Topglove (11.10.2012)

Dividends		% chg
Curr. FY0	16.00	45.5%
Prev FY1	11.00	-31.3%
Prev FY2	16.00
Curr. DY	3.05%
Risk vs Returns
Upside	1.64	62%
Downside	1.00	38%
Returns
One Yr Apprec Pot.		7%
Avg Yield		4%
Avg Tot. Ann Return		12%
(for next 5 years)
INPUT VARIABLES
Today's Share Pr $		5.25
EPS GR %		8%
Avg H. PE		15.0
Avg. L. PE		12.0
Rec. Severe Low Pr		4.06
Current PE		16.06
Signature PE		13.50
RV		119%
Rational Price		4.41
Dividends
Present Dividend		16.00
Avg % DPO		49%
Present Div Yield		3.05%
Present High Yield		3.94%
EPS G. RATE		8%
Present Market Pr.		5.25

ZONING
Present Market Price of		5.25	is in the	Middle 1/3	Range
Mid-Price	=	5.63
Upper 1/3	=	6.16	to	7.20	(Sell)
Middle 1/3	=	5.11	to	6.16	(Maybe)
Lower 1/3	=	4.06	to	5.11	(Buy)

Rec. qRev	607229	q-q % chg	1%	y-y% chq	12%
Rec qPbt	67121	q-q % chg	5%	y-y% chq	92%
Rec. qEps	10.27	q-q % chg	18%	y-y% chq	143%
ttm-Eps	32.69	q-q % chg	23%	y-y% chq	79%

Disclaimer:  These data are for my own use.  It is not a recommendation. Please do your own due diligence.

"Mr. Buffett, what types of companies will you purchase in the future?"

Buffett is often asked what types of companies he will purchase in the future.

First, he says, he will avoid commodity businesses and managers in which he has little confidence.

What he will purchase is the type of company that he understands, one that possesses good economics and is run by trustworthy managers. 

"A good business is not always a good purchase,"  Buffett says, "although it is a good place to look for one."

For Buffett, the activities of a common-stock holder and a businessperson are intimately connected.  Both should look at ownership of a business in the same way.  "I am a better investor because I am a businessman," confesses Buffett, "and a better businessman because I am an investor."

The NINE most important words ever written about investing.

"Investing is most intelligent when it is most businesslike."

The most distinguishing trait of Buffett's investment philosophy is the clear understanding that, by owning shares of stock, he owns businesses, not pieces of paper.  

The idea of buying stock without understanding the company's operating functions - including a company's products and services, labour relations, raw material expenses, plant and equipment, capital reinvestment requirements, inventories, receivables, and working capital needs - is unconscionable, says Buffett.

A person who holds stocks has the choice to become the owner of a business or the bearer of tradable securities.  Owners of common stocks who perceive that they merely own a piece of paper are far removed from the company's financial statements.  These owners behave as if the market's ever-changing price is a more accurate reflection of their stock's value than the businesses' balance sheet and income statement.  They draw or discard stocks like playing cards.

Buffett: BUY OUTSTANDING BUSINESS at a significant discount to its intrinsic value.

If we make mistakes, Buffett confesses, it is either because of

(1)  the price we paid,
(2)  the management we joined, or,
(3)  the future economics of the business.

Miscalculations in the third instance are, Buffett notes, the most common.

It is Buffett's intention not only to identify businesses that earn above-average returns, but to purchase these businesses at prices far below their indicated value.  The margin of safety also provides opportunities for extraordinary stock returns.

If Buffett correctly identifies a company possessing above-average economic returns, the value of the shares of stock over the long term will steadily march upwards as the share price mimics the returns of the business.  

If a company consistently earns 15% on equity, its share appreciation will advance more each year than the share price of a company that earns 10% on equity.  

Additionally, if Buffett, by using the margin of safety, is able to buy this outstanding business at a significant discount to its intrinsic value, Berkshire will earn an extra bonus when the market corrects the price of the business.

"The market, like the Lord, helps those who help themselves."  Buffett says, "But unlike the Lord, the market does not forgive those who know not what they do."

Are you truly operating on the principle of obtaining value for your investments? Carry out the discounted-flows-of-cash calculation.

All the shorthand methods - high or low price-earnings ratios, price-to-book ratios, and dividend yields, in any number of combination, Buffett says, in determining whether "an investor is indeed buying something for what it is worth and is therefore truly operating on the principle of obtaining value for his investments...............Irrespective of whether a business grows or doesn't, displays volatility or smoothness in earnings, or carries a high price or low in relation to its current earnings and book value, the investment shown by the discounted-flows-of-cash calculation to be the cheapest is the one that the investor should purchase."  

Growth is simply a calculation used to determine value.

Value is the discounted present value of an investment's future cash flow; growth is simply a calculation used to determine value.

People who consistently purchase companies that exhibit low price-to-earnings, low price-to-book, and high dividend yields are customarily called "value investors."  People who claim to have identified value by selecting companies with above-average growth in earnings are called "growth investors."  Typically, growth companies possess high price-to-earnings ratios and low dividend yields.  These financial traits are exact opposite of what value investors look for in a company.

Investors who seek to purchase value often must choose between the "value" and "growth" approach to selecting stocks.

Buffett admits that years ago he participated inn this intellectual tug-of-war*.  Today he thinks the debate between these two schools of thought is nonsense.

"Growth and value investing are joined at the hip", says Buffett.



*Comment:  It is interesting to know that Buffett too had been through these intellectual debates and then formed his own conclusions.

Growth can either ADD or DETRACT from an investment's value/

Growth in sales, earnings, and assets can either add or detract from an investment's value.

Growth can add to the value when the return on invested capital is above average, thereby assuring that when a dollar is being invested in the company, at least a dollar of market value is being created.

However, growth for a business earning low returns on capital can be detrimental to shareholders.  For example, the airline business has been a story of incredible growth, but its inability to earn decent returns on capital have left most owners of these companies in a poor position.

Property/Casualty Insurance Accounting

Property/Casualty Insurance Accounting

Income Statement of Property/Casualty Insurance Company

Premium revenue is also known as earned premium.  This premium revenue is used to fund:

1. Claim payments (loss expense).
2. Sales commissions for insurance agents (commission expenses)
3. Operating expenses (OPEX)

Claim expenses, for example, typically consume 75% of an insurer’s net revenues.

(1)    + (2) + (3) / Premium revenue = Combined ratio

Combined ratio is an insurance company’s key underwriting profit measure.

A combined ratio under 100 indicates an underwriting profit. 

For example:  A combined ratio of 95 means that the insurer paid out 95% of its premium revenue for losses.  The 5% remaining is the underwriting profit.

A combined ratio exceeding 100 indicates an underwriting loss. 

For example:  An insurer with a combined ratio of 105 paid out 105% of its premium revenue to cover losses,  meaning that it had an underwriting loss equal to 5% of revenues.

Companies with combined ratios exceeding 105 for more than a short time have a difficult time recouping their losses via investment earnings, and this type of poor underwriting track record suggests that an insurer’s competitive position is unusually weak.  Insurers unable to earn even the occasional underwriting profit will produce the industry’s poorest returns and may be tempted to accept large investment risks to boost profitability.

Investment income of Insurance companies

Insurers also make money from investment income.  They are often reported as a ratio of premium.

Adding the investment ratio to the combined ratio yields the operating profit ratio.  In many instances, investment income is a key profit determinant because it offsets underwriting losses.

Combined ratio  + Investment ratio  = Operating Profit ratio

Balance Sheet of Property/Casualty Insurance Company 

In addition to float, most insurers invest a large portion of their own retained earnings as well.  The investment account reveals the size of an insurer’s investments relative to its asset base and details the asset allocation employed.

Investment account = Float deployed + Retained Earnings deployed.

Look at the asset allocation of this investment account.  Look for insurers with no more than 30% invested in equities (unless the company is run by Warren Buffett).

Unearned Premiums of Property/Casualty Insurance Company

Unearned premiums represent premiums received but not yet considered revenue.

This oddity reflects an accounting convention.  When an insurer receives a premium, it is deemed to earn it gradually across the year.  After all, if a customer cancels a policy, the insurer must refund that portion of the coverage not consumed.  After six months, an annual auto policy would be 50% earned, and half the premium would be considered revenue.  Before this occurs, the premiums are held in the unearned premium account, and the insurer is free to invest them.

The best property/casualty insurer is one that is able to consistently earn underwriting profits on a large, growing customer base.  In effect, this insurer would be getting paid to profit from investing other people’s money and could retain this float indefinitely (as long as it grows).  Unfortunately, for investors, these situations rarely occur.



Insurance Companies of Malaysia
Click here: https://docs.google.com/open?id=0B-RRzs61sKqRWmp5ZEFEREw4VWM

The One-Dollar Premise of Warren Buffett

There is a quick test that can be used to judge not only the economic attractiveness of a business but how well management has accomplished its goal of creating shareholder value:  If Buffett has selected a company with favourable long-term economic prospects, run by able and shareholder-oriented managers, the proof will be reflected in the increased market value of the company.

• In Buffett's quick test, the increase should, at the very least, match the amount of retained earnings, dollar for dollar.  
• If the value goes up greater than the retained earnings, so much the better.  

All in all, Buffett explains, "Within this gigantic auction arena, it is our job to select a business with economic characteristics allowing each dollar of retained earnings to be translated eventually into at least a dollar of market value.  

The Sultan of Brunei's Supercar Collection: $300,000,000 and Counting

 




Click here:
http://www.carbuzz.com/news/2012/5/19/The-Sultan-of-Brunei-s-Supercar-Collection-300-000-000-and-Counting-7708867/