94 million in its books.

As it is, oleochemical is Southern Acids’ largest revenue contributor accounting for 67% or RM376.3 million in the last financial year but the plantations and milling business brings in the biggest profits.

In the year ended March 31, 2012, plantations contributed RM25.2 million or 61% of the group’s pre-tax profits while oleochemical contributed RM10.6 million. Healthcare, meanwhile, brought in RM3.3 million for the group and warehousing another RM3 million.