Latexx bounces back

Saturday May 23, 2009
Latexx bounces back
By C.S. TAN


TAIPING-based Latexx Partners Bhd was the first rubber glove manufacturer to be listed on Bursa Malaysia, but it had to muddle through several years of heavy losses that resulted in it being overtaken by rivals that were listed later.

It was held back by losses for five years, between 2000 and 2004 by which time, its net tangible assets had shrunk to just 19 sen a share.

Small wonder that investors still remember the company for its difficult years even though it has erased the accumulated losses. The years of losses coincided with the time when Low Bok Tek, who was managing director for 14 years between 1987 and 2001, left the company.

Low would not say why he left. At that time, there were eight brothers, including Low, in the company, and it was probably difficult for so many to agree on any matter. This might have been difficult for Low who, as the CEO, was not the eldest. He is number six among the brothers.

Latexx’s losses between 2000 and 2004 were sizeable, from RM41.5mil in 2000, about RM20mil each in 2001 and 2002, RM13mil in 2003 and RM700,000 in 2004.

Cumulatively, these losses bled Latexx which was then still a small company.

Resulting from the losses, Latexx lacked working capital to do business. Hence, Latexx was operating at only about 20% of its plant capacity when Low returned to the company in 2004 after working out an agreement with his brothers that he would take over.

Low then set about to improve manufacturing operations, and put some money into company. He then talked to the banks about credit lines, and to restructure the heavy borrowings. “Otherwise, we won’t be able to expand,” he told StarBizWeek.

A debt restructuring exercise, after some initial difficulties, was eventually worked out with creditor bankers. Stemming from that, RM51mil of debts were converted into new Latexx shares with free warrants.

Following that, Citibank Bhd owned 15.4% of Latexx, as well as warrants in 2007 when it took the stocks in settlement of debts. It ceased to be a substantial shareholder a month later.

Low said he bought a substantial position in Latexx from his brothers and the creditor banks. He currently owns direct and deemed interests of 30.3% in the company.

Over time, he managed to persuade glove buyers, suppliers and former management staffers to return. “They came back after they saw our finances improving,” he said. Bankers also returned, agreeing to credit facilities.

“Now, I have cash,” he said, adding that the company is operating comfortably with RM20.5mil cash, against borrowings of RM48.8mil.

That’s a net debt-to-equity ratio of just 22%, one of the lowest in the industry.

With the company back in the black, cashflow generated and borrowings will enable Latexx to reclaim a position higher up the industry ranks in terms of size and profitability. The company earned a net profit of RM15.6mil last year, and RM9.1mil in the first quarter (Q1) this year. It could potentially earn RM36mil, annualising from Q1, or more this year.

Low said the current plant capacity of 4.4 billion pieces of gloves a year would progressively increase to six billion pieces by the end of the year. “Every month the production increases, I see my unit costs coming down,” he added.

The unknown factors in the industry are US dollar weakness and higher latex prices which cut into profit margins if they move too sharply.

All of Latexx’s five plants are located on a single piece of land in Taiping, and a sixth plant being built on adjacent land will increase total plant capacity to 7.5 billion pieces next year and nine billion in 2010.

One of the biggest employers in Taiping, Latexx’s recovery is an asset to the local community and its shareholders.


http://biz.thestar.com.my/news/story.asp?file=/2009/5/23/business/3959883&sec=business


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Latexx’s 1Q profit up, to install 8 new lines
Written by Yantoultra Ngui Yichen
Thursday, 07 May 2009 14:35

KUALA LUMPUR: Latexx Partners Bhd’s net profit for its first quarter ended March 31, 2009 (1Q09) surged to RM9.14 million from RM1.13 million a year earlier, mainly due to better margins from a change in product mix with sales of more premium gloves.

In notes accompanying its financial statement yesterday, the rubber glove maker also attributed the stronger performance to an improvement in overall cost savings from economies of scale, lower latex and crude oil prices, and favourable US dollar exchange rate.

Revenue rose 47% to RM70.3 million in 1QFY09 from RM47.8 million a year earlier, while earnings per share jumped to 4.7 sen from 0.58 sen. No dividend was declared.

Moving forward, Latexx said it targeted to install eight new double formers glove production lines and continue to upgrade its existing glove production to meet market demand.

“The eight new double formers glove production lines are targeted to be completed in 2009,” it said. “With the additional lines, the group projected total annual output to increase from four billion pieces to six billion pieces.”The company expected strong demand from the healthcare sector despite the current economic slowdown.

Latexx also expected to benefit from lower prices of latex concentrate and crude oil, and favourable exchange rate.



This article appeared in The Edge Financial Daily, May 7, 2009.


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Friday February 27, 2009
Latexx to raise glove output
By DAVID TAN

KAMUNTING: Latexx Partners Bhd is allocating RM70mil next year to increase its production of latex and nitrile gloves to nine billion in 2011.

Group managing director Low Bok Tek told StarBiz that although the global economy had entered a recession, demand for the group’s medical gloves was still strong.

“Sales of our powder-free latex and nitrile gloves in January had also improved significantly over the previous corresponding period.

“This is why we expect the first quarter ending March 31 to chart better performance than the comparable quarter last year,” he said.

For this year, the group will install 16 more production lines, which would increase its production to six billion gloves a year from four billion currently.

“Next year, we will spend another RM70mil for our sixth facility in the Kamunting Industrial Estate (in Taiping).

“The plant is scheduled for completion in 2011 and will raise our annual production to nine billion pieces a year. It will also create over 2,000 jobs in Kamunting,” he said.

Low said the global economic crisis had affected the group’s sales to the food and beverage sector. “However, sales from the food and beverage, and general industry segments are less than 10% (of total revenue),” he said.

Low said the stronger US currency was favourable to the group’s financial position as it traded in US dollars.

Listed on Bursa Malaysia second board in 1996, Latexx Partners operates from a 20ha site in Kamunting Industrial Estate.

For the year ended Dec 31, the group posted a pre-tax profit of RM15.5mil on revenue of RM223mil compared with RM4.9mil and RM150mil respectively in 2007.


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24th Sept 2008

Latexx set for better quarter
By DAVID TAN

New facility will contribute to revenue in third quarter

GEORGE TOWN: Glove maker Latexx Partners Bhd expects a strong performance in its third quarter ending Sept 30, due to contribution from its latest facility in the Kamunting Industrial Estate.

Group chairman Low Bok Tek said the quarter should perform better than the previous corresponding period because the new plant, which started operations in July, had started contributing to the group’s turnover.

“We invested about RM70mil in the new facility, which is equipped with 26 production lines. The new plant is expected to gradually raise the annual production of our group to 6 billion pieces of gloves by the end of next year from the current annual output of 3.3 billion,” he told StarBiz.

Low said the group had also received orders from customers in new markets such as China and South America.

By 2012, the group planned to increase its total annual output to 12 billion pieces of latex gloves.

“We will achieve this figure after we have installed two more production plants in the Kamunting Industrial Estate between 2010 and 2012. This will make us a leading latex glove producer in the country and the region.

“We will be able to achieve economies of scale, as all our production facilities are concentrated in one single location,” he said, adding that this would give Latexx a key competitive edge as it would be able to cut cost on transportation and administration costs.

The global consumption of latex gloves was estimated at 130 billion pieces this year, he said.

“Next year, the growth in consumption is expected at 10% to 12%. Malaysia is among the world’s largest exporter of latex gloves. It supplies 60% to the world market.”

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Monday October 8, 2007

Glove maker will not relocate to China

LATEXX Partners Bhd, one of the top five glove makers in the country, will not relocate to China, as its cost of production in Kamunting Industrial Estate is lower.

“Costs such as labour, transportation and utilities are lower here than in China. In fact, the cost of labour in China is no longer competitive,” group chairman Low Bok Tek said.

He said Latexx found that focusing its manufacturing activities at one site helped reduce operating and production costs.

“Prior to the Asian financial crisis, we used to have manufacturing operations in Thailand and Indonesia. We had to shut them at the peak of the crisis.

“We then learned that it was more cost effective to operate in one location, as that enabled us to control the quality of our products better,” Low said.

He noted that in Kamunting, the company was also closer to its source of raw material, natural rubber, which comes from Southern Thailand.

Low said the latex glove business was a volume game.

“Enlarging the capacity of production reduces production costs and increases profit margin. This is why we want to be consolidated in one location – so that we can increase output more effectively,” he added.

Low said Latexx was now designing a new range of latex gloves.

“We are designing surgical and high-risk gloves for use in public safety units such as the fire and rescue department and we hope to introduce them in 2008,” he said, adding that previously, the company concentrated only on producing examination gloves.

Low said the selling price of latex gloves fluctuated in tandem with the price of rubber. “If the price of natural rubber increases, we will pass the cost hike to our customers. If the price of natural rubber drops, the selling price of latex gloves drops correspondingly,” he said.

The price of natural rubber is about RM5 per kg, compared with about RM6.80 per kg last year.

“At RM5 per kg, the price is still on the high side. We expect it to come down a little,” he said.

Originally known as Sin Super Holdings Sdn Bhd in 1982, the company changed its name in 1989 to Taiping Super Holdings Sdn Bhd. It became known as Latexx Partners Bhd when it was listed on the second board in 1996.

The company specialises in producing latex-powdered examination gloves, latex powder-free examination gloves and nitrile powder-free examination gloves.

Latexx Partners is the original equipment manufacturer for international brands such as Cardinal Health, Ansell and Kimberly-Clark.

It also manufactures latex gloves under its own brands of Medtexx, Black Dragon and Palmflex.

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Monday October 8, 2007

Latexx seeks bigger presence globally

By DAVID TAN

LATEXX Partners Bhd aims to increase its share in the global latex glove market to 7% over the next three to five years from the present 2.5%.

Group chairman and chief executive officer Low Bok Tek told StarBiz that the company would need to penetrate China and South America to achieve this target.

“To prepare ourselves for these markets, we are investing RM100mil to build two more plants on our 20ha site in Kamunting Industrial Estate, Taiping.

“These plants, scheduled to begin operations in 2010, will increase the group's annual production capacity to eight billion pieces of latex gloves from the present three billion,” he said.

The existing four plants in Kamunting Industrial Estate employ some 1,000 workers. The group's workforce is expected to rise to about 4,000 when the new plants are ready in 2010. The number of production lines will also increase to 68 from the present 32.

“Beyond 2010, we have plans to build two more manufacturing facilities to boost the annual capacity from eight billion pieces to 12 billion,” he added.

Loh said Latexx's strategy was to participate in exhibitions such as the China International Medical Equipment Fair; HOSPITALAR International Fair of Products, Equipment, Services, and Technology for Health Clinics and Laboratories in Brazil; and Medica World Forum for Medicine International Trade Fair Congress in Dusseldorf.

“The global consumption of latex gloves is around 120 billion pieces per annum. The annual growth globally is between 10% and 12%,” he said.

According to him, the growth in demand comes from the consumption of powder-free medical gloves in the US and Europe.

“The contribution of Asia-Pacific sales to the group's revenue is about 10% presently, and we aim to increase this to 20% over the next three years,” he added.

Low said Latexx's sales were strongest in the US, which contributed about 60% of its revenue. The European market accounts for 16% and South America 7%.

In 2006, the company made a net profit of RM3.9mil on the back of RM141mil in revenue, compared with RM4.2mil and RM127mil respectively in 2005.

Low said the net profit dropped because of lower profit margins.

Latexx reduced its gearing significantly in June. “The group has settled 97.7% of its bank borrowings of RM51mil under a settlement exercise,” he said.

Low added that after the debt settlement, the gearing ratio went down to 0.01 times from 1.08 times.

“The savings on interest is estimated to be about RM4mil per year. We are now on a much stronger footing to embark on expansion and increase our global market share.

“We will continue with efforts to manage costs, increase production and improve productivity,” he said.


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Latexx to expand production
By Ooi Tee Ching
bt@nstp.com.my

August 20 2007

RUBBER glovemaker Latexx Partners Bhd will invest RM100 million within the next five years to boost annual output to 12 billion pieces from 3.3 billion at present.

"Having settled old debts with the banks, we're now ready to expand again. We'll start with RM8 million investment in October to add three more lines," said chairman and chief executive officer Low Bok Tek.

Latexx settled old debts totalling RM36.12 million with HSBC Bank Malaysia Bhd, Standard Chartered Bank Malaysia Bhd and OCBC Bank (Malaysia) Bhd during December 2006 to April this year via issuance of new shares and warrants.

"Before the 1997/98 financial crises, we had factories in Thailand and Indonesia. However, when it swept across the region, we had to scale back," he told Business Times in an interview at the group's factory in Kamunting, Perak. Also present was Latexx director Gan Chong Shyan.

Currently, the second board-listed glovemaker has 32 production lines and employs 1,000 workers, the majority being foreigners.

"Looking back at the years when we expanded overseas, we found it better to operate from a single location. We can have more effective control over the quality of the gloves. Therefore, since last year, we've been buying adjacent plots. Now our industrial landbank has risen to 20ha," Low said.

"Rubber gloves are a volume game. We need to expand to reap the economies of scale and fatten our profit margin," he said.

While Latexx Partners contract manufactures for global names like Cardinal Health, Ansell and Kimberly-Clark, it also sells under its own brands namely Medtexx, Palmflex and Black Dragon.

At the turn of the century, Latexx Partners went through a period of leadership uncertainty but the group's direction became clearer in 2004 when Low bought up his brothers' shares in the company.

Asked on Multi-Purpose Holdings Bhd emerging as the single biggest shareholder in Latexx Partners Bhd two months ago and selling that stake the very next day, Low explained that on June 14 Multi-Purpose's stockbroking arm AA Anthony Securities Sdn Bhd bought 32 per cent stake in Latexx from HSBC Bank Malaysia and it sold the stake to a group of investors the next day.

He said the individual shareholders are his friends and they still own Latexx shares today.

"I still hold about 20 per cent in Latexx. We're all friendly parties, and the business direction of Latexx remains the same," he said.

"This year, we're confident of concluding a third year of profit since Latexx restructuring in 2004," Low said.

Last year, the group achieved RM3.94 million profit on RM141.01 million revenue. In 2005, it made RM4.28 million profit on RM127.64 million revenue. This was a significant turnaround from 2004's net loss of RM668,364 on RM60.47 million revenue.


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MPHB sells Latexx shares

June 15 2007

MULTI-PURPOSE Holdings Bhd (MPHB) has sold a big block of shares in rubber glove maker Latexx Partners Bhd, just a day after it bought the shares at a massive discount.

It sold the 32.3 per cent stake at a slightly higher price of RM21.68 million, giving it a gain of about RM320,000.

This was done by MPHB's stockbroking unit, AA Anthony Securities Sdn Bhd, and the deals are said to be in the normal course of business.

Meanwhile, new shareholders have emerged in Latexx while an existing investor has raised his stake.

Teong Lian Aik, based in Taiping, bought 14.85 per cent stake, or 28.5 million shares, yesterday through a direct business transaction.

Existing shareholder Low Bok Tek, who has about 5 per cent stake in Latexx, has raised his shareholding to over 20 per cent. He now has a direct and indirect stake of 38.94 million shares.

Low is also the chairman of Gunung Capital Bhd, the company formerly known as Taiping Super Bhd.

Last year, Gunung Capital sold off its coach building business, tour and travel business as well as its express bus business so that it can focus on its latex concentrate trading business.

Shares of Latexx were down 5.6 per cent, or seven sen, to RM1.17 yesterday while MPHB closed 0.4 per cent up to RM2.37.

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MPHB takes the wheel at Latexx

June 14 2007

MULTI-PURPOSE Holdings Bhd (MPHB) has become the single biggest shareholder of rubber glovemaker Latexx Partners Bhd after it bought a 32.3 per cent stake at a jaw-dropping price.

MPHB, a diversified group which controls gaming firm Magnum Corp Bhd, did not say why it bought Latexx.

It also did not say who was the seller.

MPHB bought 62.83 million Latexx shares for RM21.36 million or 34 sen each, in a direct business deal. At 34 sen a share, it is 70 per cent lower than Latexx's closing price of RM1.24 yesterday.

It will fund the purchase with internal funds and borrowings, it said in a statement to Bursa Malaysia yesterday.

Meanwhile, in a separate statement, Citibank Bhd has emerged as a substantial shareholder of Latexx with 29.97 million shares or 15.4 per cent. The shares were issued to Citibank to settle debts owed by Latexx.

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09-04-2007: Latexx settles RM4.69m debt with StanChart, OCBC

Latexx Partners Bhd has entered into agreements with Standard Chartered Bank Malaysia Bhd and OCBC Bank (Malaysia) Bhd for the settlement of RM4.69 million debts in new shares and warrants.

In a statement on April 9, Latexx said it would issue 3.97 million shares of 50 sen apiece and 2.83 million warrants to StanChart to settle its borrowings of RM1.98 million.

For OCBC, Latexx would issue 5.43 million shares and 3.88 million warrants to settle its debt of RM2.71 million with the bank

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23-03-2007: Latexx settles RM14.9m debt via new shares

Latexx Partners Bhd will settle its debt of RM14.98 million owed to Citibank Bhd by issuing new shares with warrants.

Latyexx and its subsidiary, Latexx Manufacturing Sdn Bhd, had entered into a debt settlement with Citibank on March 21.

It said on March 23 under the RM14.98 million debt settlement, it would issue 29.97 million new Latexx shares of 50 sen each with 21.41 million free detachable warrants on the basis of five warrants for every seven new Latexx shares issued.

Latexx share price closed one sen higher to 54 sen on March 23.


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Low said the latex glove business was a volume game.

“Enlarging the capacity of production reduces production costs and increases profit margin. This is why we want to be consolidated in one location – so that we can increase output more effectively,” he added.


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January 20, 2009
Latexx Manufacturing Sdn Bhd
Filed under: Medical Company — Tags: Malaysia, Manufacturers, OEM — admin @ 4:35 am

PT 5054 Jalan Perusahaan 3, Kamunting Industrial Estate
34600 Kammunting, Perak
Malaysia

Phone: +605 8911111
Fax: +605 8911088
http://www.latexx.com.my
marketing@latexx.com.my

Manufacturers
OEM

Company Figures
Number of employees 1000-4999
Export content > 75%
Year of foundation 1988
Area of business Commodities and Consumer Goods for Surgeries and Hospitals

Company Profile

About us

Latexx Manufacturing Sdn Bhd (Latexx) is a wholly owned subsidiary of Latexx Partners Berhad. Latexx Partners Berhad is a public listed company on the Bursa Malaysia (Formally known as Kuala Lumpur Stock Exchange).
Latexx manufacturing facilities located in Kamunting Industrial Estate, northern of Peninsular Malaysia, with close proximity to Penang Seaport and Penang International Airport.
Latexx is one of the largest disposable examination gloves producers in Malaysia. Latexx started its production in 1988, and as of today, Latexx 4 plants housed with 35 production lines, producing 3.3 billion pieces of gloves annually, are built within the 20 hectares land, with sufficient land bank for future expansion.
Latexx is now on the expansion path, looking at between 25% to 35% yearly increase in production capacity for the next 3 to 5 years, producing up to 12 billion pieces annually in single location when the expansion is fully completed.
Latexx range of products includes ambidextrous pre-powdered latex examination gloves, powder-free latex examination gloves, powder-free nitrile examination gloves, controlled environment powder-free latex gloves, high risk gloves, and hand specified powdered latex surgical gloves.
Latexx philosophy is to be the best business partners to all customers with emphasis of excellent quality products, competitive pricing and excellent services. Continuous R & D efforts, working together with customers to meet their expectations have proven to be the success factors of Latexx to stay as chosen partners by major multi-national companies, exporting to various countries worldwide.
Latexx commitment to quality has gained many accreditations and certifications as follows:

ISO 9001 : 2000 (Awarded by TUV Management service GmbH, Germany)
ISO 13485 : 2003 and ISO 9001:2000 (Accredited by Standards council of Canada) for CMDCAS Awarded by TUV America Inc.
EN ISO 13485 : 2003 (Awarded by TUV product Service GmbH, Germany)
MS ISO 9001 : 2000 Quality System Registration Certificate
(Awarded by SIRIM QAS International Sdn Bhd)
Standard Malaysian Glove Scheme
(Awarded by the Malaysian Rubber Board for Pre-Powdered Latex Gloves)
Standard Malaysian Glove Scheme
(Awarded by the Malaysian Rubber Board for Powder-free latex Gloves)
Latexx place supreme emphasis on quality at every stage of production, in the choice of raw materials and high-grade chemicals. Latexx manufacturing facilities meeting Quality System Regulation (QSR) and United States FDA requirements, with respective 510(K) available for each product currently manufactured, also, compliance to Canadian Medical Devices Regulations (CMDR), and licenced by Health Canada, as well as listed in the Australian Register of Therapeutic Goods (ARTG). The Certifications obtained of ISO 9001:2000, EN ISO 13485:2003 and ISO 13485:2003 with SCC Accreditation serve to re-affirm this status.

Latexx is ready to face the challenges with innovative technology, effective quality management, upgrading of automation and a good management team. The commitment and aspiration will bring Latexx to be the largest disposable examination gloves producer in the northern manufacturing corridor of Malaysia and one of the major producers in the world.

http://www.wordpublish.org/latexx-manufacturing-sdn-bhd.htm





RPT:

http://announcements.bursamalaysia.com/EDMS/subweb.nsf/7f04516f8098680348256c6f0017a6bf/e0f77acaa0ee78f1482575c400173f49/$FILE/LATEXX-Circular.pdf



Fundamentals:

http://www.ooinvest.com/stock/funda.aspx?symbol=LATEXX

Glove Sector

Stock Data: Recent Stock Performance:

Current Price (7/10/2009): 3.92
(Figures in Malaysian Ringgits) 1 Week 4.3% 13 Weeks 2.6%
4 Weeks 21.7% 52 Weeks 86.7%

Kossan Rubber Industries Berhad Key Data:
Ticker: KOSSAN Country: MALAYSIA
Exchanges: KUL Major Industry: Chemicals
Sub Industry: Rubber & Tire Mfrs.
2008 Sales 897,194,335
(Year Ending Jan 2009). Employees: 665
Currency: Malaysian Ringgits Market Cap: 626,674,720
Fiscal Yr Ends: December Shares Outstanding: 159,866,000
Share Type: Ordinary Closely Held Shares: 83,457,672

----

Stock Data: Recent Stock Performance:

Current Price (7/10/2009): 1.96
(Figures in Malaysian Ringgits) 1 Week 19.5% 13 Weeks 15.3%
4 Weeks 83.2% 52 Weeks 53.1%

Supermax Corporation Berhad Key Data:
Ticker: SUPERMX Country: MALAYSIA
Exchanges: KUL Major Industry: Chemicals
Sub Industry: Synthetic Fibers
2008 Sales 811,823,877
(Year Ending Jan 2009). Employees: 1,033
Currency: Malaysian Ringgits Market Cap: 519,929,200
Fiscal Yr Ends: December Shares Outstanding: 265,270,000
Share Type: Ordinary Closely Held Shares: 172,281,734

----

Stock Data: Recent Stock Performance:

Current Price (7/10/2009): 4.50
(Figures in Malaysian Ringgits) 1 Week 10.8% 13 Weeks 23.0%
4 Weeks 65.4% 52 Weeks 216.9%

Hartalega Holdings Bhd Key Data:
Ticker: 5168 Country: MALAYSIA
Exchanges: KUL Major Industry: Apparel & Textiles
Sub Industry: Apparel Manufacturers
2009 Sales 443,204,000
(Year Ending Jan 2010). Employees: N/A
Currency: Malaysian Ringgits Market Cap: 1,090,404,000
Fiscal Yr Ends: March Shares Outstanding: 242,312,000
Share Type: Ordinary Closely Held Shares: N/A

----

Stock Data: Recent Stock Performance:

Current Price (7/10/2009): 1.31
(Figures in Malaysian Ringgits) 1 Week 12.9% 13 Weeks 0.8%
4 Weeks 114.8% 52 Weeks 367.9%

Latexx Partners Berhad Key Data:
Ticker: LATEXX Country: MALAYSIA
Exchanges: KUL Major Industry: Miscellaneous
Sub Industry: Miscellaneous Companies
2008 Sales 223,255,443
(Year Ending Jan 2009). Employees: 1,210
Currency: Malaysian Ringgits Market Cap: 255,053,611
Fiscal Yr Ends: December Shares Outstanding: 194,697,413
Share Type: Ordinary Closely Held Shares: 113,422,478

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Stock Data: Recent Stock Performance:

Current Price (7/10/2009): 1.15
(Figures in Malaysian Ringgits) 1 Week 4.5% 13 Weeks -5.7%
4 Weeks 32.9% 52 Weeks 12.7%

Adventa Berhad Key Data:
Ticker: ADVENTA Country: MALAYSIA
Exchanges: KUL Major Industry: Drugs, Cosmetics & Health Care
Sub Industry: Medical, Surgical & Dental Suppliers
2008 Sales 247,930,470
(Year Ending Jan 2009). Employees: 1,273
Currency: Malaysian Ringgits Market Cap: 160,372,100
Fiscal Yr Ends: October Shares Outstanding: 139,454,000
Share Type: Closely Held Shares: N/A

----

Stock Data: Recent Stock Performance:

Current Price (7/10/2009): .37
(Figures in Malaysian Ringgits) 1 Week 12.1% 13 Weeks 27.6%
4 Weeks 76.2% 52 Weeks 5.7%

Integrated Rubber Corporation Berhad Key Data:
Ticker: IRCB Country: MALAYSIA
Exchanges: KUL Major Industry: Metal Producers & Products Manufacturers
Sub Industry: Miscellaneous Metal Producers
2009 Sales 136,418,429
(Year Ending Jan 2010). Employees: 828
Currency: Malaysian Ringgits Market Cap: 87,619,700
Fiscal Yr Ends: January Shares Outstanding: 236,810,000
Share Type: Common Closely Held Shares: 127,681,046

----

Stock Data: Recent Stock Performance:

Current Price (7/10/2009): 7.25
(Figures in Malaysian Ringgits) 1 Week 15.1% 13 Weeks 16.9%
4 Weeks 35.5% 52 Weeks 77.7%

Top Glove Corporation Berhad Key Data:
Ticker: TOPGLOV Country: MALAYSIA
Exchanges: KUL Major Industry: Apparel & Textiles
Sub Industry: Apparel Manufacturers
2008 Sales 1,377,931,000
(Year Ending Jan 2009). Employees: 6,573
Currency: Malaysian Ringgits Market Cap: 2,191,435,750
Fiscal Yr Ends: August Shares Outstanding: 302,267,000
Share Type: Ordinary Closely Held Shares: 224,502,987


http://spreadsheets.google.com/pub?key=tcTC-lG49Sy-qaoyZgKKjEQ&output=html

Stock/Bond Mix and Rate of Return

Consider this: An investment portfolio that is 60% bonds and 40% stocks would be considered quite conservative and fairly stable by most financial planners. Looking at all the ten-consecutive-year periods since 1926, we find that the median (half the cases were higher and half the cases were lower) annual rate of return is 7.5%. In money terms, that means that if you invested $100,000, you would have about $206,000 at the end of ten years.

Historically, during the periods 1926 to 2005, your $100,000 could have turned out to be as little as $144,000 or as much as $395,000.

Through the wizardry of statistics we can estimate that 83% of the time, a portfolio of 60% bonds and 40% stocks would return at least 4.8%. (You may remember from some class in your distant past, that this assumes a normal distribution at one standard deviation below the median. Not perfect statistics, but about as good as there are.)

Here again, there is not much else to go on other than the historic record. The following gives you something you might want to use as a predicted rate of return when planning.

Stock / Bond Mix
75% Bonds - 25% Stocks
60% Bonds - 40% Stocks
50% Bonds - 50% Stocks
40% Bonds - 60% Stocks
25% Bonds - 75% Stocks
10% Bonds - 90% Stocks
Median Fifteen-Year Return
5.9%
7.8%
9.1%
10.2%
11.8%
12.4%
Return you can expect to be exceeded most of the time
3.3%
5.3%
6.5%
7.5%
8.7%
8.7%

Look carefully at the expected rate of return for the 90% stock portfolio, the last line in the table. The return that you can expect is the same as the 75% stock portfolio (8.7%). This is because portfolios which are high in stocks also exhibit high variability. The maximum you might get is higher, but the variability also pulls down the minimum return that you might expect.


http://learn.uci.edu/oo/getDemoPage.php?course=AR0102092&lesson=6&topic=3&page=9

The more important issue is saving, then investing.

While there is a great deal of hype and interest in investing, the more important issue is saving. Without systematic and increasing savings, investing programs will get you nowhere. Spending less than you are making is the key tactic.

Simple Message: Buy Low, Sell High

Fundamentals of Personal Financial Planning

While there is a great deal of hype and interest in investing, the more important issue is saving. Without systematic and increasing savings, investing programs will get you nowhere. Spending less than you are making is the key tactic.

http://ocw.uci.edu/courses/AR0102092/

University of California, Irvine
University Extension
List of Calculators for Fundamentals of Personal Financial Planning, Module 1
Click to access each calculator, or use the numbered tabs below.

1Finding a Future Value Using a Present Value and an Interest Rate When There are No Payments
2Finding a Future Value Using a Present Value and an Interest Rate When There are Payments
3Calculator for Accumulation and Savings
4Calculator for Depletion / Distribution of an Account or Payoff of a Loan
5Calculation of Payment to Accumulate a Given Amount
6Calculation of Interest to Deplete a Given Amount, or Pay Off a Loan
7Time to Deplete a Given Amount, or Pay Off a Loan
8Time to Save a Given Amount
9Calculator for Evenly Spaced Payments of Equal Amounts
10Calculator for Equally Spaced Payments of Unequal Amounts
11Accumulation / Distribution Calculator

http://learn.uci.edu/oo/getDemoPage.php?course=AR0102092&lesson=5&topic=3&page=6

http://learn.uci.edu/oo/getDemoPage.php?course=AR0102092&lesson=5&topic=3&page=7

University of California, Irvine
Fundamentals of Personal Financial Planning
Module 1: Goals – Preparing to Plan
List of Documents to Gather Before Preparing Your Net Worth & Cash Flow Statements

Most Recent Payroll Stub

Income Tax Returns

Personal Employment Benefit Statements

Company Benefit Plan Booklets
o Group Pension Plans
o Group Life Insurance
o Group Disability Insurance
o Medical, Dental, Vision Insurance

Insurance & Annuity Contracts
o Life Insurance
o Health Insurance
o Hospital & Major Medical
o Disability Insurance
o Automobile Insurance
o Property and Casualty

Statements of Bank Accounts, Stocks, Bonds or Other Investments

Mortgage Statements
o Primary Mortgage Statement
o Second Mortgage Statement
o Home – Equity Line of Credit Statement
o Fair Market Value

Other Real Property Information
o Mortgage Statement
o Rental Info,
o Fair Market Value

Wills/Trusts
o Business Arrangements
o Partnership Agreement
o Buy/Sell Agreements
o Deferred Compensation
o Stock Option/Bonus Plan

Consider this: An investment portfolio that is 60% bonds and 40% stocks would be considered quite conservative and fairly stable by most financial planners. Looking at all the ten-consecutive-year periods since 1926, we find that the median (half the cases were higher and half the cases were lower) annual rate of return is 7.5%. In money terms, that means that if you invested $100,000, you would have about $206,000 at the end of ten years.

Historically, during the periods 1926 to 2005, your $100,000 could have turned out to be as little as $144,000 or as much as $395,000. Through the wizardry of statistics we can estimate that 83% of the time, a portfolio of 60% bonds and 40% stocks would return at least 4.8%. (You may remember from some class in your distant past, that this assumes a normal distribution at one standard deviation below the median. Not perfect statistics, but about as good as there are.)
Here again, there is not much else to go on other than the historic record. The following gives you something you might want to use as a predicted rate of return when planning.
Stock / Bond Mix
75% Bonds - 25% Stocks
60% Bonds - 40% Stocks
50% Bonds - 50% Stocks
40% Bonds - 60% Stocks
25% Bonds - 75% Stocks
10% Bonds - 90% Stocks
Median Fifteen-Year Return
5.9%
7.8%
9.1%
10.2%
11.8%
12.4%
Return you can expect to be exceeded most of the time
3.3%
5.3%
6.5%
7.5%
8.7%
8.7%

Look carefully at the expected rate of return for the 90% stock portfolio, the last line in the table. The return that you can expect is the same as the 75% stock portfolio (8.7%). This is because portfolios which are high in stocks also exhibit high variability. The maximum you might get is higher, but the variability also pulls down the minimum return that you might expect.

http://learn.uci.edu/oo/getDemoPage.php?course=AR0102092&lesson=6&topic=3&page=9

We have provided a worksheet for you to fill out to create a basic net worth statement.

Download Net Worth Worksheet

http://njaes.rutgers.edu/money/

http://learn.uci.edu/oo/getDemoPage.php?course=AR0102092&lesson=10&topic=9&page=1
Arranging your affairs in ways that reduce taxes is a way of increasing your disposable income. Unfortunately, it takes a lot of time and thought.
Five D’s of tax planning[Roll your cursor over each of the D’s to read more]

Deduction: Make sure that all deductions are taken, all records are kept to support the deductions and the payments are timed to cause the deductions to have the most effect.
Diversion: Take steps to make investments from which the returns will escape taxation or be taxed at a reduced rate.
Deferral: Taking steps to defer taxes until future years.
Deflection: Take steps to transfer income to someone in a lower tax bracket.
Diminution: Diminution is a catch all category of specific ideas or concepts that can reduce taxes.

http://learn.uci.edu/oo/getDemoPage.php?course=AR0102092&lesson=12&topic=2&page=2
Dealing with the risk
There are generally four choices in dealing with risk. Roll over each choice to read more.

»Avoid the Risk
» Ameliorate the risk
» Retain the Risk
» Transfer or Share the Risk

http://learn.uci.edu/oo/getDemoPage.php?course=AR0102092&lesson=12&topic=6&page=1

Investment does not always guarantee return. You can suffer investment losses as well.

Ameliorating the Risk In the individual sense, you can ameliorate risk by thoroughly understanding the investments you are making, and by buying only high quality investments.



In the aggregate sense, you can ameliorate risk by creating a well-diversified portfolio. While this might be seen as sharing the risk, you can choose to consider it as a way to ameliorate risk. This is because a well-diversified portfolio creates a “smoother ride” with less chance of placing you in an undesirable position when the funds are needed. This is a philosophical position that could be attacked by active investors. They would say you are sharing the risk because you are giving up the opportunity for higher return in exchange for a smoother ride. All investors have to decide for themselves what level of active investment they believe is correct.


Present value of an investment is the discounted value of all its future cash flows that you derive from it.

Collecting the data for life insurance needs analysis is similar to collecting for a retirement analysis. If a retirement needs analysis has already been completed, it is a good place to start. You need to consider:
Those costs you feel should not change by the loss of a spouse:
Quite probably the cost of housing
Costs of elementary and secondary school
Personal needs of the surviving spouse and children
Costs you feel are likely to increase because of the loss of a spouse:
One time costs associated with death
Child care
Education or training for the surviving spouse
Insurance costs due to loss of employer coverage
Costs you feel are likely to decrease because of loss of a spouse:
General family living costs
Medical and dental costs
Property and casualty insurance (fewer people to insure)
Costs you feel are likely to be eliminated because of loss of a spouse:
Life insurance
Disability insurance
Second automobile
Deceased spouse’s hobbies
Modification of goals because of loss of a spouse:
Change of education goals
Change of retirement goals
Change of legacy goals

http://learn.uci.edu/oo/getDemoPage.php?course=AR0102092&lesson=21&topic=2&page=3
Implicit Statement
My children will be able to attain the level of education that is most appropriate to them.

Explicit Statements
A. It is a fundamental responsibility of parenthood to provide a child with the maximum education the child can achieve. I want to do everything that I can to help my children achieve that.
B. I want to provide my children with access to at least a basic post-secondary education.
C. Getting a college education is a cooperative effort between me and my child. While I will gladly pay some of the costs, my children will need to bear some themselves.
D. College is the first real adult decision that my children will have to make. My idea is to be able to hand them $_________ and let them make their own decisions.
E. College is important but so is retirement. I do not want to sacrifice my retirement for my children’s college education. However, I am prepared to make some sacrifices in my current lifestyle.
F. College is important, but so is retirement and my current lifestyle. I do not want to sacrifice either for my children’s education. If there is extra money, then I would consider saving for their education.
G. Let’s see how things evolve. As best we can, we will pay for it out of cash flow at the time.

http://learn.uci.edu/oo/getDemoPage.php?course=AR0102092&lesson=21&topic=2&page=4

Analyzing these explicit statements about college savings goals, we see that the first four (A-D) are statements about how much is needed for college and the next two (E-F) are about how much you can afford now. (The last explicit statement, of course, does not address savings goals at all, so we won’t analyze it here.)
How much is needed for college later?
How much can I afford now?
A. It is a fundamental responsibility of parenthood to provide a child with the maximum education the child can achieve. I want to do everything that I can to help my children achieve that.
B. I want to provide my children with access to at least a basic post-secondary education.
C. Getting a college education is a cooperative effort between me and my child. While I will gladly pay some of the costs, my children will need to bear some themselves.
D. College is the first real adult decision that my children will have to make. My idea is to be able to hand them $___ and let them make their own decisions.
E. College is important but so is retirement. I do not want to sacrifice my retirement for my children’s college education. However, I am prepared to make some sacrifices in my current lifestyle.
F. College is important, but so is retirement and my current lifestyle. I do not want to sacrifice either for my children’s education. If there is extra money, then I would consider saving for their education.
Clearly these two points of view require a different style of analysis.
1. The first group requires you to analyze the school(s) or school type that you might consider, create a target amount, and then analyze the amount you should save to meet that goal.
2. The second group requires you to analyze how much you think you might have and then compare it to what might be needed. Then, determine if you feel this amount is sufficient.

http://learn.uci.edu/oo/getDemoPage.php?course=AR0102092&lesson=21&topic=3&page=2
Saving for college and paying for college may seem like two different topics and in many ways they are. However, in one important way, they are linked. The amount that you have saved often impacts the amount of financial aid that your child may be eligible to receive. This is particularly important because it is among the ways that your child can support their “share” of the cost.
There are many programs that may be available to your child. They fall into three categories:
Scholarships
Grants
Loans
All of them are considered financial aid, and applying for any of them involves an analysis of the child’s ability to pay for college. Three important factors in this analysis are your child’s savings, your savings, and your current income. The ways that colleges look at these factors differs between colleges and changes over time; therefore, we can only address this with generalizations. We will only consider the savings methods. We will not consider potential loan sources. Let’s look at types of accounts next.

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Estate Planning

There are five primary ways in which you can make your desires known. They are all legal documents, and while some are simple enough not to need the assistance of a lawyer, using a lawyer helps assure you that your desires will be met. Used together they can provide a sufficient estate plan for even moderately substantial estates (a few million dollars).

By contract
Will
Last Medical Directive (sometimes called a Living Will)
Power of Attorney
Trust
Each of these has a slightly different context and is directed at a slightly different audience.

http://ocw.uci.edu/courses/AR0102092/

Earnings Yield and Earnings Growth (5)

http://spreadsheets.google.com/pub?key=tB2t3SJMRVNLsb4C8kawnlA&output=html

Company XYZA1
From 1995 to 2009:

EPS grew from 9.82 to 20 , (CAGR of 4.86% )
DPS (net of tax) grew from 2.65 to 5.2 , (CAGR of 4.6% )
DPO ratio (net DPS) averaged 24.33% , in 2009 was 26%
EY increased (decreased) from 3.47% to 9.3% , averaged 5.97% per year invested, and averaged 8.2% per 5 years invested.
DY increased (decreased) from 0.94% to 2.42% , AVERAGED 1.49% per year invested, and averaged 1.86% per 5 years invested.
Share price rose (fell) from 2.83 to 2.15 , (CAGR of -1.82% )
Total annual return averaged -0.32% (Cap. Appr of -1.82% + DY of 1.49% )


Comments:

Those who bought this stock at the high prices of 1995, 1996, and 1997 and held till today, would find that this share is today below these high prices, abeit in a bear market.

Though this is a company running a monopoly business, paying too much for a good stock can mean a negative return for the investment.

Therefore, it is always important to buy a good company when its price is obviously low, e.g. during the time when the market is obviously low, or when its price is temporarily down not related to any deterioration in its fundamentals.

On the other hand, those who bought this stock at the low prices of 1997 and 1998, would have reasonable returns from this stock. This would have been a situation when the investor might wish he or she had averaged down on this stock during those times.


Let us also examine the returns from this stock from the year 1999.

http://spreadsheets.google.com/pub?key=t5B6EOYlRpP6CMU7pMQbDiA&output=html

Company XYZA1(1999-2009)
From 1999 to 2009:

EPS grew from 9 to 20 , (CAGR of 12.02% )
DPS (net of tax) grew from 2.5 to 5.2 , (CAGR of 8.48% )
DPO ratio (net DPS) averaged 23.28% , in 2009 was 26%
EY increased (decreased) from 5.86% to 9.3% , averaged 6.31% per year invested, and averaged 10.49% per 5 years invested.
DY increased (decreased) from 1.19% to 2.42% , AVERAGED 1.5% per year invested, and averaged 2.26% per 5 years invested.
Share price rose (fell) from 1.535 to 2.15 , (CAGR of 3.43% )
Total annual return averaged 4.93% (Cap. Appr of 3.43% + DY of 1.5% )

BELIEVING A BULL MARKET

BELIEVING A BULL MARKET


When markets are rapidly rising, value investing invariably falls out of favor with the investing public. In an upward racing market, value stocks appear dull and stodgy as the more speculative issues rush toward new market highs. But come the correction, it all looks different. Stable value stocks seem like trusted friends.

Most bull markets have well-defined characteristics. These include:

• Price levels are historically high.
  
• Price to earnings ratios are high.
  
• Dividend yields are low compared with bond yields (or compared with a stock’s particular dividend yield pattern).
  
• Margin buying becomes excessive as investors are driven to borrow to buy more of the high-priced stocks that look attractive to them.
  
• There is a swarm of new stock offerings, especially initial public offerings (IPOs) of questionable quality. This bull market is what investment bankers and stock promoters call the “window of opportunity.” Because IPOs so often occur when Wall Street is primed to pay top dollar, seasoned investors joke that IPO stands for “it’s probably overpriced.”
  

Just a reminder not to be too carried away by the rising market.

THE PAUSE AT THE TOP OF THE ROLLER COASTER

There is only one strategy that works for value investors when the market is high – patience. The investor can do one of two things, both of which require steady nerves.

· Sell all stocks in a portfolio, take profits, and wait for the market to decline. At that time, many good values will present themselves. This may sound easy, but it pains many investors to sell a stock when its price is still rising.

· Stick with those stocks in a portfolio that have long-term potential. Sell only those that are clearly overvalued, and once more wait for the market to decline. At this time, value stocks may be appreciating at slow pace compared with the frisky growth stocks, but not always.

But come the correction, be it sudden or slow, the well-chosen value stocks have a better chance of holding their price.

A nice quotation: We believe in taking advantage of temporary market downturns to position our portfolios for the long term.

Earnings Yield and Earnings Growth (4)

http://spreadsheets.google.com/pub?key=tmw-xvsqNnjlMQGQrL2RXtg&output=html

Company XYZ9growth
From 2001 to 2009:

EPS grew from 6.2 to 44.5 , (CAGR of 27.94% )
DPS (net of tax) grew from 1.6 to 12 , (CAGR of 28.64% )
DPO ratio (net DPS) averaged 26.41% , in 2009 was 26.97%
EY increased (decreased) from 14.09% to 10.55% , averaged 8.18% per year invested, and averaged 44.63% per 5 years invested.
DY increased (decreased) from 3.64% to 2.84% , AVERAGED 2.13% per year invested, and averaged 11.14% per 5 years invested.
Share price rose (fell) from 0.44 to 4.22 , (CAGR of 32.66% )
Total annual return averaged 34.79% (Cap. Appr of 32.66% + DY of 2.13% )


http://spreadsheets.google.com/pub?key=tmjm_LUI2F6vHg5jI1PXFwA&output=html

Company XYZ-A0
From 1995 to 2009:

EPS grew from 4.3 to 40.5 , (CAGR of 16.13% )
DPS (net of tax) grew from 0.5 to 7 , (CAGR of 19.24% )
DPO ratio (net DPS) averaged 16.58% , in 2009 was 17.28%
EY increased (decreased) from 3.54% to 13.48% , averaged 8.74% per year invested, and averaged 24.39% per 5 years invested.
DY increased (decreased) from 0.41% to 2.33% , AVERAGED 1.33% per year invested, and averaged 4.3% per 5 years invested.
Share price rose (fell) from 1.215 to 3.005 , (CAGR of 6.22% )
Total annual return averaged 7.55% (Cap. Appr of 6.22% + DY of 1.33% )


http://spreadsheets.google.com/pub?key=t8PIM_gvYk8VkNNfNFz4k2g&output=html

Company NBG1
From 1999 to 2009:

EPS grew (shrank) from 7.8 to -15 , (CAGR of -209.37% )
DPS (net of tax) grew (shrank) from 2.9 to 0 , (CAGR of -100% )
DPO ratio (net DPS) averaged 94.1% , in 2009 was 0%
EY increased (decreased) from 5.29% to -57.69% , averaged -2.37% per year invested, and averaged -0.79% per 5 years invested.
DY increased (decreased) from 2.33% to 0% , AVERAGED 1.98% per year invested, and averaged 1.88% per 5 years invested.
Share price rose (fell) from 1.475 to 0.26 , (CAGR of -15.93% )
Total annual return averaged -13.96% (Cap. Appr of -15.93% + DY of 1.98% )

Earnings Yield and Earnings Growth (3)

http://spreadsheets.google.com/pub?key=tM4dijzIZ-GSYae8UUHtrZw&output=html


Company XYZ6
From 1995 to 2009:
EPS grew from 125 to 275, (CAGR of 5.4% )
DPS (net of tax) grew from 84 to 266 , (CAGR of 7.99% )
DPO ratio (net DPS) averaged 99.14% , in 2009 was 96.73%
EY increased (decreased) from 5.07% to 6.18% , averaged 5.89% per year invested, and averaged 7.83% per 5 years invested.
DY increased (decreased) from 3.4% to 5.98% , AVERAGED 5.89% per year invested, and averaged 7.71% per 5 years invested.
Share price rose (fell) from 24.675 to 44.5 , (CAGR of 4.01% )
Total annual return averaged 9.9%



http://spreadsheets.google.com/pub?key=tmJjNThDyJg030tAuW1JZcA&output=html

Company XYZ7
From 1999 to 2009:
EPS grew from 10.9 to 58.5 , (CAGR of 11.85% )
DPS (net of tax) grew from 2 to 30 , (CAGR of 19.79% )
DPO ratio (net DPS) averaged 44.37% , in 2009 was 51.28%
EY increased (decreased) from 7.99% to 14.74% , averaged 7.56% per year invested, and averaged 31.43% per 5 years invested.
DY increased (decreased) from 1.47% to 7.56% , AVERAGED 3.8% per year invested, and averaged 15.67% per 5 years invested.
Share price rose (fell) from 1.365 to 3.97 , (CAGR of 7.38% )
Total annual return averaged 11.17%


http://spreadsheets.google.com/pub?key=tr5Cw9liTlNFIgUDOZBjXuw&output=html

Company XYZ8CYC
From 1999 to 2009:
EPS grew from 12.4 to 2.5 , (CAGR of -16.67% )
DPS (net of tax) grew from 5.3 to 5 , (CAGR of -0.65% )
DPO ratio (net DPS) averaged 66.01% , in 2009 was 200%
EY increased (decreased) from 9.58% to 1.28% , averaged 10.45% per year invested, and averaged 25.4% per 5 years invested.
DY increased (decreased) from 3.41% to 2.56% , AVERAGED 4.77% per year invested, and averaged 9.24% per 5 years invested.
Share price rose (fell) from 1.295 to 1.955 , (CAGR of 4.2% )
Total annual return averaged 8.98% (Cap. Appr of 4.2% + DY of 4.77% )

Earnings Yield and Earnings Growth (2)

http://spreadsheets.google.com/pub?key=tpKxEtz8jHe2E0aYMwaMSng&output=html

Company XYZ3
From 1995 to 2009:
EPS grew from 15.6 to 72 , (CAGR of 10.73% )
DPS (net of tax) grew from 3.2 to 40.7 , (CAGR of 18.48% )
DPO ratio (net DPS) averaged 57.03% , in 2009 was 56.53%
EY increased (decreased) from 7.39% to 9.01% , averaged 6.86% per year invested, and averaged 14.58% per 5 years invested.
DY increased (decreased) from 1.52% to 5.09% , AVERAGED 3.46% per year invested, and averaged 9.38% per 5 years invested.
Share price rose from 2.11 to 7.995 , (CAGR of 9.29% )
Total annual return averaged 12.75%



http://spreadsheets.google.com/pub?key=tk868XD3Y3vG7gvY54K8sGw&output=html

Company XYZ4
From 1995 to 2009:
EPS grew from 27.6 to 44 , (CAGR of 3.16% )
DPS (net of tax) grew from 16.1 to 35 , (CAGR of 5.31% )
DPO ratio (net DPS) averaged 95.24% , in 2009 was 79.55%
EY increased (decreased) from 7.41% to 8.19% , averaged 7.49% per year invested, and averaged 8.82% per 5 years invested.
DY increased (decreased) from 4.32% to 6.51% , AVERAGED 6.81% per year invested, and averaged 8.08% per 5 years invested.
Share price rose from 3.725 to 5.375 , (CAGR of 2.47% )
Total annual return averaged 9.28%



http://spreadsheets.google.com/pub?key=tmak2CPwe7UCWr6h5ZEFcww&output=html

Company XYZ5
From 1995 to 2009:
EPS grew from 7.8 to 41 , (CAGR of 11.7% )
DPS (net of tax) grew from 2.2 to 25 , (CAGR of 17.59% )
DPO ratio (net DPS) averaged 32.08% , in 2009 was 60.98%
EY increased (decreased) from 5.38% to 7.68% , averaged 7.96% per year invested, and averaged 15.97% per 5 years invested.
DY increased (decreased) from 1.52% to 4.68% , AVERAGED 2.5% per year invested, and averaged 5.88% per 5 years invested.
Share price rose from 1.45 to 5.34 , (CAGR of 9.08% )
Total annual return averaged 11.58%

Earnings Yield and Earnings Growth (1)

http://spreadsheets.google.com/pub?key=thvY0NrrijC4gY11mjZd3PQ&output=html

Company XYZ
From 1995 to 2009:
EPS grew from 12.8 to 58.2, (CAGR of 10.62%).
DPS (net of tax) grew from 5.3 to 33.8, (CAGR of 13.15%).
DPO ratio (net DPS) averaged 39.22%, the latest in 2009 was 58.08%.
EY increased (decreased) from 4.79% to 7.53%, averaged 9.59% per year invested, and averaged 15.67% per 5 years invested.
DY increased (decreased) from 1.99% to 4.38%, AVERAGED 3.42% per year invested, and averaged 6.47% per 5 years invested.
Share price rose from 2.67 to 7.725, (CAGR of 7.34%).
Total annual return averaged 10.76%.



http://spreadsheets.google.com/pub?key=tTbLLUoeX_bs_guMAtRvqdQ&output=html

Company XYZ1
From 1995 to 2009:
EPS grew from 69 to 150 , (CAGR of 5.31% )
DPS (net of tax) grew from 53.2 to 200 , (CAGR of 9.23% )
DPO ratio (net DPS) averaged 106.18% , the latest in 2009 was 133.33%
EY increased (decreased) from 3.95% to 5.29% , averaged 4.29% per year invested, and averaged 5.61% per 5 years invested.
DY increased (decreased) from 3.05% to 7.05% , AVERAGED 4.35% per year invested, and averaged 5.63% per 5 years invested.
Share price rose from 17.45 to 28.375 , (CAGR of 3.29% ).
Total annual return averaged 7.65%.



http://spreadsheets.google.com/pub?key=t7ILk0yniC6soSLCP8gsksg&output=html

Company XYZ2
From 1995 to 2009:
EPS grew from 23.1 to 70 , (CAGR of 7.67% )
DPS (net of tax) grew from 8.1 to 42.1 , (CAGR of 11.61% )
DPO ratio (net DPS) averaged 78.57% , the latest in 2009 was 60.14%
EY increased (decreased) from 6.2% to 7.47% , averaged 5.59% per year invested, and averaged 11.6% per 5 years invested.
DY increased (decreased) from 2.17% to 4.49% , AVERAGED 4.03% per year invested, and averaged 10.87% per 5 years invested.
Share price rose from 3.725 to 9.375 , (CAGR of 6.35% )
Total annual return averaged 10.38%

Earnings Growth, Earnings Yield and PEG

PEG relates, or normalizes, the PE to the growth rate.

• With PEG, apparently high PE ratios are supported by forward growth.
• PEG thus becomes a better tool to compare stocks with different PEs and different underlying growth assumptions.

By itself, it's hard to tell whether a PE is good or bad.

A stock with a PE of 30 may be a better deal than another stock with a PE of 15. Why? Because of growth.

• A stock of a no-growth company with a PE of 15 will never achieve an earnings yield beyond 7.5% (1/15).
• Meanwhile, the company with a PE of 30, with a growth rate of 20%, eventually achieves an earnings yield greater than 20%.

Enter the practice of normalizing PE by the growth rate.

• To do that, we divide all PEs by the company's growth rate to create a ratio known as (Price/earnings)/growth, or PEG for short.
• G is the growth rate, expressed as a whole number (that is, the percentage times 100).
• So, a company with a PE of 30 and a growth rate of 20% has a PEG of 1.5.

This gives a standard for comparison.

• Company A with a PE of 18 and a growth rate of 12% has the same PEG as Company B with a PE of 30 and a growth rate of 20%.
• Are the two PEs the same? 30 versus 18?
• Clearly not - until the underlying growth fundamentals are identified, apply PEG, and find out they are indeed priced equally.

The table below shows the relationship between future earnings yield, PE, and PEG. Watch what happens to PEG and future earnings yields as growth assumptions rise.

http://spreadsheets.google.com/ccc?key=toPlORpn7n23_xeRq2vYALQ

Low PEG ratios (less than 2) correspond to high future earnings yields.

You can see:

PEG = 2 scenario corresponds to a future earnings yield of 13%.
PEG = 1.30 correlates to 20%, and,
PEG = 1 correlates to a future earnings yield of 31% on today's investment price.

On the other hand, if:

PEG = 4, the implied future earnings yield is only 8.1%.

So, what is a "good" PEG ratio?

It all depends on the implied future rate of return you're looking for, which depends on

• (1) investment objectives,
• (2) risk tolerance, and
• (3) current risk-free (bond) interest rates.

A PEG of 2.7 or less: implies a future earnings yield of 10% or more.

A PEG of 2.7 or more: implies a future earnings yield of 10% or less. This is probably less return at more risk than most investors desire.

As a guide:

A PEG of 1 or less: this is great (but hard to find)

A PEG between 1 and 2: this is good.

A PEG between 2 and 3: this is marginal.

A PEG over 3: should probably be avoided.

Earnings Yield

A greater revelation occurs when the PE ratio is turned upside down. The inverse ratio, known as earnings yield, tells the annual percentage rate of return implied by the PE. It is simply 1/(PE).

How to be a long term investor?

Those with a long term portfolio giving positive returns to date are probably reacting to the market differently to those without a long term portfolio. These should be distinguished from those also having a long term portfolio with negative returns to date.

Unlike the former, the latter holds many stocks with "paper" losses. Holding onto these stocks, especially those with poor fundamentals, and with no potential for "recovery" for many years, probably make little or no sense at all.

On the other hand, those lucky investors in the former group have portfolios holding gainers. The gains are probably significant due to the effect of compounding. Moreover, this is a buffer that these investors enjoy, giving them the ability and the courage to ride the volatilities in the market.

The "cake test" checklist when considering companies as investments

The "cake test"

Some of you may be familiar with the technique of sticking a toothpick into a cake to determine whether it's done. Try it a few times in different parts of the cake to verify your conclusion.

Especially for time-constrained investors, the "cake test" approach makes sense to review financial statements. Poke here, poke there, read some of the notes, get a favour for financial reporting quality. If you're Warren Buffett, ready to commit $2 billion to a company, you may want to take a closer look. But for most of us, the following will help.

A checklist

The following are a few places to test when considering companies as investments.

Earnings consistent with cash flow
These two things won't be equal but should march side by side. If earnings consistently grow faster than cash flow, that's a bad sign.

Growing current assets other than cash
Watch for increasing inventories or account receivable, particularly in proportion to sales.

Straight-line depreciation and amortizatizion, long time periods
Asset recovery may be delayed through deferring depreciation and amortizaton in order to boost earnings. Understand what practice the company uses, and whether it’s consistent with others in the industry – and common sense.

Understand asset impairments
Note which assets are “impaired” or on the block for possible write-downs, and understand why.

LIFO versus FIFO
LIFO is a more conservative approach to measuring cost of goods sold and inventory levels, as most of the recent (and more expensive) stock is assumed to be consumed first. Note that this may not be true in every industry.

Reserves against bad debts change dramatically
Watch for bad debt and other reserves as a sign of deterioration in current asset quality.

Accounting policy change
Note 1 should be simple and straightforward. Look at revenue and cost recognition. Complex, unexplained changes may spell trouble.

10-K report is longer than 100 pages
Something complex is going on. Opportunity knocks for accounting fiction and other things that are hard to understand.

Persistent, poorly explained write-offs
If the write-offs are large or repetitive, try to understand why.

Big gap between pro forma and GAAP
Understand why and what the company is trying to tell you by reporting both.

Understand where the revenues come from – if the company tells you
What are the major revenue “segments”? Does the company have a few big customers? Who are they? Are their business fundamentals sound? Does the company have channel partners? What are their selling arrangements with those partners? Do they provide financing? What are the other incentives? Are services broken out separately?

Stay with those who explain best.
Better corporate financial statements explain changes in their business and changes in their accounting policies. It’s worth reading their explanations carefully. Remember, companies that explain things better are probably better investments.

How to invest in a bear market

How to invest in a bear market
The FTSE All Share Index lost 29pc in 12 months and there is more pain in store.

By David Stevenson, manager of the Ignis Cartesian UK Opportunities Fund
Published: 10:32PM BST 15 Jun 2009

UK equity investors have had a torrid time of it in the last year. The FTSE All Share Index lost 29pc in the 12 months to the end of March and there is more pain in store. Recent stock market rallies should be taken for what they were, short-term technical bounces rather than the market bottoming on improved fundamentals.

That said, for investors who are able to stomach the volatility and take a longer term view, there are positives. The UK stock market is at one of its lowest points in the last ten years.


In the coming 12 to 18 months, it is likely to fall further taking valuations to levels of 'cheapness' that only present themselves once or twice in a lifetime. Making the most of these opportunities, however, requires a suitable investment approach and there are key considerations for investors in a bear market.

Companies are under considerable pressure and investors need to look in detail at what they are potentially buying into.

This requires careful balance sheet analysis as heavily indebted businesses may not survive the coming years. This may seem extreme but is a reality of economic cyclicality. Companies with low or sustainable levels of borrowing, and which therefore have a degree of control over their future, are relatively attractive, especially when combined with a secure dividend yield.

Earnings provide a barometer of corporate health and are under pressure across the market. Investors can, however, mitigate that risk by targeting certain types of companies.

Defendable earnings are important and are typically generated by companies with big franchises, large market shares and leverage over competitors or suppliers, allowing them to eke out more market share or a better margin. Thinking big is generally a sensible approach.

Big brands have a footprint that will allow them to survive through a difficult environment. Companies like Vodafone, Centrica and Unilever are all likely to outperform, operating in areas where spending remains necessary. Food retailers and pharmaceutical companies are also attractive.

Investors should also focus on sectors that offer predictable growth, rather than those dependent on support from the economic cycle.

Secular trends currently include the long-term growth of outsourcing, both in the public and private sector, and the maintenance and operation of critical infrastructure, such as utility and telecommunication networks and transport links. Both of these should offer resilience in a downturn and will benefit if the government's stimulus plans come to fruition.

It pays for investors to be sceptical in all market conditions but particularly during a downturn. It is important to think independently and not be fooled by consensus views.

Fundamental analysis of balance sheets and earnings will give a clearer picture of companies' future prospects. This then allows a portfolio to be built 'bottom-up' without necessitating a 'top-down' view on overarching macroeconomic, consensus or benchmark themes.

For investors seeking exposure to the market via mutual funds it is important to analyse the investment approach of fund managers. There is a temptation for managers to alter their process when short-term performance numbers disappoint, as can happen in volatile markets.

This, however, tends to be detrimental. Proper analysis of a manager's track record is therefore important, paying particular attention to longevity, consistency of approach and performance during previous downturns.

Certain managers are suited to a rising market, others, typically those able to best identify potential balance sheet holes and signs of earnings weakness, fare better when business models come under increased pressure, as is currently the case.

Another point to consider is the level and type of trading in a fund. Fund managers are generally not good short-term traders. Investment views need to be made on at least a one year basis, and a bear market does not change that.

A sharp pickup in turnover within a portfolio may indicate panic trades or a fundamental shift in strategy. In a bear market the number of attractive stock ideas tends to fall.

This may justify holding a more concentrated portfolio, and then adding new positions when opportunities arise. The important point is to make sure a fund manager is not holding low conviction stocks for the sake of diversification.

Finally, it will pay to be patient. The UK stock market will recover, but not overnight. At the moment market conditions remain challenging and it would be foolish to invest expecting the market to bounce back straightaway.

Equities tend to move before economic data picks up but with the current levels of volatility it is prudent to wait for clear signs that leading indicators are improving and government stimulus packages have laid solid foundations for growth.

This is likely to be some way off but by reinforcing a portfolio based on the points above, and taking advantage of increasingly attractive valuations, long-term investment opportunities in the UK can be exploited.

http://www.telegraph.co.uk/finance/personalfinance/investing/5545094/How-to-invest-in-a-bear-market.html

'Money in the bank? You're better off having it under the pillow and hoping for the tooth fairy'

Michel Roux: 'Money in the bank? You're better off having it under the pillow and hoping for the tooth fairy'
Fame & fortune: Michel Roux Jr, 49, is chef patron at the internationally famous Le Gavroche, the restaurant his father Albert and uncle Michel made the first British eatery ever to win three Michelin stars. Michel Jr lives with his wife Giselle, 52, and daughter Emily in Clapham.

By Mark Anstead
Published: 3:05PM BST 17 Jun 2009

Michel Roux: 'Banking has become terribly impersonal' Photo: ROGER TAYLOR
How did your childhood experience influence your attitude to money?
We didn't have much money – my father and mother had only just arrived on these shores from France. He became private chef to the Queen Mother's horse trainers and we lived in Kent, near Pembury.

We were surrounded by opulence, but we led a simple country life in a small pink cottage. As a child it seemed large but I have since been back to see it and it was only tiny. We grew our own vegetables and reared rabbits and pigeons, which my father slaughtered to eat.


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Cornwall: Take the plunge into toddler nirvanaAre you cautious with money or liberal?
I am very cautious – throughout my childhood I was taught not to squander anything. To this day I like to recycle and use every last morsel in the kitchen, putting everything to use. For example, I never throw away potato peelings – you can fry them up and they make good French fries for staff lunch. And orange peelings can be made into petit fours – simply cook the peel in sugar.

There are some chefs who are brilliant at cooking, but when it comes to controlling their costs they are absolutely useless. That's why we've been seeing a lot of good chefs closing their doors because they cannot make ends meet.

Part of making ends meet is avoiding waste – I buy top quality meat on the bone so I can cut it myself instead of using a butcher because I believe I can get more from it myself. I use lamb trimmings for individual shepherd's pies, for example, and the bones to make my own stock or soup. Nothing should go in the bin.

Now that you are better off, are you happier?
I don't think so because I have some fantastically fond memories of my childhood sitting in the countryside with Mum and Dad. As soon as we moved to London my father worked every hour under the sun at Le Gavroche and I hardly ever saw him, so I realised then that being better off has its downsides.

Are you good with money or irresponsible?
I save religiously into a pension pot and I have money put aside for a rainy day. Is that being good?

How much have you been contributing to your pension?
I've been putting away more than 10pc of what I earn for the last 25 years and I tell all my staff to do the same. Many of them say they are too young to worry about it, but I tell them they are never too young. It doesn't matter what people say about how badly pension funds have performed – a stock market crash is only bad news if you need to take your money out now. They won't need it for another 30 years and it will be worth a lot more then.

But aren't you disappointed at the poor performance of your own pension funds?
Yes I'm disappointed, but I've got quite a few more years of my working life left for it all to turn around. I'm more disappointed that the Government has been tinkering with tax relief on pensions – they should keep the incentives for people to put money away because for too long we have been acting as if tomorrow will never come, and that's part of the reason for our crisis.

How do you prefer to pay for things – by cash, card or cheque?
Credit card, which I prefer to debit card because then I can earn points and air miles. I'm with NatWest Private Banking and am fairly happy with them, but not with their MasterCard division.

I went over my limit two years ago by £1.20 when purchasing three business class tickets to fly to South Africa. Bear in mind I been with NatWest since I was 16 and I have never been over my £15,000 limit before, but they sent me a very nasty letter saying I would be charged £20.

I phoned and told them I wanted the fee waived and that they should increase my limit because my wife had a higher ceiling and she isn't even working. I wanted an apology for the letter, but I didn't get one – I just got a very curt phone call saying they would waive the £20 but wouldn't increase my limit.

This is an example of how banking has become terribly impersonal. I switched to a Visa with another bank, who happily gave me a higher limit, but I kept my card open with NatWest waiting for an apology. You'd think they'd care that they have now lost between £4,000 and £5,000 spending each month from me.

How do you tip? Are you an easy tipper or do they have to work hard with you?
I always tip and I tip generously if I feel people have done a good job. I believe in tipping wholeheartedly. We pay our staff the going rate and our service charge is a voluntary extra.

Staff don't have to pay on tips, but the Government is trying to close this loophole by saying a discretionary service charge cannot go towards the minimum wage. The only winner out of changing the law will be the Government – the restaurateur will have to pay National Insurance and so will the employee.

Ultimately the customer will be footing the bill and everyone loses except the Inland Revenue.

Does talking about money embarrass you?
I feel I deserve my salary so I am happy to talk about what I earn with friends if they ask me. I don't want to say how much exactly in this interview, but I'll admit I will be affected by the new rate of income tax when it comes in in October.

How do you separate responsibility for finance with Giselle?
We have one joint account and separate bank accounts as well. There's no particular reason – it's just how it happened. I pay for the holidays and other big stuff and Giselle looks after all the shopping. She runs a very tight ship and never squanders money – she's not afraid to shop in cheaper outlets and gets great pleasure in finding bargains.

What has been your best buy?
My house in France. It's a beautiful five-bedroom old stone house that cost me €700,000 four years ago when the euro was at 1.55. When the euro reached parity I realised I'd made a massive saving.

Worst buy?
A white leather jacket I bought in the Asprey in Bond Street a few years ago for £500. It had a lovely purple lining and fitted me particularly well, but I've never had occasion to wear it.

What's been your greatest extravagance?
I have just bought a 1959 bottle of Chateau d'Yquem for £800. It's my birthday present for next year. I also tend to buy business class on long-haul flights, but I'm happy to fly Ryanair and easyJet as well for short trips.

How much did your home cost when you bought it?
I bought my three-bedroom flat in Clapham in 1989 for £120,000. I think the value must be not far off six times that now.

Have you ever invested in shares?
I have a little portfolio of shares and unit trusts and Isas. It's a managed fund – I sat down with my advisers to work out if I was a cautious or risky investor and now they make their own decisions from there.

Do you use high-interest savings accounts?
What's the point of having money in the bank? You're better off having it under the pillow and hoping for the tooth fairy. I took money out when the bank crisis started and used it to pay off some of my mortgage. I still have some money in deposit accounts because there is nowhere else to put it, but I am now almost completely mortgage free. I had a fairly good mortgage deal anyway – I was paying 4.25pc – but now I'm saving having to pay that, which is a lot better than getting just 1pc.

Do you bank online?
No I don't. I can just about switch computers on – my wife handles our emails.

How are you coping with the recession in your restaurant?
It is obviously having an effect. People are spending a bit less money, but we are doing very well. When times are hard I think people want brands they can rely upon and I believe that Le Gavroche falls into that category.

Join Michel Roux and other top chefs at the Taste Festival in Regents Park June 18-21, www.tastefestivals.com/london





http://www.telegraph.co.uk/finance/personalfinance/fameandfortune/5559650/Michel-Roux-Money-in-the-bank-Youre-better-off-having-it-under-the-pillow-and-hoping-for-the-tooth-fairy.html

How the rich are different – and becoming more so

Comment: How the rich are different – and becoming more so


It falls to Nick Carraway in F Scott Fitzgerald's novel The Great Gatsby to observe: "The rich are different from you and me." To which the sensible reply must surely be: "Yes, they have more money."

By Ian Cowie
Published: 11:55AM BST 02 Jul 2009

Another, more topical, difference is that there are far fewer of them than there were a year ago. Given the scale of the credit crisis, perhaps that is one of the less surprising conclusions of the 2009 World Wealth Report issued last week by Merrill Lynch and Capgemini.

But what caught my eye was the marked change in the geographical location of these lucky plutocrats. Far fewer of them are British. For the first time, the number of millionaires in China has overtaken those in Britain.

Merrill Lynch Global Wealth Management, an arm of America's biggest stockbroker, and Capgemini, the global consulting services firm, disdain to use such a vulgar word as "rich". Instead, they prefer to count "high net worth individuals", by which they mean people with more than $1m (£615,000) of "investable assets" – that is, excluding the value of their home.

Whatever you call them, there were 491,000 of these millionaires in Britain the last time Merrill counted them but only 362,000 this year. China also felt the credit crunch – but less so – with its headcount of millionaires falling from 413,000 to 364,000.

It would be wrong to make too much of such a marginal difference, although it does dislodge Britain from its long established place as the fourth richest country in the world on the Merrill Lynch measure. America, Japan and Germany still account for 54pc of all millionaires but how long will it be before China overtakes those in third and second positions?

This largely overlooked report may remind unit and investment trust investors who are keen to gain exposure to economies that are growing rather than shrinking that the sun sets in the west but rises in the east.



http://www.telegraph.co.uk/finance/personalfinance/comment/iancowie/5682336/Comment-How-the-rich-are-different---and-becoming-more-so.html

Long-term interest rates on course to double

US lurching towards 'debt explosion' with long-term interest rates on course to double

The US economy is lurching towards crisis with long-term interest rates on course to double, crippling the country’s ability to pay its debts and potentially plunging it into another recession, according to a study by the US’s own central bank

By Philip Aldrick, Banking Editor
Published: 5:44AM BST 06 Jul 2009

Comments 270 Comment on this article

Next Tim Geithner, the US Treasury Secretary, has faced searching question about the growing US Budget deficit
Alan Greenspan, the former chairman of the Federal Reserve, is blamed by many for keeping interest rates too low for too long
Wen Jiabao, the Chinese premier, has expressed his concern over the scale of the US deficit
The deficit is just one of the financial headaches confronting US President Obama, pictured here at the G20 Summit
The US budget deficit is expected to reach about 12pc of the country's gross domestic product this year
George Soros, the billionaire investor, has been among those to express concern about the size of the US deficit and those of other economies
Federal Reserve chairman Ben Bernanke, pictured here with Tim Geither, has acknowledged that the mountain of US debt needs to be reined in
Politicians around the world have said that the bigger deficits are a necessary consequence of keeping a global depression at bay
Bank of England Governor Mervyn King, pictured on the right, has given explicit warnings to Alistair Darling, the Chancellor, to cut the deficit
UK Prime Minister Gordon Brown is arguing that more Government spending will prop up the economy and help cut the deficit


In a 2003 paper, Thomas Laubach, the US Federal Reserve’s senior economist, calculated the impact on long-term interest rates of rising fiscal deficits and soaring national debt. Applying his assumptions to the recent spike in the US fiscal deficit and national debt, long-term interests rates will double from their current 3.5pc.

The impact would be devastating by making it punitively expensive to finance national borrowings and leading to what Tim Congdon, founder of Lombard Street Research, called a “debt explosion”. Mr Laubach’s study has implications for the UK, too, as public debt is soaring. A US crisis would have implications for the rest of the world, in any case.

Using historical examples for his paper, New Evidence on the Interest Rate Effects of Budget Deficits and Debt, Mr Laubach came to the conclusion that “a percentage point increase in the projected deficit-to-GDP ratio raises the 10-year bond rate expected to prevail five years into the future by 20 to 40 basis points, a typical estimate is about 25 basis points”.

The US deficit has blown out from 3pc to 13.5pc in the past year but long-term rates are largely unchanged. Assuming Mr Laubach’s “typical estimate”, long-term rates have to climb 2.5 percentage points.

He added: “Similarly, a percentage point increase in the projected debt-to-GDP ratio raises future interest rates by about 4 to 5 basis points.” Economists are predicting a wide range of ratios but Mr Congdon said it was “not unreasonable” to assume debt doubling to 140pc. At that level, Mr Laubach’s calculations would see long-term rates rise by 3.5 percentage points.

The study is damning because Mr Laubach was the Fed’s economist at the time, going on to become its senior economist between 2005 and 2008, when he stepped down. As a result, the doubling in rates is the US central bank’s own prediction.

Mr Congdon said the study illustrated the “horrifying” consequences for leading western economies of bailing out their banks and attempting to stimulate markets by cutting taxes and boosting public spending. He said the markets had failed to digest fully the scale of fiscal largesse and said “current gilt yields [public debt] are extraordinary low given the size of deficits”.

Should the cost of raising or refinancing public debt in the markets double, “the debt could just explode”, he said, adding that it would come to a head in “five to 10 years”.



http://www.telegraph.co.uk/finance/financetopics/financialcrisis/5754447/US-lurching-towards-debt-explosion-with-long-term-interest-rates-on-course-to-double.html

Time for Buffett to answer some tough questions

Time for Buffett to answer some tough questions
Berkshire Hathaway shareholders are heading for the "Woodstock for capitalists" – the company's annual gathering in Omaha. Warren Buffett, the Berkshire boss, has changed the format to encourage more questions about the business. Investors should take him up on that.

By Richard Beales
Published: 6:20PM BST 01 May 2009

The legendary investor is 78 and his long-time sidekick, Charlie Munger, is 85. With his track record and public profile, Buffett is the epitome of the corporate "key man", as Fitch Ratings pointed out in knocking Berkshire's triple-A rating down a notch in March. He has, he says, chosen his successors. While their identities are undisclosed, it's a safe bet they know what they are doing. But the culture that brings 30,000-odd shareholders to Omaha every year will unavoidably change.

Another important Buffett decision of late has been to expose Berkshire to big derivatives bets – $67bn of potential exposure at the end of 2008. This is in spite of once calling such instruments "financial weapons of mass destruction".

Buffett recognises the apparent double standard, and brings to derivatives much of the common sense he applies to other investments. The contracts he has written, so far, are relatively straightforward and he has limited expected losses to an amount Berkshire could easily handle.

Berkshire shares have lost a third of their value in the past year. It is suddenly looking like what it is – a largely unhedged equity investment vehicle with a focus on the financial sector.

Its giant insurance businesses don't look so special at the moment. Large stakes in American Express, Wells Fargo and rating agency Moody's underline the finance focus. Along with the succession question, that may help to explain why Berkshire's shares appear to be trading at a discount to the market value of its holdings.

But another development should generate optimism among the Berkshire faithful: opportunities to invest on the cheap ought now to be plentiful. Buffett picked up some good deals last year, Berkshire still has strong credit and plenty of cash – and the Sage is still around.

After years in which few bargains were available and Berkshire's size made meaningful deals hard to come by, he has the chance to redeem himself.




http://www.telegraph.co.uk/finance/breakingviewscom/5258851/Time-for-Buffett-to-answer-some-tough-questions.html

How to invest like Warren Buffett

How to invest like Warren Buffett
The author's book on Warren Buffett, "The Midas Touch", summarises the favourite investing principles of the "Sage of Omaha".

By John Train
Published: 11:26AM BST 01 Jul 2009

Comments 12 Comment on this article

Fanatical: offered a glass of good wine at a dinner, Warren Buffett said: 'Just hand me the money' Photo: AFP/GETTY

My book on Warren Buffett, "The Midas Touch", has just been published in Britain. It contains most of his favourite investing principles. Although time has passed since its original appearance, his ideas today are much the same.

Here is a handful of the central ones. They aren't easy: this is a competitive game.

1. The key to investing is found in this rule: buy a share as though you were buying the whole company.

To do that, you have to know what the enterprise is worth. Therefore, the investor should live in the world of companies, never of mathematical formulae.

In the latest annual meeting of Berkshire Hathaway, Buffett's company, his partner Charles Munger put it this way: "The worst decisions are often made with the most formal projections. They look so professional that you begin to believe the numbers are reality.

"You are taken in by the false precision. Business schools teach this stuff because they have to teach something."

2. A recent heresy is that market volatility equals risk. Quite the contrary!

For a serious investor, volatility creates opportunity. To use my own language, investment opportunity consists of the difference between reality and perception. High volatility increases that difference, and thus increases opportunity for the knowledgeable investor.

Mr Buffett says sardonically that he favours the dotty "efficient market theory" because it creates more opportunities for him.

3. As to growth versus value, Mr Buffett observes that "value" should include projected growth, notably "growth at a reasonable price" or Garp.

He looks for companies with a business "moat" around them that should have steady, reasonably predictable growth.

Perhaps a better phraseology for the growth versus value dichotomy might be "high growth" versus "bargain hunting". The analytical techniques, and investor temperaments, in the two approaches are quite different. One calls for a futurologist, the other for an accountant.

That said, for a taxpaying investor long-term growth is more convenient and more tax-efficient than seeking one bargain after another.

4. High technology, most emerging markets, leveraged buyouts, real estate and other hard to appraise exotica might as well not exist for Mr Buffett.

He follows the safest approach: stick to what you know best. However, many approaches are valid. Your advantage will be the extent to which your knowledge of a valid situation exceeds the market's.

It makes little difference how broad your knowledge is. One correct investment decision is as valuable as another. Mr Buffett says that one should only seek a handful of really big ideas in one's investing career. The key is to be right when you do decide, not to flutter about spreading yourself thin.

5. Investing in bad industries, or turnarounds, usually doesn't work.

A skilled surgeon can excise a tumour but to revive a moribund patient requires a magician. The princess hopes that when she kisses the toad a beautiful prince will spring up. In fact, alas, she will probably end up awash in toads.

6. Businesses that generate cash that they can reinvest at high rates of return over long periods are particularly attractive holdings.

Low-margin businesses that periodically call for more cash from their investors, which they can only invest at a modest rate of return, are a dismal affair. Differently put, if all else is the same, feel free to marry an heiress rather than a pauper.

7. Don't sell a great stock just because it has doubled.

It could be better value afterwards than it was before. The greatest stocks may go up 20 or even 100 times in a generation or two.

Peter Lynch, who built up Fidelity's Magellan fund, points out that the deluded policy of "rebalancing" more or less automatically because a stock has risen is a lot like pulling out the flowers in the garden and watering the weeds. Don't do it!

8. A grave corporate folly is offering your own underpriced stock for the fully valued stock of an acquisition candidate.

In that scenario, instead of paying 50p for £1 of value, you are paying £1 for 50p of value. Lunacy! Still, such situations are often generated by the megalomania of chief executives.

9. Avoid long-term bonds.

"We are bound to have inflation, given current policies. There are a lot of incentives for politicians in all countries to inflate their currencies," Mr Buffett says.

10. To do superlatively well, an investor, like a company manager, must be a fanatic.

By relentless concentration, Mr Buffett has moved billions of dollars from other people's pockets into his own. Alas, he doesn't enjoy what money can buy. He's a miser.

Once, offered a glass of good wine at a dinner, he said: "Just hand me the money." So, it may be helpful in business terms to be that focused, but not necessarily in human terms.

Still, to preserve capital, which is difficult, one should understand the principles, and Mr Buffett's are all good ones.

"The Midas Touch" by John Train is published by Harriman House. Mr Train founded Train Smith Investment Counsel and he has written hundreds of columns for the Wall Street Journal, the New York Times and Forbes magazine. Apart from "The Midas Touch", his best-selling books include "The Craft of Investing", "The Money Masters" and "The New Money Masters".

http://www.telegraph.co.uk/finance/personalfinance/investing/5708407/How-to-invest-like-Warren-Buffett.html