10 shares that pay good dividends
Dividend payments are once again under pressure – no sooner had BT announced a 60pc cut in its dividend than M&S said its payout to shareholders would be 30pc lower– its first cut for nine years.
Last Updated: 1:24PM BST 27 May 2009
Nick Raynor of The Share Centre, a stockbroker, said: "The past year has been one of turmoil for income-seeking investors as historically favoured sectors such as banking have either seen an aggressive cut or a complete erosion in dividends as the credit crunch took effect.
"However, there are still some great opportunities for those wishing to generate income from their investments. In particular, investors should be looking out for companies that are traditionally defensive, coupled with an ability to expand operations around the world."
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The Share Centre has identified a number of investment opportunities for income seekers.
National Grid
Currently trading at 590p and offering a yield of 5.7pc.
Comment from The Share Centre: "National Grid said recently that it intended to grow its dividends by at least 8pc this year and is due to progress at the same level until 2012. In the long term we feel that this is a solid performer; income and growth seekers can expect stable dividend payments from a good solid company."
Northumbrian Water
Currently trading at 245p and offering a yield of 4.7pc
Comment: "The last trading update from Northumbrian Water reported a 1pc (£4m) fall in revenue. Considering the performance of other water companies in the utilities sector this is not bad.
"From a cash position the company is financially sound, currently sitting on a cash pile of £371m with a further £75m available through drawdowns. With this in mind we expect the dividend to remain secure, and a rise should not be ruled out."
British American Tobacco (BAT)
Currently trading at £16.61 and offering a yield of 4.2pc.
Comment: "BAT's defensive nature has helped to keep the company buoyant in a choppy market. Last year pre-tax profits rose from £3.1bn to £3.7bn, therefore the likelihood of BAT cutting its dividend is minimal. BAT also has a reasonable dividend cover of 1.76 and is therefore suitable for income seekers and the risk averse."
Centrica
Currently trading at 243p and offering a yield of 5.6pc.
Comment: "As well as being the biggest provider of gas in the UK, Centrica now generates a quarter of revenues in the US, which could protect it from the group's exposure to the volatile commodity market."
BP
Currently trading at 501p and offering a yield of 7.5pc.
Comment: "For those wanting exposure to the oil sector, we believe BP is the best bet. Dependency on oil is unlikely to reduce and BP's profits remain strong. BP has a high level of reserves, and as a financially strong company it has plenty of cash available to purchase additional reserves should the need arise."
GlaxoSmithKline
Currently trading at £10.52 and offering a yield of 5.2pc.
Comment: "Despite the company's share price dropping by around 20pc so far this year, we believe GSK's defensive nature will stand the company in good stead throughout 2009. GSK has a significant pipeline of drugs either at late stage testing or due for release very soon. It is suitable for investors seeking income and growth."
Vodafone
Currently trading at 115p and offering a yield of 6.5pc.
Comment: "Vodafone continues to be a favourite of The Share Centre. Vodafone recently announced a strong set of full-year figures, after the weaker pound helped boost the value of overseas sales. Due to the increase in profit, Vodafone has an attractive dividend and growth prospects."
Scottish & Southern Energy
Currently trading at £11.63 and offering a yield of 5.4pc.
Comment: "In these volatile times a well managed utility has many attractions for investors seeking a safer haven. Scottish & Southern pays consistent dividends to shareholders and is attractive for those looking for steady growth and a reasonable income.
"Due to the company's steady and solid earnings figures, the management has set its sights on improving performance of its assets and pushing up the dividend further."
Rexam
Currently trading at 302p and offering a yield of 6.6pc.
Comment: "Rexam is one of the world's leading packaging companies, specialising in beverage cans and bottles. The promise of a long hot summer is something Rexam can look forward to and it will be hoping that this will give the company a boost. The dividend looks as if it will remain unchanged and stands at well over 6pc."
RSA Insurance
Currently trading at 127.5p and offering a yield of 5.8pc.
Comment: "Now that the reconstruction of RSA [formerly Royal & Sun Alliance] is finally complete, shareholders will hope that chief executive Andy Haste shows as much flair for increasing profits as he did for stemming losses. This signs are good so far, with a refocusing on new markets and a hefty dividend increase.
"Recent figures were solid but not exciting. However, there has been no news of any cut in the dividend, so for those looking for an income this should remain a favourite."
http://www.telegraph.co.uk/finance/personalfinance/investing/shares-and-stock-tips/5393529/10-shares-that-pay-good-dividends.html
Sunday 31 May 2009
What's the commercial driver of the UK economy going to be if it's not financial services?
What's the commercial driver of the economy going to be if it's not financial services?
This is no time for modesty," wrote Lord Davies, the trade minister in The Daily Telegraph on Monday in a call for us Brits to start telling the world that we're great.
By Richard Tyler
Last Updated: 9:44AM BST 26 May 2009
Comments 17 Comment on this article
But what are we great at? The City has been demonised; large scale manufacturing is on its knees. Davies insists: "It's time for change in the way that we perceive ourselves and how we talk about the economy."
But change our perception to what? If financial services are no longer going to rule the roost as the economy is "rebalanced" (somehow) and we are all going to live in a Gordon Brown's new world order of allotment capitalism (he prefers "sustainable capitalism"), exactly what commercial activity is going to drive the economy out of recession and back to long term trend growth rates?
Large chunks of the New Forest are being sacrificed as industry and the Government examine this issue. Some of the studies' findings are intriguing. The report team led by former Ford chief technology officer Richard Parry-Jones set out the automotive industry's 20-year vision for vehicle-making in the UK earlier this month.
They compared Britain's position relative to our economic competitors and concluded that "the UK still has a competitive, yet fragile, automotive industry". Britain is reliant on foreign investment – the car industry in Britain is now largely Japanese – and the report concludes that "there is no natural choice to do the work in the UK".
There is also no natural choice for those car makers that are here to source components from British suppliers. Industry bosses said that UK sourcing was likely to decline further over the next five years, making suppliers less competitive to the point where the manufacturers decide they need to more abroad.
It is trends like this that can make you pessimistic about Britain's prospects. Ministers talk up the low carbon economy and promise to use public money to fund trials of the next generation of electric cars. But the chances of them being mass produced in Britain are slim.
Most depressing is the fact that the issues facing the industry identified in this report are exactly the same ones identified by previous studies commissioned by successive governments since 1975. They include currency fluctuations, exchange rates and the need for better skills and training.
"One also has to see this as a failure to address sufficiently these issues in the past, given that they are mentioned repeatedly by industry leaders," thunders the report.
This sense of lack of direction from Whitehall is echoed in the other industry reports being published. An assessment of the UK's ability to build an industrial biotechnology sector, which could produce energy, chemicals and materials from renewable resources, concluded that the country has the scientific know-how but, to quote from the report: "Unlike other countries (in particular USA and Germany), no policies are currently in place to support the bio-based materials and chemicals sector."
Cue Lord Mandelson, the Business Secretary, and his "industrial activism" strategy that, he insists, will see the Government listen and act.
This will not involve the Government returning to the discredited practices of the 1960s and 1970s of picking industrial winners, he says. The Government will simply identify industries in which Britain is and/or could become a world leader and then enable them to prosper.
So it seems the Government is finally offering what industry wants: a clear, coherent framework of support. But doubts remain. How are Whitehall officials going to pick which industries should be helped? The automotive industry seems to have a case. But then so does aerospace; composite materials; plastic electronics; life sciences and pharmaceuticals; information technology; renewable energy; professional services and engineering construction.
Another Lord, Lord Drayson, the science minister, told me that the Government has to decide which industries it will support by the end of this year at the latest. The clock is ticking. Commissioning reports is one thing. Picking the right new technology to back is quite another. Last time, the Whitehall mandarins tried they failed. Wouldn't it be better to learn to love the City again.
http://www.telegraph.co.uk/finance/yourbusiness/5383517/Whats-the-commercial-driver-of-the-economy-going-to-be-if-its-not-financial-services.html
This is no time for modesty," wrote Lord Davies, the trade minister in The Daily Telegraph on Monday in a call for us Brits to start telling the world that we're great.
By Richard Tyler
Last Updated: 9:44AM BST 26 May 2009
Comments 17 Comment on this article
But what are we great at? The City has been demonised; large scale manufacturing is on its knees. Davies insists: "It's time for change in the way that we perceive ourselves and how we talk about the economy."
But change our perception to what? If financial services are no longer going to rule the roost as the economy is "rebalanced" (somehow) and we are all going to live in a Gordon Brown's new world order of allotment capitalism (he prefers "sustainable capitalism"), exactly what commercial activity is going to drive the economy out of recession and back to long term trend growth rates?
Large chunks of the New Forest are being sacrificed as industry and the Government examine this issue. Some of the studies' findings are intriguing. The report team led by former Ford chief technology officer Richard Parry-Jones set out the automotive industry's 20-year vision for vehicle-making in the UK earlier this month.
They compared Britain's position relative to our economic competitors and concluded that "the UK still has a competitive, yet fragile, automotive industry". Britain is reliant on foreign investment – the car industry in Britain is now largely Japanese – and the report concludes that "there is no natural choice to do the work in the UK".
There is also no natural choice for those car makers that are here to source components from British suppliers. Industry bosses said that UK sourcing was likely to decline further over the next five years, making suppliers less competitive to the point where the manufacturers decide they need to more abroad.
It is trends like this that can make you pessimistic about Britain's prospects. Ministers talk up the low carbon economy and promise to use public money to fund trials of the next generation of electric cars. But the chances of them being mass produced in Britain are slim.
Most depressing is the fact that the issues facing the industry identified in this report are exactly the same ones identified by previous studies commissioned by successive governments since 1975. They include currency fluctuations, exchange rates and the need for better skills and training.
"One also has to see this as a failure to address sufficiently these issues in the past, given that they are mentioned repeatedly by industry leaders," thunders the report.
This sense of lack of direction from Whitehall is echoed in the other industry reports being published. An assessment of the UK's ability to build an industrial biotechnology sector, which could produce energy, chemicals and materials from renewable resources, concluded that the country has the scientific know-how but, to quote from the report: "Unlike other countries (in particular USA and Germany), no policies are currently in place to support the bio-based materials and chemicals sector."
Cue Lord Mandelson, the Business Secretary, and his "industrial activism" strategy that, he insists, will see the Government listen and act.
This will not involve the Government returning to the discredited practices of the 1960s and 1970s of picking industrial winners, he says. The Government will simply identify industries in which Britain is and/or could become a world leader and then enable them to prosper.
So it seems the Government is finally offering what industry wants: a clear, coherent framework of support. But doubts remain. How are Whitehall officials going to pick which industries should be helped? The automotive industry seems to have a case. But then so does aerospace; composite materials; plastic electronics; life sciences and pharmaceuticals; information technology; renewable energy; professional services and engineering construction.
Another Lord, Lord Drayson, the science minister, told me that the Government has to decide which industries it will support by the end of this year at the latest. The clock is ticking. Commissioning reports is one thing. Picking the right new technology to back is quite another. Last time, the Whitehall mandarins tried they failed. Wouldn't it be better to learn to love the City again.
http://www.telegraph.co.uk/finance/yourbusiness/5383517/Whats-the-commercial-driver-of-the-economy-going-to-be-if-its-not-financial-services.html
Sterling surges as investors seize on global green shoots
Sterling surges as investors seize on global green shoots
Sterling surged against the dollar on Friday as investors seized on new evidence that the downturn in the global economy may be easing.
By Telegraph staff
Last Updated: 4:53PM BST 29 May 2009
The pound stormed beyond $1.61, its highest level since November, after Nationwide figures showed an unexpected rise in house prices this month. The better number in the UK was added to by Japan, where industrial production rebounded, and the strong performance of the Indian economy in the first quarter.
The currency closed at $1.6125 in London, up almost two cents on the day.
Although economists have generally cautioned that any recovery will be very slow, financial markets are currently focused on any evidence of improvement from the free fall seen in the wake of Lehman Brothers' collapse.
"Sterling was absolutely hammered in the fourth quarter and people were loathe to hold it because it was seen as very risky," said Paul Robinson of Barclays. "But as risk appetite comes back into the market, then that's good for the currency."
It's that return of investors' willingness to take risks that is also hurting the dollar, explained Mr Robinson. At the height of the banking crisis last autumn people flocked to the dollar because it is the world's most liquid currency and provided shelter during the turmoil. That logic is now ebbing, he said.
In the UK, house prices gained 1.2pc - only their second gain in the last year. Sentiment was also buoyed after a survey showed that UK consumers are now at their most confident in almost a year. The news from GfK comes a day after the CBI said that retailers are feeling more optimistic than at anytime since 2007.
However, Nationwide's own chief economist, Martin Gahbauer, was quick to downplay suggestions that house prices may have reached a bottom.
"Although the short-term trend in house prices has clearly improved from where it was at the beginning of the year, it is still too early to say that the market is turning definitely," said Mr Gahbauer.
http://www.telegraph.co.uk/finance/economics/houseprices/5405998/Sterling-surges-as-investors-seize-on-global-green-shoots.html
Sterling surged against the dollar on Friday as investors seized on new evidence that the downturn in the global economy may be easing.
By Telegraph staff
Last Updated: 4:53PM BST 29 May 2009
The pound stormed beyond $1.61, its highest level since November, after Nationwide figures showed an unexpected rise in house prices this month. The better number in the UK was added to by Japan, where industrial production rebounded, and the strong performance of the Indian economy in the first quarter.
The currency closed at $1.6125 in London, up almost two cents on the day.
Although economists have generally cautioned that any recovery will be very slow, financial markets are currently focused on any evidence of improvement from the free fall seen in the wake of Lehman Brothers' collapse.
"Sterling was absolutely hammered in the fourth quarter and people were loathe to hold it because it was seen as very risky," said Paul Robinson of Barclays. "But as risk appetite comes back into the market, then that's good for the currency."
It's that return of investors' willingness to take risks that is also hurting the dollar, explained Mr Robinson. At the height of the banking crisis last autumn people flocked to the dollar because it is the world's most liquid currency and provided shelter during the turmoil. That logic is now ebbing, he said.
In the UK, house prices gained 1.2pc - only their second gain in the last year. Sentiment was also buoyed after a survey showed that UK consumers are now at their most confident in almost a year. The news from GfK comes a day after the CBI said that retailers are feeling more optimistic than at anytime since 2007.
However, Nationwide's own chief economist, Martin Gahbauer, was quick to downplay suggestions that house prices may have reached a bottom.
"Although the short-term trend in house prices has clearly improved from where it was at the beginning of the year, it is still too early to say that the market is turning definitely," said Mr Gahbauer.
http://www.telegraph.co.uk/finance/economics/houseprices/5405998/Sterling-surges-as-investors-seize-on-global-green-shoots.html
The best investment returns of tomorrow
The best investment returns of tomorrow will be generated by businesses with the strongest balance sheets today – in this respect, cash is king. Such investments remain our focus.
A review of Questor's share portfolio over six months
The good, the bad and the ugly – a review of Questor's share portfolio over six months
The current Questor editor has been in the hot seat at The Daily Telegraph for six months, so now seems like a good time to review the performance of the portfolio over that time.
By Garry White
Last Updated: 3:46PM BST 26 May 2009
Since the end of November last year, all of the shares recommended as buys in the Questor column are up 17pc, compared with a gain of 4.6pc in the FTSE 100. In aggregate, the portfolio is outperforming the market as a whole.
These figures are in terms of share price appreciation only and any dividends accrued or dealing costs are not included. Questor has pursued a relatively conservative investment strategy in these unprecedented market conditions, with a focus on balance sheet strength and dividends. So the income stream from these shares should also be strong – but that is not accounted for in this review. The accompanying graphic shows the 10 best recommendations and the 10 worst performing recommendations based on closing price on Friday May 22.
Questor aims to continue with the strategy that beat the market in the last six months and improve on the performance so far.
The Good
Questor has had considerable success riding the recovery in mining stocks. Vedanta shares, which are now rate a hold, have considerably outperformed the market – rising 185pc.
Questor recommended buying the shares because of its very strong cash position and its exposure to India. Other miners that have proved lucrative are Centamin Egypt (up 96pc), which is set to mine its first gold at its Sukari project in Egypt within weeks, Mexican silver miner Fresnillo (up 80pc) and Rio Tinto (up 55pc), which is currently battling to slash its crippling pile of debt.
Questor took profits in Fresnillo and Rio Tinto because of uncertain market conditions, although the shares have moved higher since then.
Questor makes no apology for this. The most difficult decision in investing is when to sell and investors do not go broke if they continue to bank gains.
Despite the recovery in appetite for risk, Questor believes a cautious investment strategy is the best way to play these markets and it is good to bank profits when they present themselves.
The bad
Questor's worst-performing tip is Gem Diamonds , which is down 37pc. Questor first recommended buying shares in the group because of its prize asset – the Letseng mine in Lesotho. The mine has produced three of the world's largest 20 diamonds in the last three years alone. In total, four of the largest 20 rough diamonds ever recovered have come from this one mine.
However, diamond prices continued to tumble, although there is some evidence of stabilisation in the market at present. Questor has restrained from closing out of this position because of the conviction that diamond prices will recover.
Perhaps Questor's worst tip so far was the premature recommendation to buy into an oil exchange traded fund, ETF Securities CRUD fund. Questor sold out of this position, advising investors to take the loss on the chin because the oil futures market moved against the investment and the capital investment was being eroded. The resulting loss was 30pc.
Gem Diamonds and ETF CRUD are the only two recommendations Questor regards as duds over the last six months. Shares in Lloyds insurer Catlin are down 18pc and defence group QinetiQ shares are off 17pc, but both shares still have a buy stance.
Catlin shares were hit after a £200m rights issue, but the group managed to post a 17pc year-on-year increase in the first quarter of the year.
QinetiQ, although it is facing some industrial dispute issues at the moment, has ambitious plans for its US unit, where it is forecasting double-digit growth.
The future
Questor remains to be convinced that the recent market rally is the start of the next bull run. A number of market commentators suggest that the weight of money sitting on the sidelines means that share-price gains will be a self fulfilling prophecy.
Questor feels it is best to be cautious and maintains a defensive strategy, while making some long-term strategic plays such as JP Morgan Indian Investment Trust (up 41pc) and BG Group (up 11pc), as well as dividend plays such as BP (up 3pc) and Northern Foods (up 21pc). Indeed, as the appetite for risk returned, defensive sectors such as utilities have been out of favour. Now looks like a good time to buy into these underperforming sectors.
Taking a long-term view, now is a great time to buy into the stock market. However, it is likely to be a bumpy ride as the year progresses.
The UK government has refused a freedom of information request to see the results of stress tests at major banks, which is concerning.
The full effects of the recession have not made their way into the real economy and unemployment is likely to continue to rise. When the property market will bottom out is anyone's guess.
As we move in to the second part of the year, the phrase "sell in May and go away" comes to mind. Questor does not suggest selling your portfolio, just banking good gains and watching out for opportunities to buy good companies at decent valuations when the opportunity arises. Questor aims to bring you the best of these opportunities over the coming months.
http://www.telegraph.co.uk/finance/markets/questor/5383084/The-good-the-bad-and-the-ugly---a-review-of-Questors-share-portfolio-over-six-months.html
The current Questor editor has been in the hot seat at The Daily Telegraph for six months, so now seems like a good time to review the performance of the portfolio over that time.
By Garry White
Last Updated: 3:46PM BST 26 May 2009
Since the end of November last year, all of the shares recommended as buys in the Questor column are up 17pc, compared with a gain of 4.6pc in the FTSE 100. In aggregate, the portfolio is outperforming the market as a whole.
These figures are in terms of share price appreciation only and any dividends accrued or dealing costs are not included. Questor has pursued a relatively conservative investment strategy in these unprecedented market conditions, with a focus on balance sheet strength and dividends. So the income stream from these shares should also be strong – but that is not accounted for in this review. The accompanying graphic shows the 10 best recommendations and the 10 worst performing recommendations based on closing price on Friday May 22.
Questor aims to continue with the strategy that beat the market in the last six months and improve on the performance so far.
The Good
Questor has had considerable success riding the recovery in mining stocks. Vedanta shares, which are now rate a hold, have considerably outperformed the market – rising 185pc.
Questor recommended buying the shares because of its very strong cash position and its exposure to India. Other miners that have proved lucrative are Centamin Egypt (up 96pc), which is set to mine its first gold at its Sukari project in Egypt within weeks, Mexican silver miner Fresnillo (up 80pc) and Rio Tinto (up 55pc), which is currently battling to slash its crippling pile of debt.
Questor took profits in Fresnillo and Rio Tinto because of uncertain market conditions, although the shares have moved higher since then.
Questor makes no apology for this. The most difficult decision in investing is when to sell and investors do not go broke if they continue to bank gains.
Despite the recovery in appetite for risk, Questor believes a cautious investment strategy is the best way to play these markets and it is good to bank profits when they present themselves.
The bad
Questor's worst-performing tip is Gem Diamonds , which is down 37pc. Questor first recommended buying shares in the group because of its prize asset – the Letseng mine in Lesotho. The mine has produced three of the world's largest 20 diamonds in the last three years alone. In total, four of the largest 20 rough diamonds ever recovered have come from this one mine.
However, diamond prices continued to tumble, although there is some evidence of stabilisation in the market at present. Questor has restrained from closing out of this position because of the conviction that diamond prices will recover.
Perhaps Questor's worst tip so far was the premature recommendation to buy into an oil exchange traded fund, ETF Securities CRUD fund. Questor sold out of this position, advising investors to take the loss on the chin because the oil futures market moved against the investment and the capital investment was being eroded. The resulting loss was 30pc.
Gem Diamonds and ETF CRUD are the only two recommendations Questor regards as duds over the last six months. Shares in Lloyds insurer Catlin are down 18pc and defence group QinetiQ shares are off 17pc, but both shares still have a buy stance.
Catlin shares were hit after a £200m rights issue, but the group managed to post a 17pc year-on-year increase in the first quarter of the year.
QinetiQ, although it is facing some industrial dispute issues at the moment, has ambitious plans for its US unit, where it is forecasting double-digit growth.
The future
Questor remains to be convinced that the recent market rally is the start of the next bull run. A number of market commentators suggest that the weight of money sitting on the sidelines means that share-price gains will be a self fulfilling prophecy.
Questor feels it is best to be cautious and maintains a defensive strategy, while making some long-term strategic plays such as JP Morgan Indian Investment Trust (up 41pc) and BG Group (up 11pc), as well as dividend plays such as BP (up 3pc) and Northern Foods (up 21pc). Indeed, as the appetite for risk returned, defensive sectors such as utilities have been out of favour. Now looks like a good time to buy into these underperforming sectors.
Taking a long-term view, now is a great time to buy into the stock market. However, it is likely to be a bumpy ride as the year progresses.
The UK government has refused a freedom of information request to see the results of stress tests at major banks, which is concerning.
The full effects of the recession have not made their way into the real economy and unemployment is likely to continue to rise. When the property market will bottom out is anyone's guess.
As we move in to the second part of the year, the phrase "sell in May and go away" comes to mind. Questor does not suggest selling your portfolio, just banking good gains and watching out for opportunities to buy good companies at decent valuations when the opportunity arises. Questor aims to bring you the best of these opportunities over the coming months.
http://www.telegraph.co.uk/finance/markets/questor/5383084/The-good-the-bad-and-the-ugly---a-review-of-Questors-share-portfolio-over-six-months.html
Friday 29 May 2009
When It's Too Late to Buy Stocks
When It's Too Late to Buy Stocks
By Selena Maranjian May 27, 2009 Comments (1)
There are good times to buy stocks, and bad times to buy stocks. But how do you tell the difference?
That's a tough question, especially recently. It's easy to look at bargains across a wide range of stocks and conclude that this must be a once-in-a-lifetime opportunity. Still, some will argue that even after recent massive losses, the stock market can fall further.
Both of those viewpoints are valid.
But even though stocks could see more drops, there are still good reasons why you should consider buying anyway:
Screening for possibilities In fact, you can pick up companies that have a combination of attractive features, including strong dividends, good growth prospects, and beaten-down prices. Witness the following selection of stocks, each of which has earned a top rating of five stars from our Motley Fool CAPS community:
Company
1-year return
Dividend yield
Est. 2010 EPS growth
NYSE Euronext (NYSE: NYX)
(53%)
4.2%
22%
ConocoPhillips (NYSE: COP)
(49%)
4.2%
90%
BP (NYSE: BP)
(29%)
6.9%
53%
Arcelor Mittal (NYSE: MT)
(67%)
2.1%
1,156%
Total SA (NYSE: TOT)
(32%)
4.7%
29%
Diageo (NYSE: DEO)
(27%)
2.9%
14%
Arch Coal (NYSE: ACI)
(71%)
2.1%
244%
Source: Motley Fool CAPS.
Of course, these aren't recommendations -- just ideas for further research. Given how far some of these companies have seen their earnings fall, you'd expect to see high growth figures for 2010, even if they just return to their normal, pre-recession levels.
The market's handed us a huge platter of lemons over the past year, and it might just be time to start making lemonade. Take advantage of bargains while they last -- they might be gone before you know it.
http://www.fool.com/investing/value/2009/05/27/when-its-too-late-to-buy-stocks.aspx
By Selena Maranjian May 27, 2009 Comments (1)
There are good times to buy stocks, and bad times to buy stocks. But how do you tell the difference?
That's a tough question, especially recently. It's easy to look at bargains across a wide range of stocks and conclude that this must be a once-in-a-lifetime opportunity. Still, some will argue that even after recent massive losses, the stock market can fall further.
Both of those viewpoints are valid.
But even though stocks could see more drops, there are still good reasons why you should consider buying anyway:
- A falling market isn't the only risk. Since no one knows for sure which way stocks will move, it's possible you could find yourself sitting on the sidelines while the market rises.
- Warren Buffett's longtime partner Charlie Munger recently noted, "If you wait until the economy is working properly to buy stocks, it's almost certainly too late ... I have no feeling that just because there's more agony ahead for the economy you should wait to invest."
- Buffett himself has recommended that we: "Be fearful when others are greedy, and be greedy when others are fearful." Although the recent rally has rekindled greedy thoughts among investors, many are still fearful -- the stock market is still down substantially from its 2007 highs. That's why we've got so many bargains in plain sight.
Screening for possibilities In fact, you can pick up companies that have a combination of attractive features, including strong dividends, good growth prospects, and beaten-down prices. Witness the following selection of stocks, each of which has earned a top rating of five stars from our Motley Fool CAPS community:
Company
1-year return
Dividend yield
Est. 2010 EPS growth
NYSE Euronext (NYSE: NYX)
(53%)
4.2%
22%
ConocoPhillips (NYSE: COP)
(49%)
4.2%
90%
BP (NYSE: BP)
(29%)
6.9%
53%
Arcelor Mittal (NYSE: MT)
(67%)
2.1%
1,156%
Total SA (NYSE: TOT)
(32%)
4.7%
29%
Diageo (NYSE: DEO)
(27%)
2.9%
14%
Arch Coal (NYSE: ACI)
(71%)
2.1%
244%
Source: Motley Fool CAPS.
Of course, these aren't recommendations -- just ideas for further research. Given how far some of these companies have seen their earnings fall, you'd expect to see high growth figures for 2010, even if they just return to their normal, pre-recession levels.
The market's handed us a huge platter of lemons over the past year, and it might just be time to start making lemonade. Take advantage of bargains while they last -- they might be gone before you know it.
http://www.fool.com/investing/value/2009/05/27/when-its-too-late-to-buy-stocks.aspx
Khan Academy - Finance
Finance
Introduction to interest
Interest (part 2)
Introduction to Present Value
Present Value 2
Present Value 3
Present Value 4 (and discounted cash flow)
Introduction to Balance Sheets
More on balance sheets and equity
Home equity loans
Renting vs. Buying a home
Renting vs. buying a home (part 2)
Renting vs. Buying (detailed analysis)
The housing price conundrum
Housing price conundrum (part 2)
Housing Price Conundrum (part 3)
Housing Conundrum (part 4)
Return on capital
Mortgage-Backed Securities I
Mortgage-backed securities II
Mortgage-backed securities III
Collateralized Debt Obligation (CDO)
Introduction to the yield curve
Introduction to compound interest and e
Compound Interest and e (part 2)
Compound Interest and e (part 3)
Compound Interest and e (part 4)
Bailout 1: Liquidity vs. Solvency
Bailout 2: Book Value
Bailout 3: Book value vs. market value
Bailout 4: Mark-to-model vs. mark-to-market
Bailout 5: Paying off the debt
Bailout 6: Getting an equity infusion
Bailout 7: Bank goes into bankruptcy
Bailout 8: Systemic Risk
Bailout 9: Paulson's Plan
Bailout 10: Moral Hazard
Credit Default Swaps
Credit Default Swaps 2
Investment vs. Consumption 1
Investment vs. Comsumption 2
Bailout 11: Why these CDOs could be worth nothing
Bailout 12: Lone Star Transaction
Bailout 13: Does the bailout have a chance of working?
Wealth Destruction 1
Wealth Destruction 2
Bailout 14: Possible Solution
Bailout 15: More on the solution
Banking 4: Multiplier effect and the money supply
Banking 3: Fractional Reserve Banking
Banking 2: A bank's income statement
Banking 1
Banking 2: A bank's income statement
Banking 3: Fractional Reserve Banking
Banking 4: Multiplier effect and the money supply
Khan Academy - Credit Crisis
Credit Crisis
The housing price conundrum
Housing price conundrum (part 2)
Housing Price Conundrum (part 3)
Housing Conundrum (part 4)
Mortgage-Backed Securities I
Mortgage-backed securities II
Mortgage-backed securities III
Collateralized Debt Obligation (CDO)
Bailout 1: Liquidity vs. Solvency
Bailout 2: Book Value
Bailout 3: Book value vs. market value
Bailout 4: Mark-to-model vs. mark-to-market
Bailout 5: Paying off the debt
Bailout 6: Getting an equity infusion
Bailout 7: Bank goes into bankruptcy
Bailout 8: Systemic Risk
Bailout 9: Paulson's Plan
Bailout 10: Moral Hazard
Bailout 11: Why these CDOs could be worth nothing
Bailout 12: Lone Star Transaction
Bailout 13: Does the bailout have a chance of working?
Credit Default Swaps
Credit Default Swaps 2
Wealth Destruction 1
Wealth Destruction 2
Bailout 14: Possible Solution
Bailout 15: More on the solution
Banking 1
Banking 2: A bank's income statement
Banking 3: Fractional Reserve Banking
Banking 4: Multiplier effect and the money supply
Khan Academy - Banking and Money
Banking and Money
Banking 1
Banking 2: A bank's income statement
Banking 3: Fractional Reserve Banking
Banking 4: Multiplier effect and the money supply
Banking 5: Introduction to Bank Notes
Banking 6: Bank Notes and Checks
Banking 7: Giving out loans without giving out gold
Banking 8: Reserve Ratios
Banking 9: More on Reserve Ratios (Bad sound)
Banking 10: Introduction to leverage (bad sound)
Banking 11: A reserve bank
Banking 12: Treasuries (government debt)
Banking 13: Open Market Operations
Banking 14: Fed Funds Rate
Banking 15: More on the Fed Funds Rate
Banking 16: Why target rates vs. money supply
Banking 17: What happened to the gold?
Banking 18: Big Picture Discussion
Remember, Nobody's Perfect
Remember, Nobody's Perfect
No investor - not even the greatest investors in the world - are right all the time.
Don't be discouraged when your system calls for you to lock in losses on a stock; not even the best investors in the world are right all the time.
Martin Zweig says:
"In the long run,
a 60% success rate translates into huge gains,
a 50% rate into solid gains, and
even a 40% rate can beat the market."
When it comes to the stock market, no one is right all the time - or even nearly all the time. Even the great Warren Buffett makes bad investments. Just read Berkshire Hathaway's annual report, and Buffett will often speak candidly about where he's gone wrong.
Some examples from a fund manager. A particular portfolio of theirs, by being right 62.7% of the time - on less than two-thirds of its picks - had more than tripled the gains of the S&P over 5 years. For the most part, their portfolios had accuracies between 50 and 60 % - far from perfect - and most had still doubled, tripled, or quadrupled the market. Being aware that no one can be right all the time, or even nearly all the time, can make it easier on your ego when your selling system calls for you to take a loss on a stock.
While you'll never be right all the time, you can be right more than you're wrong, however. In the end, the key is to develop a fundamental-based selling and rebalancing plan and stick with it, NO MATTER WHAT. When your portfolio does lose ground from time to time, you'll inevitably feel the urge to sell certain stocks and go after others on a whim or a hunch to make up ground. But if you have a detailed, quantitative selling system in place, you can help keep short-term emotions from wreaking havoc with your long-term performance.
No investor - not even the greatest investors in the world - are right all the time.
Don't be discouraged when your system calls for you to lock in losses on a stock; not even the best investors in the world are right all the time.
Martin Zweig says:
"In the long run,
a 60% success rate translates into huge gains,
a 50% rate into solid gains, and
even a 40% rate can beat the market."
When it comes to the stock market, no one is right all the time - or even nearly all the time. Even the great Warren Buffett makes bad investments. Just read Berkshire Hathaway's annual report, and Buffett will often speak candidly about where he's gone wrong.
Some examples from a fund manager. A particular portfolio of theirs, by being right 62.7% of the time - on less than two-thirds of its picks - had more than tripled the gains of the S&P over 5 years. For the most part, their portfolios had accuracies between 50 and 60 % - far from perfect - and most had still doubled, tripled, or quadrupled the market. Being aware that no one can be right all the time, or even nearly all the time, can make it easier on your ego when your selling system calls for you to take a loss on a stock.
While you'll never be right all the time, you can be right more than you're wrong, however. In the end, the key is to develop a fundamental-based selling and rebalancing plan and stick with it, NO MATTER WHAT. When your portfolio does lose ground from time to time, you'll inevitably feel the urge to sell certain stocks and go after others on a whim or a hunch to make up ground. But if you have a detailed, quantitative selling system in place, you can help keep short-term emotions from wreaking havoc with your long-term performance.
Stay Disciplined Over the Long Haul
Stay Disciplined Over the Long Haul
1. It is essential to stick to your strategy for the long term. Even the best strategies have down periods, and it can sometimes take over a year to reap the benefits of a good method. If you try to time your use of a strategy, you'll likely miss out on some big gains.
2. Expectations shape reactions; be prepared for short-term 10 to 20 % downturns that are inevitable in the stock market - and the less frequent but also inevitable 35 to 50% downturns you'll occasionally experience. You can't predict when they'll happen, so you just have to roll with them if you want to reap the market's long-term benefits.
3. Give the Internet a rest. Checking your portfolio every day, let alone every 10 minutes, can make you want to jump in and out of the market, which hurts your long-term performance.
----
You should have the right mindset going into your market endeavors.
As you're building your portfolio, at some point, you're bound to experience a short-term 10 to 20 % drop, and that you'll also endure less frequent larger drops.
About 6 years after his retirement, Peter Lynch addressed this idea in an interview. Lynch said that 10% declines in the market had occurred in more than half the years in the twentieth century; 25% declines - a bear market - had occurred on average, every 6 years.
"They're gonna happen," Lynch said, "If you're in the market, you have to know there's going to be declines. And they're going to cap and every couple of years you're going to get a 10% correction. That's a euphemism for losing a lot of money rapidly.... And a bear market is a 20-25-30% decline. They're gonna happen. When they're gonna start, no one knows. If you're not ready for that, you shouldn't be in the stock market. I mean stomach is the key organ here. It's not the brain. Do you have the stomach for these kind of declines?"
Lynch was speaking about the broader market, but the same applies to your own portfolio. Joel Greenblatt stresses again and again that his strategy won't beat the market every year. In fact, his testing found that the formula underperformed the market one out of every four years from 1988 through 2004. But if you had used the formula for any two-year period during that time, your chances of underperforming fell to one in six. And, over three-year periods, the formula beat the market 95% of the time - and it never lost money in any of the three-year periods over that 17-year span. (Greenblatt says that even in its worst three-year period during that 17-year span, the formula actually gained 11 percent).
It's a similar story for just about any strategy you can imagine. All of the greats - Lynch, Buffett, Dreman, Graham - have had years when they failed to beat the market. But they stuck with their strategies, and that's what enabled them to post such great long-term returns.
If you acknowledge at the outset that all strategies - even great ones - go through down periods, you won't be surprised when your portfolio does take a short-term hit. As with many things in life, it's the surprise that often leads to anxiety and fear. If you're ready for those down times, you'll be amazed at how much more calm you'll remain when your portfolio takes some short-term lumps.
Unfortunately, most investors don't do that. (In fact, Lynch has supposedly said that while he was at Magellan's helm, more of the fund's investor LOST money than gained money because they would jump out of the fund when things got rought - selling low - and then jump back in when the fund was doing well - buying high.) Not being prepared for those downturns makes it all the more easy to be bowled over by emotions when times get tough. And if you give in to your emotions, you'll probably end up selling after big losses, and buying only after the market has made some big gains.
Hulbert said the newsletter (The Prudent Speculator) that his group rated as the best performer since mid-1980, has demonstrated great faith in the market's upward trend and been rewarded for it. The newsletter "has been the most buffeted by short-term market gyrations" of any he has monitored, he said. "And yet, none surpasses it in its willingness to either ignore or tolerate those gyrations." Hulbert said a testament to the newsletter's faith in the market's long-term benefits came after its model porfolio lost 57% in the crash of 1987. While others panicked, The Prudent Speculator kept its fully invested approach, and ended up winning big over the long haul. "Long-term investors need not lose sleep over the markets' short-term gyrations because the markets' long-term patterns will eventually assert themselves," Hulbert wrote.
1. It is essential to stick to your strategy for the long term. Even the best strategies have down periods, and it can sometimes take over a year to reap the benefits of a good method. If you try to time your use of a strategy, you'll likely miss out on some big gains.
2. Expectations shape reactions; be prepared for short-term 10 to 20 % downturns that are inevitable in the stock market - and the less frequent but also inevitable 35 to 50% downturns you'll occasionally experience. You can't predict when they'll happen, so you just have to roll with them if you want to reap the market's long-term benefits.
3. Give the Internet a rest. Checking your portfolio every day, let alone every 10 minutes, can make you want to jump in and out of the market, which hurts your long-term performance.
----
You should have the right mindset going into your market endeavors.
As you're building your portfolio, at some point, you're bound to experience a short-term 10 to 20 % drop, and that you'll also endure less frequent larger drops.
About 6 years after his retirement, Peter Lynch addressed this idea in an interview. Lynch said that 10% declines in the market had occurred in more than half the years in the twentieth century; 25% declines - a bear market - had occurred on average, every 6 years.
"They're gonna happen," Lynch said, "If you're in the market, you have to know there's going to be declines. And they're going to cap and every couple of years you're going to get a 10% correction. That's a euphemism for losing a lot of money rapidly.... And a bear market is a 20-25-30% decline. They're gonna happen. When they're gonna start, no one knows. If you're not ready for that, you shouldn't be in the stock market. I mean stomach is the key organ here. It's not the brain. Do you have the stomach for these kind of declines?"
Lynch was speaking about the broader market, but the same applies to your own portfolio. Joel Greenblatt stresses again and again that his strategy won't beat the market every year. In fact, his testing found that the formula underperformed the market one out of every four years from 1988 through 2004. But if you had used the formula for any two-year period during that time, your chances of underperforming fell to one in six. And, over three-year periods, the formula beat the market 95% of the time - and it never lost money in any of the three-year periods over that 17-year span. (Greenblatt says that even in its worst three-year period during that 17-year span, the formula actually gained 11 percent).
It's a similar story for just about any strategy you can imagine. All of the greats - Lynch, Buffett, Dreman, Graham - have had years when they failed to beat the market. But they stuck with their strategies, and that's what enabled them to post such great long-term returns.
If you acknowledge at the outset that all strategies - even great ones - go through down periods, you won't be surprised when your portfolio does take a short-term hit. As with many things in life, it's the surprise that often leads to anxiety and fear. If you're ready for those down times, you'll be amazed at how much more calm you'll remain when your portfolio takes some short-term lumps.
Unfortunately, most investors don't do that. (In fact, Lynch has supposedly said that while he was at Magellan's helm, more of the fund's investor LOST money than gained money because they would jump out of the fund when things got rought - selling low - and then jump back in when the fund was doing well - buying high.) Not being prepared for those downturns makes it all the more easy to be bowled over by emotions when times get tough. And if you give in to your emotions, you'll probably end up selling after big losses, and buying only after the market has made some big gains.
Hulbert said the newsletter (The Prudent Speculator) that his group rated as the best performer since mid-1980, has demonstrated great faith in the market's upward trend and been rewarded for it. The newsletter "has been the most buffeted by short-term market gyrations" of any he has monitored, he said. "And yet, none surpasses it in its willingness to either ignore or tolerate those gyrations." Hulbert said a testament to the newsletter's faith in the market's long-term benefits came after its model porfolio lost 57% in the crash of 1987. While others panicked, The Prudent Speculator kept its fully invested approach, and ended up winning big over the long haul. "Long-term investors need not lose sleep over the markets' short-term gyrations because the markets' long-term patterns will eventually assert themselves," Hulbert wrote.
The Key Selling Points
The Key Selling Points
1. Rebalance your portfolio at fixed intervals (i.e., every months, every quarter, every year), selling stocks that no longer meet the fundamental criteria you used to buy them in the first place. Replace them with new stocks that do meet your criteria.
2. Sell stocks immediately if they are involved in accounting or earnings scandals, or if they become a major bankruptcy concern. In these cases, do not wait until your net rebancing date to sell.
3. For tax reasons, it's generally best to sell winning positions after you've held them for a year and losing positions before you've held them for a year. If a stock you've made money no longer meets your investment criteria and you've held it for close to a year, consider holding it until you pass that one-year mark to limit taxes.
4. Don't be discouraged when your system calls for you to lock in losses on a stock; not even the best investors in the world are right all the time.
1. Rebalance your portfolio at fixed intervals (i.e., every months, every quarter, every year), selling stocks that no longer meet the fundamental criteria you used to buy them in the first place. Replace them with new stocks that do meet your criteria.
2. Sell stocks immediately if they are involved in accounting or earnings scandals, or if they become a major bankruptcy concern. In these cases, do not wait until your net rebancing date to sell.
3. For tax reasons, it's generally best to sell winning positions after you've held them for a year and losing positions before you've held them for a year. If a stock you've made money no longer meets your investment criteria and you've held it for close to a year, consider holding it until you pass that one-year mark to limit taxes.
4. Don't be discouraged when your system calls for you to lock in losses on a stock; not even the best investors in the world are right all the time.
Selling Smart
Selling Smart
"Flying isn't the hard part; landing in the net is." - Mario Zacchini, one of the original "Flying Cannonballs"
How do you stave off emotion and make good, sensible "sell" decisions?
The same way that you keep emotion at bay when deciding what stocks to buy: By using a disciplined system that makes sell decisions based on cold, hard fundamentals - not emotion-driven hunches, or arbitrary price targets.
To sell smart, you have to go back to the basic premise behind our "buy" strategy. And that is that over the long term, investors gravitate toward stocks with strong fundamentals because those are the strongest companies, and that causes those stocks' prices to rise over time. We buy because of the fundamentals - not just because the price is high or low or rising or falling. Remember, the only way price comes into the decision to buy is in how it relates to the stock's fundamentals - that is, in the form of such variables as the price-sales ratio or price-earnings ratio.
When you're building your portfolio, you want to pick the stocks that have the best fundamentals - because over the long run, investors gravitate toward stocks with strong fundamentals because they are the strongest companies.
What does this have to do with selling stocks?
If you're buying stocks because they have strong fundamentals, and over the long term, stocks with strong fundamentals tend to rise, you should hold on to a stock as long as it continues to meet the fundamental criteria you used to select it.
Whether the stock has dropped sharply since you bought it or whether it has skyrocketed is no matter; what matters is where the stock's fundamentals stand RIGHT NOW. Price - just as with buying - matters only in terms of how it relates to the fundamentals (what the stocks P/E or P/S ratios are, for example).
Many investors will sell a stock because its price has fallen and they think they need to cut their losses, or because the price has risen and they think the "smart" thing to do is to take the profits rather than risk the stock coming back down.
But those are arbitrary, emotional decisions. Remember, you bought the stock because its strong fundamentals make it a good bet to gain value; if its fundamentals are still strong, why wouldn't it still be a good bet to gain more value?
If the stock's fundamentals have slipped, however, so that it no longer meets the criteria you used to buy it, it's time to sell and replace it with another stock that does meet your criteria (and one that thereby has better prospects of rising in value).
The selling assessment is thus an ongoing reevalution of where a stock stands right now. You must continually reassess what the stock's prospects are going forward - not what they were a month ago, six months ago, or whenever you bought it.
Whether you use a one-month rebalancing or a different time frame that works for you, the important point is - you need to re-examine your portfolio at set intervals, to assess how your holding stand relative to the reasons you bought them. If they no longer meet the criteria you used to pick them, you should consider replacing them with new stocks that do make the grade.
You can also use your rebalancing period to reweight your portfolio in case some of your holdings have gained or lost a bunch, and now make up a disproportionate part of your portfolio. The idea here is to keep things close to equally weighted. It doesn't have to be perfect, though; if one stock gains a little ground so that it makes up a few more percentage points of your portfolio than the other stocks, you don't need to go selling a couple shares - and getting hit with trading charges - just to even things out exactly.
To keep this simple, you might want to set a reweighting target percentage. For example, anytime a holding's weight in your portfolio becomes 10 percent more or less than your target weight, you buy or sell shares of it to bring it back to that target.
By sticking to a firm rebalancing plan, you keep emotion and hype from impacting your selling decisions. You sell at regular intervals, and you sell based on fundamentals. Just as with buying stocks, there's no place for hunch-playing or knee-jerk reactions here.
"Flying isn't the hard part; landing in the net is." - Mario Zacchini, one of the original "Flying Cannonballs"
How do you stave off emotion and make good, sensible "sell" decisions?
The same way that you keep emotion at bay when deciding what stocks to buy: By using a disciplined system that makes sell decisions based on cold, hard fundamentals - not emotion-driven hunches, or arbitrary price targets.
To sell smart, you have to go back to the basic premise behind our "buy" strategy. And that is that over the long term, investors gravitate toward stocks with strong fundamentals because those are the strongest companies, and that causes those stocks' prices to rise over time. We buy because of the fundamentals - not just because the price is high or low or rising or falling. Remember, the only way price comes into the decision to buy is in how it relates to the stock's fundamentals - that is, in the form of such variables as the price-sales ratio or price-earnings ratio.
When you're building your portfolio, you want to pick the stocks that have the best fundamentals - because over the long run, investors gravitate toward stocks with strong fundamentals because they are the strongest companies.
What does this have to do with selling stocks?
If you're buying stocks because they have strong fundamentals, and over the long term, stocks with strong fundamentals tend to rise, you should hold on to a stock as long as it continues to meet the fundamental criteria you used to select it.
Whether the stock has dropped sharply since you bought it or whether it has skyrocketed is no matter; what matters is where the stock's fundamentals stand RIGHT NOW. Price - just as with buying - matters only in terms of how it relates to the fundamentals (what the stocks P/E or P/S ratios are, for example).
Many investors will sell a stock because its price has fallen and they think they need to cut their losses, or because the price has risen and they think the "smart" thing to do is to take the profits rather than risk the stock coming back down.
But those are arbitrary, emotional decisions. Remember, you bought the stock because its strong fundamentals make it a good bet to gain value; if its fundamentals are still strong, why wouldn't it still be a good bet to gain more value?
If the stock's fundamentals have slipped, however, so that it no longer meets the criteria you used to buy it, it's time to sell and replace it with another stock that does meet your criteria (and one that thereby has better prospects of rising in value).
The selling assessment is thus an ongoing reevalution of where a stock stands right now. You must continually reassess what the stock's prospects are going forward - not what they were a month ago, six months ago, or whenever you bought it.
Whether you use a one-month rebalancing or a different time frame that works for you, the important point is - you need to re-examine your portfolio at set intervals, to assess how your holding stand relative to the reasons you bought them. If they no longer meet the criteria you used to pick them, you should consider replacing them with new stocks that do make the grade.
You can also use your rebalancing period to reweight your portfolio in case some of your holdings have gained or lost a bunch, and now make up a disproportionate part of your portfolio. The idea here is to keep things close to equally weighted. It doesn't have to be perfect, though; if one stock gains a little ground so that it makes up a few more percentage points of your portfolio than the other stocks, you don't need to go selling a couple shares - and getting hit with trading charges - just to even things out exactly.
To keep this simple, you might want to set a reweighting target percentage. For example, anytime a holding's weight in your portfolio becomes 10 percent more or less than your target weight, you buy or sell shares of it to bring it back to that target.
By sticking to a firm rebalancing plan, you keep emotion and hype from impacting your selling decisions. You sell at regular intervals, and you sell based on fundamentals. Just as with buying stocks, there's no place for hunch-playing or knee-jerk reactions here.
When do You need to Sell Urgently?
There are a couple rare occasions, however, when you should sell a stock without waiting for the rebalancing date to arrive.
- If a firm is involved or allegedly involved in a major accounting or earnings scandal, you should sell the stock immediately, because you can no longer trust its publicly disclosed financial data.
- In addition, if a firm has become a serious bankruptcy risk since the last rebalancing, you should also sell its stock immediately.
Six Guiding Investing Principles
Six Guiding Investing Principles
Principle 1: Combining strategies to minimise risk and maximise returns.
Principle 2: Stick to the numbers - or the market will stick it to you.
Principle 3: Stay disciplined over the long haul.
Principle 4: Diversify, but you can't beat the market by owning it.
Principle 5: Size- and style-focused systems only limit investment possibilities.
Principle 6: You don't have to hold stocks for the long term to be a long-term investor.
Principle 1: Combining strategies to minimise risk and maximise returns.
Principle 2: Stick to the numbers - or the market will stick it to you.
Principle 3: Stay disciplined over the long haul.
Principle 4: Diversify, but you can't beat the market by owning it.
Principle 5: Size- and style-focused systems only limit investment possibilities.
Principle 6: You don't have to hold stocks for the long term to be a long-term investor.
Thursday 28 May 2009
Investing: Discipline, First and Foremost
Investing: Discipline, First and Foremost
"The essence of mathematics is not to make simple things complicated, but to make complicated things simple."
If you want to beat the market, you need to pick a strategy and stick with it - NO MATTER WHAT. In What Works on Wall Street, O'Shaughnessy writes that in order to beat the market, it is crucial that you stay disciplined. "Consistently, patiently, and slavishly stick with a strategy, even when it's performing poorly relative to other methods."
O'Shaughnessy believed that emotions were perhaps the greatest enemy of the investor because feelings like fear, anxiety, and excitement can cause an investor to ditch his long-term plan for hot strategies or hot stocks that turn out to be financial mirages. "We are a bundle of inconsistencies," he continues, "and while that may make us interesting, it plays havoc with our ability to invest our money successfully.... Disciplined implementation of active strategies is the key to performance."
A decade later, his thoughts about sticking with strategies haven't changed. "What always work on Wall Street is strict adherence to underlying strategies that have proven themselves under a variety of market environments."
"The essence of mathematics is not to make simple things complicated, but to make complicated things simple."
If you want to beat the market, you need to pick a strategy and stick with it - NO MATTER WHAT. In What Works on Wall Street, O'Shaughnessy writes that in order to beat the market, it is crucial that you stay disciplined. "Consistently, patiently, and slavishly stick with a strategy, even when it's performing poorly relative to other methods."
O'Shaughnessy believed that emotions were perhaps the greatest enemy of the investor because feelings like fear, anxiety, and excitement can cause an investor to ditch his long-term plan for hot strategies or hot stocks that turn out to be financial mirages. "We are a bundle of inconsistencies," he continues, "and while that may make us interesting, it plays havoc with our ability to invest our money successfully.... Disciplined implementation of active strategies is the key to performance."
A decade later, his thoughts about sticking with strategies haven't changed. "What always work on Wall Street is strict adherence to underlying strategies that have proven themselves under a variety of market environments."
Martin Zweig - The Conservative Growth Investor
Martin Zweig - The Conservative Growth Investor
"Nothing can stop the man with the right mental attitude from achieving his goal; nothing on earth can help the man with the wrong mental attitude." - THOMAS JEFFERSON
Martin Zweig may not have been born a great investor, but it took him less time than perhaps any other guru we follow to start making himself into one.
Thanks to a birthday gift from his uncle of 6 shares of General Motors stock, Zweig was just 13 years old in 1955 when he began following the stock market. He started tracking GM and some other stocks, and before long, he was hooked. By the time he was in high school, Zweig writes in his book, Winning on Wall Street, he had made up his mind: He was going to become a millionaire, and he would do so by investing in stocks.
Millions of people have made a similar decision over the years. But unlike the vast majority of them, Zweig followed through. He began paying more and more attention to the market. Soon he was wowing his high school teachers with his knowledge of stocks. By the time he was in college, Zweig was buying and selling stocks, and as a graduate student he performed groundbreaking research in the field of stock analysis. It wasn't long before he'd reached the goal he'd set for himself in high school. In fact, you might say he obliterated it, becoming not only a millionaire, but also the owner of what Forbes reported was the most expensive apartment in New York City and the eighth most expensive home in the world - a $70 million penthouse that sits atop Manhattan's chic Pierre Hotel.
Given how fixated he was on beating the market at such an early age, it almost seems Zweig was destined to become one of the world's best investors. "Ever since I can remember," he wrote in Winning on Wall Street, "I have had an almost overwhelming desire to learn all I could about the stock market and to play it successfully. Perhaps my urge was not too different from that attributed to the mountain climber who must assualt the mountain just because it's there... From an early age I wanted to surmount the summit of the stock market, so to speak. It was a challenge I couldn't resist."
Zweig's intense desire and ambition may have been a gift of birth but his stock market success - his stock recommendation newsletter was ranked number one based on risk-adjusted returns by Hulbert Financial Digest during the 15 years Hulbert monitored it - wasn't simply due to natural ability. His development into a great investor was marked by years of study and hard work, and the ability to adhere to a strict, thorough investment strategy.
With some hard work and discipline of your own, you can make your strategy work for you too.
"Nothing can stop the man with the right mental attitude from achieving his goal; nothing on earth can help the man with the wrong mental attitude." - THOMAS JEFFERSON
Martin Zweig may not have been born a great investor, but it took him less time than perhaps any other guru we follow to start making himself into one.
Thanks to a birthday gift from his uncle of 6 shares of General Motors stock, Zweig was just 13 years old in 1955 when he began following the stock market. He started tracking GM and some other stocks, and before long, he was hooked. By the time he was in high school, Zweig writes in his book, Winning on Wall Street, he had made up his mind: He was going to become a millionaire, and he would do so by investing in stocks.
Millions of people have made a similar decision over the years. But unlike the vast majority of them, Zweig followed through. He began paying more and more attention to the market. Soon he was wowing his high school teachers with his knowledge of stocks. By the time he was in college, Zweig was buying and selling stocks, and as a graduate student he performed groundbreaking research in the field of stock analysis. It wasn't long before he'd reached the goal he'd set for himself in high school. In fact, you might say he obliterated it, becoming not only a millionaire, but also the owner of what Forbes reported was the most expensive apartment in New York City and the eighth most expensive home in the world - a $70 million penthouse that sits atop Manhattan's chic Pierre Hotel.
Given how fixated he was on beating the market at such an early age, it almost seems Zweig was destined to become one of the world's best investors. "Ever since I can remember," he wrote in Winning on Wall Street, "I have had an almost overwhelming desire to learn all I could about the stock market and to play it successfully. Perhaps my urge was not too different from that attributed to the mountain climber who must assualt the mountain just because it's there... From an early age I wanted to surmount the summit of the stock market, so to speak. It was a challenge I couldn't resist."
Zweig's intense desire and ambition may have been a gift of birth but his stock market success - his stock recommendation newsletter was ranked number one based on risk-adjusted returns by Hulbert Financial Digest during the 15 years Hulbert monitored it - wasn't simply due to natural ability. His development into a great investor was marked by years of study and hard work, and the ability to adhere to a strict, thorough investment strategy.
With some hard work and discipline of your own, you can make your strategy work for you too.
Kenneth L. Fisher on How to Time the Market
Kenneth L. Fisher on How to Time the Market
"There is no end to the lengths people go to try to find the magic key to the stock market."
"At best, one can hope to be right about the stock market perhaps half the time. At worst, one is apt to be wrong most of the time. Stock market seers run hot for a couple of years. Then most embarrass themselves."
But there's more. Even if you COULD predict the market's major moves, Fisher says it wouldn't be worth it. He studied how an investor would have fared had he correctly called every 100-point move of the Dow Jones Industrial Average for the 5-year period ending Dec 31, 1982.
Such an investor (which of course, probably doesn't exist) would have earned a compound rate of return of 51.5%. That sounds great, but according to Fisher, it's no better than the return you could generate by buying a super stock.
And in the perfect-market-timing scenario, you also would be jumping in or out of the market 11 times during that span, resulting in significant trading costs. Plus, since the vast majority of those 100-point swings occurred in less than a year, you'd be taxed at higher short-term gains rates. Super Stocks make their gains over a three- to five-year period, generating long-term gains that are subject to lower tax rates.
Fisher does, however, offer a solution for how to time the market. His two rules:
1. When a company is selling at a (sufficiently) low PSR (Price-Sales Ratio) - BUY it.
2. If you can't find companies selling at (sufficiently) low PSRs, DON'T buy stocks.
Of course, this isn't exactly market timing in the way most people think of it, because it looks at specific stocks rather than the entire market. But whether you call it market timing or not, it's certainly a lot better plan than those used by most investors who try to time the broader market's movements.
Source: Kenneth L. Fisher, Super Stocks, reissued edition (NY: McGraw-Hill, 2008)
"There is no end to the lengths people go to try to find the magic key to the stock market."
"At best, one can hope to be right about the stock market perhaps half the time. At worst, one is apt to be wrong most of the time. Stock market seers run hot for a couple of years. Then most embarrass themselves."
But there's more. Even if you COULD predict the market's major moves, Fisher says it wouldn't be worth it. He studied how an investor would have fared had he correctly called every 100-point move of the Dow Jones Industrial Average for the 5-year period ending Dec 31, 1982.
Such an investor (which of course, probably doesn't exist) would have earned a compound rate of return of 51.5%. That sounds great, but according to Fisher, it's no better than the return you could generate by buying a super stock.
And in the perfect-market-timing scenario, you also would be jumping in or out of the market 11 times during that span, resulting in significant trading costs. Plus, since the vast majority of those 100-point swings occurred in less than a year, you'd be taxed at higher short-term gains rates. Super Stocks make their gains over a three- to five-year period, generating long-term gains that are subject to lower tax rates.
Fisher does, however, offer a solution for how to time the market. His two rules:
1. When a company is selling at a (sufficiently) low PSR (Price-Sales Ratio) - BUY it.
2. If you can't find companies selling at (sufficiently) low PSRs, DON'T buy stocks.
Of course, this isn't exactly market timing in the way most people think of it, because it looks at specific stocks rather than the entire market. But whether you call it market timing or not, it's certainly a lot better plan than those used by most investors who try to time the broader market's movements.
Source: Kenneth L. Fisher, Super Stocks, reissued edition (NY: McGraw-Hill, 2008)
Peter Lynch's Pearl of Wisdom
Another One of Peter Lynch's Many Pearls of Wall Street Wisdom
Lynch once said in an interview that putting money into stocks and counting on having nice profits in a year or two is "just like betting on red or black at the casino...... What the market's going to do in one or two years, you don't know."
This is a crucial general approach shared by Lynch and many of the other gurus of investing. It's simple in theory, but in practice it is one of the hardest things for an investor. Lynch recognized that the stock market was unpredictable in the short term, even to the smartest investors. Over the long term, however, good stocks rise like no other investment vehicle. Lynch's philosophy: Use a proven strategy and stay in the market for the long term and you'll realize those gains, jump in and out an there's a good chance that you'll miss out on a chunk of them.
That, of course, means resisting the temptation to bail when the market takes some short-term hits and good stocks fall in value - no easy task. But as Lynch once said, "The real key to making money in stocks is not to get scared out of them."
Lynch once said in an interview that putting money into stocks and counting on having nice profits in a year or two is "just like betting on red or black at the casino...... What the market's going to do in one or two years, you don't know."
This is a crucial general approach shared by Lynch and many of the other gurus of investing. It's simple in theory, but in practice it is one of the hardest things for an investor. Lynch recognized that the stock market was unpredictable in the short term, even to the smartest investors. Over the long term, however, good stocks rise like no other investment vehicle. Lynch's philosophy: Use a proven strategy and stay in the market for the long term and you'll realize those gains, jump in and out an there's a good chance that you'll miss out on a chunk of them.
That, of course, means resisting the temptation to bail when the market takes some short-term hits and good stocks fall in value - no easy task. But as Lynch once said, "The real key to making money in stocks is not to get scared out of them."
How to employ buy and hold in our overall investing philosophy?
How to employ buy and hold in our overall investing philosophy?
The more you trade, the less well you do. Have a strategy and then let that strategy work.
Warren Buffett often hold stocks for years and years. But not all buy and hold strategists need to follow him.
You can choose to hold a stock for a year and then rebalances your portfolio. By doing so, you are making sure you are not holding stocks that no longer meets your criteria. While you may choose to rebalance annually, you may also rebalance your portfolio more frequently.
You are free to pick a rebalancing period - be it monthly, quarterly, semiannually, or annually. Sticking to this discipline is more important than the decision about which specific period to use.
Keep it Simple and Safe (K.I.S.S): The novice investors might expect someone emerging from a study of the different strategies and the stock market results to come out with some highly complex, esoteric formulas for how to produce the best returns. Instead, it was just the opposite.
The more you trade, the less well you do. Have a strategy and then let that strategy work.
Warren Buffett often hold stocks for years and years. But not all buy and hold strategists need to follow him.
You can choose to hold a stock for a year and then rebalances your portfolio. By doing so, you are making sure you are not holding stocks that no longer meets your criteria. While you may choose to rebalance annually, you may also rebalance your portfolio more frequently.
You are free to pick a rebalancing period - be it monthly, quarterly, semiannually, or annually. Sticking to this discipline is more important than the decision about which specific period to use.
Keep it Simple and Safe (K.I.S.S): The novice investors might expect someone emerging from a study of the different strategies and the stock market results to come out with some highly complex, esoteric formulas for how to produce the best returns. Instead, it was just the opposite.
Redefining Risk
Traditionally, investors view "risk" as being synonymous with "volatility." They believe that to get higher returns, they must be willing to stomach bigger short-term swings in a stock's price. Volatility is not risk. Avoid investment advice based on volatility.
Redefining Risk
Risk was the chance that you might not meet your long-term investment goals. And the greatest enemy of reaching those goals: inflation. Nothing is safe from inflation. It's major victims are savings accounts, T-bills, bonds, and other types of fixed-income investments.
Investors usually use Treasury bills as their benchmark for risk. These are considered risk-free because their nominal value can't go down. However, T-bills and bonds are in fact highly risky because of their susceptibility to inflation.
For example, if you buy a 10 year-T-bill that pays 3 percent in interest per year, and inflation is creeping up at, say, 2 percent per year, the real value of your investment at maturity will end up being significantly less than 3 percent greater than the price you paid for it. In the case of low-interest-paying T-bills, higher inflation could even mean that your investment loses value, in terms of real purchasing power, over its lifetime.
Realistic definition of Risk
A realistic definition of risk recognizes the potential loss of capital through inflation and taxes, and includes:
1. The probability your investment will preserve your capital over your investment time horizon.
2. The probability your investments will outperform alternative investments during the period.
Why Volatility is not Risk?
Traditionally, investors view "risk" as being synonymous with "volatility." They believe that to get higher returns, they must be willing to stomach bigger short-term swings in a stock's price.
There is no correlation between this volatility-related-risk and return.
So if volatility is not risk, what is?
The major risk is not the short-term stock price volatility that many thousands of academic articles have been written about. Rather it is the possibility of not reaching your long-term investment goal through the growth of your funds in real terms. To measure monthly or quarterly volatility and call it risk - for investors who have time horizons 5, 10, 15 or even 30 years away - is a completely inappropriate definition. (David Dreman)
In the short-term, stocks fluctuate unpredictably, so if you're saving to buy a house or a car within the next two years or so, bonds and T-bills are a good choice. But over the long term, stocks far more often than not outperform alternative investments like bonds or T-bills.
In fact, Dreman's research shows that inflation-adjusted returns for stocks - which, unlike bonds or T-bills have the ability to produce increasing earnings streams - have consistently outpaced those of bonds and T-bills since the start of the 1800s. The gap has widened since the mid-1920s, when inflation began to have a more significant impact.
What's more, from 1946 to 1996, according to Dreman, compound returns after inflation for stocks were better than those of bonds 84% of the time if your holding period was 5 years.
Take Home Lesson
Using Dreman's definition of risk, stocks are actually the safest investment out there over the long term.
Investors who put some or most of their money into bonds and other investments on the assumption they are lowering their risk are, in fact, deluding themselves.
"Indeed, it goes against the principle we were taught from childhood - that the safest way to save was putting our money in the bank."
Redefining Risk
Risk was the chance that you might not meet your long-term investment goals. And the greatest enemy of reaching those goals: inflation. Nothing is safe from inflation. It's major victims are savings accounts, T-bills, bonds, and other types of fixed-income investments.
Investors usually use Treasury bills as their benchmark for risk. These are considered risk-free because their nominal value can't go down. However, T-bills and bonds are in fact highly risky because of their susceptibility to inflation.
For example, if you buy a 10 year-T-bill that pays 3 percent in interest per year, and inflation is creeping up at, say, 2 percent per year, the real value of your investment at maturity will end up being significantly less than 3 percent greater than the price you paid for it. In the case of low-interest-paying T-bills, higher inflation could even mean that your investment loses value, in terms of real purchasing power, over its lifetime.
Realistic definition of Risk
A realistic definition of risk recognizes the potential loss of capital through inflation and taxes, and includes:
1. The probability your investment will preserve your capital over your investment time horizon.
2. The probability your investments will outperform alternative investments during the period.
Why Volatility is not Risk?
Traditionally, investors view "risk" as being synonymous with "volatility." They believe that to get higher returns, they must be willing to stomach bigger short-term swings in a stock's price.
There is no correlation between this volatility-related-risk and return.
- Higher volatility does not give better results, nor lower volatility worse.
- Studies have shown that there is not necessarily any stable long-term relationship between volatility-related-risk and return, and often there is no relationship between the return achieved and the volatility-related-risk taken.
So if volatility is not risk, what is?
The major risk is not the short-term stock price volatility that many thousands of academic articles have been written about. Rather it is the possibility of not reaching your long-term investment goal through the growth of your funds in real terms. To measure monthly or quarterly volatility and call it risk - for investors who have time horizons 5, 10, 15 or even 30 years away - is a completely inappropriate definition. (David Dreman)
In the short-term, stocks fluctuate unpredictably, so if you're saving to buy a house or a car within the next two years or so, bonds and T-bills are a good choice. But over the long term, stocks far more often than not outperform alternative investments like bonds or T-bills.
In fact, Dreman's research shows that inflation-adjusted returns for stocks - which, unlike bonds or T-bills have the ability to produce increasing earnings streams - have consistently outpaced those of bonds and T-bills since the start of the 1800s. The gap has widened since the mid-1920s, when inflation began to have a more significant impact.
What's more, from 1946 to 1996, according to Dreman, compound returns after inflation for stocks were better than those of bonds 84% of the time if your holding period was 5 years.
- Stocks also outperformed T-bills in 82% of those 5-year periods.
- Using 10-year periods, stocks beat bonds 94% of the time and T-bills 86% of the time.
- When you look at 20-year holding periods, stocks beat both bonds and T-bills 100 percent of the time.
Take Home Lesson
Using Dreman's definition of risk, stocks are actually the safest investment out there over the long term.
Investors who put some or most of their money into bonds and other investments on the assumption they are lowering their risk are, in fact, deluding themselves.
"Indeed, it goes against the principle we were taught from childhood - that the safest way to save was putting our money in the bank."
Observing Long-Term Investing
Observing Long-Term Investing
Study the 2 lists of the top 30 shareholders of a particular company below.
Excluding the institutions, there are 10 individual investors who invested in this company from the year 2002 to 2008. These are certainly long-term investors.
The share price of this compay ranged 3.85 to 8.35 in 2002.
In 2008, the price ranged from 10.50 to 13.00.
It is presently priced at 10.70.
The dividend per share for the recent 6 years were 5.8c (2002), 12.8c (2003), 56c (2004), 63.2c (2005), 63.5c (2006), 63.5c (2007), giving a total of 264.8c. The DY the last 5 years ranged from 10.1% to 6.7% varying with the share price.
What lessons can we derive from the investing behaviours of these long-term "buy and hold" investors? Perhaps, you may spot my name within this list. hahaha!!
http://announcements.bursamalaysia.com/EDMS/subweb.nsf/7f04516f8098680348256c6f0017a6bf/6a8c0c56bb45fd2c48256d02000ff5d0/$FILE/DLady-AnnualReport%202002%20(950KB).pdf
Dutch Lady Annual Report 2002
30 Largest Shareholders Page 45
1. Frint Beheer IV BV* 32,074,800 50.12
2. Amanah Raya Nominees (Tempatan) Sdn Bhd* 16,008,000 25.01 %
- Skim Amanah Saham Bumiputera
3. RHB Nominees (Asing) Sdn Bhd 540,000 0.84 %
- Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A.
4. Yong Siew Lee 270,000 0.42 %
5. Kumpulan Wang Simpanan Guru-Guru 220,000 0.34%
6. Yeo Khee Bee 215,000 0.34 %
7. Employees Provident Fund Board 201,000 0.31%
8. Menteri Kewangan Malaysia Section 29 (SICDA) 189,800 0.30 %
9. Ng Lam Shen 160,000 0.25 %
10. Quek Guat Kwee 160,000 0.25 %
11. Amanah Raya Nominees (Tempatan) Sdn Bhd 157,000 0.25 %
-Dana Johor
12. Universiti Malaya 144,000 0.23 %
13. Amanah Raya Nominees (Tempatan) Sdn Bhd 128,000 0.20 %
-Amanah Saham Johor
14. Lee Sim Kuen 120,000 0.19 %
15. Tong Yoke Kim Sdn Bhd 120,000 0.19 %
16. Foo Mee Lee 117,404 0.18 %
17. Wong So-Ch’I 111,000 0.17 %
18. Soon Ah Khun @ Soon Lian Huat 110,000 0.17 %
19. Wong So Haur 109,000 0.17 %
20. Lim Teh Realty Sdn Bhd 90,000 0.14 %
21. Foo Loke Weng 80,804 0.13 %
22. HSBC Nominees (Asing) Sdn Bhd 80,000 0.13 %
- Pictet and Cie for Ace Fund Sicav (Emerging Market)
23. Mayban Nominess (Tempatan) Sdn Bhd 75,000 0.12 %
- for Goh Sin Bong
24. Lim Pin Kong 75,000 0.12 %
25. Neoh Soon Leong 72,000 0.11 %
26. See Cheng Siang 72,000 0.11 %
27. Leong Lai Meng 60,000 0.09 %
28. Looi Chin Seng 60,000 0.09 %
29. HSBC Nominees (Tempatan) Sdn Bhd 60,000 0.09 %
- for Goh Hiong Eng
30. Sak Mok @ Sak Swee Len 58,000 0.09%
http://announcements.bursamalaysia.com/EDMS/subweb.nsf/7f04516f8098680348256c6f0017a6bf/5f300a009db8aabf482575a70014e6ae/$FILE/DLADY-AnnualReport2008%20(1MB).pdf
Dutch Lady Annual Report 2008
30 Largest Shareholders Page 49
1. Frint Beheer IV BV* 32,074,800 50.12%
2. Amanah Raya Nominees (Tempatan) Sdn Bhd 12,500,000 19.53%
- Skim Amanah Saham Bumiputera
3. Kumpulan Wang Persaraan (Diperbadankan) 2,109,200 3.3%
4. Permodalan Nasional Berhad 1,843,500 2.88%
5. Public Nominees (Tempatan) Sdn Bhd 837,300 1.31%
- Pledged Securities Account for Aun Huat & Brothers
Sdn Bhd (E-IMO/BCM)
6. Aun Huat & Brothers Sdn Bhd 587,100 0.92%
7. Cartaban Nominees (Asing) Sdn Bhd 540,000 0.84%
- Exempt An For Bank Sarasin-Rabo (Asia) Limited (AC Client Frgn)
8. Yong Siew Lee 430,000 0.67%
9. Yeo Khee Bee 391,300 0.61%
10. Quek Guat Kwee 162,000 0.25%
11. Kumpulan Wang Simpanan Guru-Guru 156,300 0.24%
12. SBB Nominees (Tempatan) Sdn Bhd 144,000 0.23%
- Universiti Malaya (CAFM)
13. Citigroup Nominees (Asing) Sdn Bhd 125,700 0.20%
- CBNY For DFA Emerging Markets Small Cap Series
14. Lee Sim Kuen 120,000 0.19%
15. Wong So-Ch’i 111,000 0.17%
16. Tong Yoke Kim Sdn Bhd 110,000 0.17%
17. Wong So Haur 109,000 0.17%
18. Chow Kok Meng 99,900 0.16%
19. Lim Teh Realty Sdn Berhad 90,000 0.14%
20. Foo Yoke Keong Adrian 80,000 0.13%
21. Cartaban Nominees (Tempatan) Sdn Bhd 80,000 0.13%
- Exempt An For Kam Nominees (Tempatan) Sdn Bhd
22. Tan Pak Nang 74,000 0.12%
23. Mayban Nominees (Tempatan) Sdn Bhd 74,000 0.12%
- Affin Fund Management Berhad For CIMB Aviva Assurance
Berhad (270185)
24. Ng Lam Shen 71,300 0.11%
25. Tan Kim Onm 66,000 0.10%
26. Labuan Reinsurance (L) Ltd 62,700 0.10%
27. HSBC Nominees (Tempatan) Sdn Bhd 60,000 0.09%
- Pledged Securities Account for Goh Hiong Eng
28. Sak Moy @ Sak Swee Len 58,000 0.09%
29. Theo Chin Lian 56,000 0.09%
30. Chua Sim Hong 55,900 0.09%
Total: 53,280,000 83.27%
Study the 2 lists of the top 30 shareholders of a particular company below.
Excluding the institutions, there are 10 individual investors who invested in this company from the year 2002 to 2008. These are certainly long-term investors.
The share price of this compay ranged 3.85 to 8.35 in 2002.
In 2008, the price ranged from 10.50 to 13.00.
It is presently priced at 10.70.
The dividend per share for the recent 6 years were 5.8c (2002), 12.8c (2003), 56c (2004), 63.2c (2005), 63.5c (2006), 63.5c (2007), giving a total of 264.8c. The DY the last 5 years ranged from 10.1% to 6.7% varying with the share price.
What lessons can we derive from the investing behaviours of these long-term "buy and hold" investors? Perhaps, you may spot my name within this list. hahaha!!
http://announcements.bursamalaysia.com/EDMS/subweb.nsf/7f04516f8098680348256c6f0017a6bf/6a8c0c56bb45fd2c48256d02000ff5d0/$FILE/DLady-AnnualReport%202002%20(950KB).pdf
Dutch Lady Annual Report 2002
30 Largest Shareholders Page 45
1. Frint Beheer IV BV* 32,074,800 50.12
2. Amanah Raya Nominees (Tempatan) Sdn Bhd* 16,008,000 25.01 %
- Skim Amanah Saham Bumiputera
3. RHB Nominees (Asing) Sdn Bhd 540,000 0.84 %
- Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A.
4. Yong Siew Lee 270,000 0.42 %
5. Kumpulan Wang Simpanan Guru-Guru 220,000 0.34%
6. Yeo Khee Bee 215,000 0.34 %
7. Employees Provident Fund Board 201,000 0.31%
8. Menteri Kewangan Malaysia Section 29 (SICDA) 189,800 0.30 %
9. Ng Lam Shen 160,000 0.25 %
10. Quek Guat Kwee 160,000 0.25 %
11. Amanah Raya Nominees (Tempatan) Sdn Bhd 157,000 0.25 %
-Dana Johor
12. Universiti Malaya 144,000 0.23 %
13. Amanah Raya Nominees (Tempatan) Sdn Bhd 128,000 0.20 %
-Amanah Saham Johor
14. Lee Sim Kuen 120,000 0.19 %
15. Tong Yoke Kim Sdn Bhd 120,000 0.19 %
16. Foo Mee Lee 117,404 0.18 %
17. Wong So-Ch’I 111,000 0.17 %
18. Soon Ah Khun @ Soon Lian Huat 110,000 0.17 %
19. Wong So Haur 109,000 0.17 %
20. Lim Teh Realty Sdn Bhd 90,000 0.14 %
21. Foo Loke Weng 80,804 0.13 %
22. HSBC Nominees (Asing) Sdn Bhd 80,000 0.13 %
- Pictet and Cie for Ace Fund Sicav (Emerging Market)
23. Mayban Nominess (Tempatan) Sdn Bhd 75,000 0.12 %
- for Goh Sin Bong
24. Lim Pin Kong 75,000 0.12 %
25. Neoh Soon Leong 72,000 0.11 %
26. See Cheng Siang 72,000 0.11 %
27. Leong Lai Meng 60,000 0.09 %
28. Looi Chin Seng 60,000 0.09 %
29. HSBC Nominees (Tempatan) Sdn Bhd 60,000 0.09 %
- for Goh Hiong Eng
30. Sak Mok @ Sak Swee Len 58,000 0.09%
http://announcements.bursamalaysia.com/EDMS/subweb.nsf/7f04516f8098680348256c6f0017a6bf/5f300a009db8aabf482575a70014e6ae/$FILE/DLADY-AnnualReport2008%20(1MB).pdf
Dutch Lady Annual Report 2008
30 Largest Shareholders Page 49
1. Frint Beheer IV BV* 32,074,800 50.12%
2. Amanah Raya Nominees (Tempatan) Sdn Bhd 12,500,000 19.53%
- Skim Amanah Saham Bumiputera
3. Kumpulan Wang Persaraan (Diperbadankan) 2,109,200 3.3%
4. Permodalan Nasional Berhad 1,843,500 2.88%
5. Public Nominees (Tempatan) Sdn Bhd 837,300 1.31%
- Pledged Securities Account for Aun Huat & Brothers
Sdn Bhd (E-IMO/BCM)
6. Aun Huat & Brothers Sdn Bhd 587,100 0.92%
7. Cartaban Nominees (Asing) Sdn Bhd 540,000 0.84%
- Exempt An For Bank Sarasin-Rabo (Asia) Limited (AC Client Frgn)
8. Yong Siew Lee 430,000 0.67%
9. Yeo Khee Bee 391,300 0.61%
10. Quek Guat Kwee 162,000 0.25%
11. Kumpulan Wang Simpanan Guru-Guru 156,300 0.24%
12. SBB Nominees (Tempatan) Sdn Bhd 144,000 0.23%
- Universiti Malaya (CAFM)
13. Citigroup Nominees (Asing) Sdn Bhd 125,700 0.20%
- CBNY For DFA Emerging Markets Small Cap Series
14. Lee Sim Kuen 120,000 0.19%
15. Wong So-Ch’i 111,000 0.17%
16. Tong Yoke Kim Sdn Bhd 110,000 0.17%
17. Wong So Haur 109,000 0.17%
18. Chow Kok Meng 99,900 0.16%
19. Lim Teh Realty Sdn Berhad 90,000 0.14%
20. Foo Yoke Keong Adrian 80,000 0.13%
21. Cartaban Nominees (Tempatan) Sdn Bhd 80,000 0.13%
- Exempt An For Kam Nominees (Tempatan) Sdn Bhd
22. Tan Pak Nang 74,000 0.12%
23. Mayban Nominees (Tempatan) Sdn Bhd 74,000 0.12%
- Affin Fund Management Berhad For CIMB Aviva Assurance
Berhad (270185)
24. Ng Lam Shen 71,300 0.11%
25. Tan Kim Onm 66,000 0.10%
26. Labuan Reinsurance (L) Ltd 62,700 0.10%
27. HSBC Nominees (Tempatan) Sdn Bhd 60,000 0.09%
- Pledged Securities Account for Goh Hiong Eng
28. Sak Moy @ Sak Swee Len 58,000 0.09%
29. Theo Chin Lian 56,000 0.09%
30. Chua Sim Hong 55,900 0.09%
Total: 53,280,000 83.27%
Wednesday 27 May 2009
Total Returns vs Total Wealth vs Total Real Returns
Total Returns
Total returns means that all returns, such as interest and dividends and capital gains, are automatically reinvested in the asset and allowed to accumulate over time.
A graph depicting the total return indexes for stocks, long- and short-term bonds, gold, and commodities from 1802 through 2001, showed that the total return on equities dominates all other assets. Even the cataclysmic stock crash of 1929, which caused a generation of investors to shun stocks, appears as a mere blip in the stock return index. Bear markets, which so frighten investors, pale in the context of the upward thrust of total stock returns.
Total Returns vs Total Wealth
However, the total wealth in the stock market, or in the economy, does not accumulate as fast as the total return index. This is so because investors consume most of their dividends and capital gains, enjoying the fruits of their past saving.
It is rare for anyone to accumulate wealth for long periods of time without consuming part of his or her return.
Total returns means that all returns, such as interest and dividends and capital gains, are automatically reinvested in the asset and allowed to accumulate over time.
A graph depicting the total return indexes for stocks, long- and short-term bonds, gold, and commodities from 1802 through 2001, showed that the total return on equities dominates all other assets. Even the cataclysmic stock crash of 1929, which caused a generation of investors to shun stocks, appears as a mere blip in the stock return index. Bear markets, which so frighten investors, pale in the context of the upward thrust of total stock returns.
Total Returns vs Total Wealth
However, the total wealth in the stock market, or in the economy, does not accumulate as fast as the total return index. This is so because investors consume most of their dividends and capital gains, enjoying the fruits of their past saving.
It is rare for anyone to accumulate wealth for long periods of time without consuming part of his or her return.
- The longest period of time investors typically plan to hold assets without touching principal and income is when they are accumulating wealth in pension plans for their retirement or in insurance policies that are passed on to their heirs.
- Even those who bequeath fortunes untouched during their lifetimes must realize that these accumulations often are dissipate in the next generation.
The stock market has the power to turn a single dollar into millions by the forbearance of generations - but few will have the patience or desire to let this happen.
Total Returns vs Total Real Returns
The focus of every long-term investor should be growth of purchasing power - monetary wealth adjusted for the effect of inflation. The growth of purchasing power in equities not only dominates all other assets but also shows remarkable long-term stability. Despite extraordinary changes in the economic, social and political environments over the past two centuries, stocks have yielded between 6.6 and 7.0 percent per year after inflation in all major subperiods.
The wiggles on the stock return line represent the bull and bear markets that equities have suffered throughout history. The long-term perspective radically changes one's view of the risk of stocks. The short-term fluctuations in the stock market, which loom so large to invetors when they occur, are insignificant when compared with the upward movement of equity values over time.
In contrast to the remarkable stability of stock returns, real returns on fixed-income assets have declined markedly over time. From 1802 to 1926, the annual real returns on bonds and bills, although less than those on equities, were significantly positive. However, since 1926, and especially since World War II, fixed-income assets have returned little after inflation.
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