What’s your sell discipline?
Jim Yih B.Comm, PRP, CSA, EPC, RDB
Saturday, September 15, 2007
With any investment, there are two key decisions that have to be made. The first is when to buy and the second is when to sell.
In the investment world, a lot of time is spent on which investments to buy. You can find hot tips everywhere you look. For most investors, very little time is spent understanding when to sell and yet it is equally important as the decision to buy. This week, I met Jack who bought a penny stock a year ago and the stock has more than tripled. When I asked him when he was planning to sell the stock, he had no plans to sell since the outlook for the company still looked great.
Buy your winners and sell your losers
The problem with not having a sell strategy is that selling becomes a reaction to emotion. Investing is an emotional game to begin with. We love investments that make money and we tend to buy more or hold on as investments go up. On the other hand when investments drop, we tend to panic and sell.
Take a look at your portfolio today. Rank your investments from best to worst. Chances are, your natural instinct is to keep your winners and get rid of your losers. It's human nature to react in this fashion but the real strategy that works is buy low, sell high.
When I think of the best money managers, stock brokers or the best financial advisors, typically they have a good understanding of both the buy and the sell side of investing. Here are some thoughts on when it might be appropriate to sell an investment.
1.You got it wrong. We all make mistakes from time to time. Sometimes investors are lead to hang onto an investment because the industry promotes the merits of buy and hold. The problem is the industry has both good investments and bad investments. If you buy a bad investment and hold a bad investment, you will always have a bad investment. Sometimes it's best to cut your losses when you make that bad investment.
2.Something Fundamental has changed. Whether you invested in a stock or mutual fund, remember that everything changes. Sometimes changes are for the better but naturally it can change for the worse too. It is important to monitor your investments in case there is a fundamental change for the worse.
3.Your personal circumstances have changed. One thing the investment industry is very concerned about is whether investments are 'suitable for the investor'. Inevitably, your personal financial circumstances will change form time to time, which may lead you to be more conservative or more aggressive. Make sure your portfolio is adjusted accordingly.
4.Re balancing. Rebalancing is a strategy that forces you to sell your winners and buy more of your losers. In other words buy lower and sell higher. I highly recommend that you rebalance a portfolio from time to time for this very reason.
5.Profit taking. If you go back to the example of Jack who has tripled his investment. Probably the most prudent strategy for Jack is to take profits and maybe sell a third of his investment. This way he will take out his original investment and only be speculating with money he never had.
6.Set sell targets from the start. Many professional money managers set sell targets at the time they make the buy. This ensures there is some logic and discipline put into place to help keep emotions from running the show.
When it comes to investing, make sure you devote some time to understanding the sell side of investing. If you are using a professional maybe one good question to ask is "What is your sell strategy?"
Jim Yih is the author of the Best Selling Mutual Fundamentals and also Seven Strategies to Guarantee Your Investments. He is a Financial Expert who writes a regular weekly syndicated column and lectures as a professional speaker on wealth, retirement and personal finance. For more information you can visit his any of his other websites http://www.jimyih.com/, http://www.retirehappy.ca/ or http://www.thinklots.com/. Inquiries can be emailed to feedback@WealthWebGurus.com
Friday, 21 August 2009
5 Investing Adages That Are Still Relevant Today
5 Investing Adages That Are Still Relevant Today
Written By Soo L.
Being able to rely on long standing investing adages can help you keep a level head when investing. Human nature hasn't changed much since the birth of investing, which makes many adages relevant for years and years. If you're new or old to investing, here are a handful of adages that can help you stay on top of your game.
1. Bulls And Bears Get Rich, But (Greedy)Pigs Get Slaughtered
This is a classic investing adage with an important message. If someone is overly greedy, he/she will end up getting slaughtered. Greed can be a big problem if you let it control you. When greed makes your decisions, you can be hasty and uncareful in what you do, which can cost you big when making investments. If you don't do your homework and due diligence on your next investment and make an impulsive buy, you could easily get slaughtered.
The adage states that bulls and bears get rich, meaning those who don't succumb to greed get rich. This isn't true in all cases, but the message is still valid. If you stay disciplined and careful, it doesn't matter which side of the fence you're playing (either a bull or a bear), you can still make a handsome profit. To help put this adage to work in your investing life, remember to keep your your emotions and greed in check.
2. Be Fearful When Others Are Greedy, And Greedy When Others Are Fearful
When others are fearful, there is less demand, and when there is less demand, and prices are lower. This adage teaches that it is important to take advantage of these types of situations because, like greed and other emotions, fear can make people act irrationally. If you follow the crowd and are greedy when others are greedy and fearful when others are fearful, you'll just be following the trends and playing catch up with the crowd. This type of investing strategy is hardly effective because usually all of the profits are taken before everyone else learns about it.
The adage teaches to take advantage of opportunities in markets where fear has an unrealistic effect on the price of things. An example of this was on September 11th, 2001 where stocks plummeted so quickly that the US markets had to close. Fear had a tremendous effect on the entire stock market and there were certainly bargains for any investor.
As with any investment, there is no certainty in anything you do, Even if you are greedy when others are fearful won't automatically make you rich, but having a non-herd mentality can give you an edge. The first adage on this list gives a warning about the danger of greed, which is still relevant to this adage. Even though it recommends being greedy, it is still important to keep your greed under control.
3. Never Try Catching A Falling Knife
This adage is an important counter to the previous one. While it is important to not be another sheep in the herd, it is also important to not be too much of a contrarian. If you see other people are fearful over a certain investment and are selling, there is a chance that they're letting their fears get the best of them, or there is a very legitimate reason why people are selling. If you get involved in an investment that's plummeting and you try to catch it like a falling knife, you could get cut.
Again as the first adage states, it is always important to not be too greedy. You have to do your homework and research before getting into any investment. If you don't, you might as well gamble your money at the casino. By avoiding falling knife investments, you'll be able to protect yourself from seriously damaging your portfolio. Stay away from industries and sectors that really have no future. Investments are only successful if they increase in value, which is impossible in a dying industry or sector.
4. A Rising Tide Lifts All Boats
When the economy is doing well, most companies do well as a result. This is the reasoning behind this old adage. If you ignore rising tides in economies, industries, and sectors, you could miss out on big profits. Missing out on these types of profits can hurt you because trend following is one of the easiest and most reliable investing strategies (as long as you're not the last one that follows).
If you see trends forming early on in any market, and invest in that market, you can make a very nice profit. The important part again, is to do your homework to identify the most credible trends and take advantage of them before anyone else. The earlier you get in on an upward trend, the better off you'll be.
5. Let Your Winners Run, Cut Your Losers
When you invest, it is easy to sell your successful investments and keep your failing ones. This is what comes intuitively to most investors but can end up costing you a lot of potential profits. By selling your winners too early, you could miss out on huge gains. By keeping your losers too long, you could realize many losses. This isn't always true, but it makes mathematical sense; if you keep your money in losing investments instead of winning ones, you'll more likely end up losing money.
If you have an investment that has been performing consistently well, there is no good reason to sell it. As the adage states, it is important to let your winners run. By selling too early, you could miss out on a lot more than holding onto a losing investment for too long. When holding onto a losing investment too long, you can only lose the money you initially spent. If you sell too early, you could lose many times the amount of money you initially spent. By letting your winners run, and cutting your losers, you can do much better than doing the opposite. As with all investments, it is still important to do your homework.
http://www.manhelper.com/money_career/5_investing_adages_that_are_still_relevant_today
Written By Soo L.
Being able to rely on long standing investing adages can help you keep a level head when investing. Human nature hasn't changed much since the birth of investing, which makes many adages relevant for years and years. If you're new or old to investing, here are a handful of adages that can help you stay on top of your game.
1. Bulls And Bears Get Rich, But (Greedy)Pigs Get Slaughtered
This is a classic investing adage with an important message. If someone is overly greedy, he/she will end up getting slaughtered. Greed can be a big problem if you let it control you. When greed makes your decisions, you can be hasty and uncareful in what you do, which can cost you big when making investments. If you don't do your homework and due diligence on your next investment and make an impulsive buy, you could easily get slaughtered.
The adage states that bulls and bears get rich, meaning those who don't succumb to greed get rich. This isn't true in all cases, but the message is still valid. If you stay disciplined and careful, it doesn't matter which side of the fence you're playing (either a bull or a bear), you can still make a handsome profit. To help put this adage to work in your investing life, remember to keep your your emotions and greed in check.
2. Be Fearful When Others Are Greedy, And Greedy When Others Are Fearful
When others are fearful, there is less demand, and when there is less demand, and prices are lower. This adage teaches that it is important to take advantage of these types of situations because, like greed and other emotions, fear can make people act irrationally. If you follow the crowd and are greedy when others are greedy and fearful when others are fearful, you'll just be following the trends and playing catch up with the crowd. This type of investing strategy is hardly effective because usually all of the profits are taken before everyone else learns about it.
The adage teaches to take advantage of opportunities in markets where fear has an unrealistic effect on the price of things. An example of this was on September 11th, 2001 where stocks plummeted so quickly that the US markets had to close. Fear had a tremendous effect on the entire stock market and there were certainly bargains for any investor.
As with any investment, there is no certainty in anything you do, Even if you are greedy when others are fearful won't automatically make you rich, but having a non-herd mentality can give you an edge. The first adage on this list gives a warning about the danger of greed, which is still relevant to this adage. Even though it recommends being greedy, it is still important to keep your greed under control.
3. Never Try Catching A Falling Knife
This adage is an important counter to the previous one. While it is important to not be another sheep in the herd, it is also important to not be too much of a contrarian. If you see other people are fearful over a certain investment and are selling, there is a chance that they're letting their fears get the best of them, or there is a very legitimate reason why people are selling. If you get involved in an investment that's plummeting and you try to catch it like a falling knife, you could get cut.
Again as the first adage states, it is always important to not be too greedy. You have to do your homework and research before getting into any investment. If you don't, you might as well gamble your money at the casino. By avoiding falling knife investments, you'll be able to protect yourself from seriously damaging your portfolio. Stay away from industries and sectors that really have no future. Investments are only successful if they increase in value, which is impossible in a dying industry or sector.
4. A Rising Tide Lifts All Boats
When the economy is doing well, most companies do well as a result. This is the reasoning behind this old adage. If you ignore rising tides in economies, industries, and sectors, you could miss out on big profits. Missing out on these types of profits can hurt you because trend following is one of the easiest and most reliable investing strategies (as long as you're not the last one that follows).
If you see trends forming early on in any market, and invest in that market, you can make a very nice profit. The important part again, is to do your homework to identify the most credible trends and take advantage of them before anyone else. The earlier you get in on an upward trend, the better off you'll be.
5. Let Your Winners Run, Cut Your Losers
When you invest, it is easy to sell your successful investments and keep your failing ones. This is what comes intuitively to most investors but can end up costing you a lot of potential profits. By selling your winners too early, you could miss out on huge gains. By keeping your losers too long, you could realize many losses. This isn't always true, but it makes mathematical sense; if you keep your money in losing investments instead of winning ones, you'll more likely end up losing money.
If you have an investment that has been performing consistently well, there is no good reason to sell it. As the adage states, it is important to let your winners run. By selling too early, you could miss out on a lot more than holding onto a losing investment for too long. When holding onto a losing investment too long, you can only lose the money you initially spent. If you sell too early, you could lose many times the amount of money you initially spent. By letting your winners run, and cutting your losers, you can do much better than doing the opposite. As with all investments, it is still important to do your homework.
http://www.manhelper.com/money_career/5_investing_adages_that_are_still_relevant_today
Investing is a Loser’s Game
We wish to examine the field of investments from simple game theoretical considerations.
What determines success and what determines failure? Are there principles that can be understood to help the individual invest more successfully? I believe that the best principle that can be adopted by the individual investor is to ignore the market, minimize trading expenses, think a bit like a business owner, invest long-term, and, most crucially, know your limitations as an investor.
There are two types of games: "Winner’s Games" and "Loser’s Games." Now this doesn’t mean that losers play only certain games, while winners play other games. It has nothing to do with personality characteristics. By "Loser’s Game," I don’t mean that investors are losers. It is just a way to classify games to help us understand them better.
The outcome of any competitive game depends upon the actions of both the winner and the loser of the game. This does not always imply the winner’s actions will dominate the outcome. Many games are not won, but rather, are lost. It is important to understand the distinction.
Winner’s Games are those games whose outcome is largely determined by the actions of the winner. Loser’s Games are those games whose outcome is largely determined by the actions of the loser.
Amateur tennis is a loser’s game. Non-highly-trained players do not possess the skills to deliver excellent serves and returns with consistency. An attempt to try harder to deliver superior shots, compared to the opponent, will not meet with success, but double faults and shots that go out of bounds. Trying harder to make great shots will mean that you are giving the opponent points. The player is not only competing against the other player, but also against the inherent difficulties of the game. The more competitive the amateur tries to be, the more the inherent difficulties of the game will beat him down.
The amateur who has not mastered the fundamentals of the game is far better off just trying to deliver a shot within the tennis court bounds than trying to outplay the opponent. Keep the ball in play and give the opponent the opportunity to mess up the shot. And, the harder the opponent tries, the more likely he will mess up!
If you were playing a professional tennis player, the situation would change drastically. Professional tennis is a winner’s game. Professional tennis players have mastered the fundamentals of the game. You must not only master the fundamentals of the game to win, but you must also deliver superior shots. You must outplay your opponent to win. Returning the ball within court bounds is not enough. The opponent probably won’t mess up and might well force a shot you can’t return.
In amateur tennis, having the opportunity to hit the ball is an opportunity for the opponent. In professional tennis, hitting the ball is an opportunity for the hitter. Professionals look upon having the serve as an advantage. Amateurs are better off the less contact they need to have with the ball!
Loser’s games are the competitive person’s bane until the fundamentals of the game are mastered. When I was younger, I once lost about twenty-six tennis matches in a row to a friend. The further behind I felt, the more I tried to cream the ball and deliver a killer shot.
I remember one shot actually being in bounds and drilling right through the fence behind the court. Wow! What Power! That was fun. What potential I had! Unfortunately, for that one shot, there were many more shots that hit the net, went out-of-bounds, or, in some other way, cost me a point. The more I tried to deliver superior play, the further behind I got. I had not mastered the fundamentals of the game. Nor, would I ever.
Competitive people want to win. Often, they derive much of their sense of self-worth from winning. So, as the competitive person loses more and more, he will either try harder and harder to win, or else give up. That is a natural human tendency. With tennis, an individual who really wants to win will, in time, learn that by just easing up a bit, more games are won.
Some people make excellent amateur tennis players. They learn just to keep the ball in play. Sometimes, they even feel they will be able to become a professional. Then, they find they are never able to beat the better, more professional players. They have been able to win consistently, despite never really mastering the fundamentals of the game and constantly pushing themselves to improve as players. They win, by letting the other amateur lose.
The very best players have mastered the game and work to improve, to learn to force more shots. With tennis, there is the potential to master the game and learn to force good shots, if only you work enough at it.
So, the best players will start to develop a unique approach to play as they grow in ability. They will play conservatively when it is needed. But, if they are far enough ahead, they will push themselves to force a few shots. In that way they can grow from being a good amateur into having a more professional level of play. In time, the best will learn to play tennis as a winner’s game. If they continue to count on the opponent's messing up to win games, they will never move to a professional level.
You now have a complete understanding of the difference between winner's games and loser's games.
Investing is a loser’s game. It is a loser’s game, not only at the amateur level, but also at the professional level. Over time, trying harder to achieve superior returns will usually lead to inferior returns. Trying to time the stock market, day trading, buying options, and most active investment advice approaches investing as though it were a winner’s game—believing you can actually conquer and beat the market.
If, for example, you had felt that the stock market was overvalued and due for a correction, and you had remained out of the stock market for the year 1995, you would have missed one of the market’s best years ever. But, maybe, you also missed the big market drop of 1987. What could you conclude from this? Probably, as with my streak of tennis losses, you would tend to remember the victories (or, near victory shots that led to losing the game!) and forget the defeats.
You reason that if only all your tennis shots or investment decisions had been as great as the best ones you remember, you would have won decisively! But, seeking that one great shot is what cost you the match.
You would tend to explain your victory as confirming proof of market timing and your skill to do it, while the defeat would be interpreted as only indicating a need to improve your methods slightly! You are interpreting investing, and more specifically, market timing, as though it were a winner’s game. It is not! It has never been shown that anyone, I repeat anyone, can master stock market timing.
Looking for stocks you feel might go up ten or twenty times from their present price in a few short years is also a form of trying to invest in the stock market as though it were a winner’s game. Or, given the late 1990’s you might be seeking growth stocks that go up 100 times or more in a few short years!
After all, you recall Dell, Cisco, Yahoo, and other companies which shot up by amazing amounts. To buy such speculative stocks implies you feel confident in finding opportunities that are grossly misevaluated by the market. Usually, you will not invest in the next Dell or Cisco, but, rather, the next He-Ro apparel company of the day. That is to say, a lousy investment. This can lead to huge losses.
Individual investors usually have not mastered business evaluation and fundamental analysis sufficiently to actively select the very best aggressively-chosen stocks from among the larger market. But don't feel bad. The professionals who are paid millions of dollars haven't done much better.
Yet, the human need to try to force a shot now and then reoccurs. If you must try to invest on winner’s game terms, I will show you what I feel are two of the best strategies.
One is investing in turnaround companies. Those are stocks that have hit bad times and are largely disliked by most investors. I can’t show you how to select the real winners from the pack of dogs. No one really can. But, I can help you learn to protect yourself from investing in obviously crummy companies. That is a skill well worth having.
The other strategy is seeking out growth companies. Again, I can’t tell you how to find the next Microsoft. No one can. But, I can help give you some general principles to keep in mind. Things to watch out for. Things that help you decide not to invest in a potential growth company. This is my sunscreen advice. If you must sit out in the blazing sun, protect yourself as best as you can!
Understanding that investing is a loser’s game at heart should keep you from trying to force too many shots. Rather than looking for one big winner, aim for consistency in your results. The bulk of an intelligent investor’s portfolio should be invested in high-quality, larger companies purchased at reasonable prices. Such a portfolio will likely beat, not only a market timer’s portfolio, but also a speculative portfolio of "carefully" selected, aggressive stocks on a risk-adjusted basis.
High portfolio turnover is indicative of trying to play the investment game as though it were a winner’s game. Shifting money rapidly from one investment to another indicates a belief that you can place the two possible investments on a scale of their relative merit with a high degree of accuracy. Further, you are expecting that the market will, in short order, realize just how knowledgeable you are and correct the valuations!
Any individual investor who buys individual stocks must be able to make an estimate of the relative merit of two stocks. However, we must be realistic about our ability to distinguish opportunities. Often the difference between two stocks, as far as investment desirability is concerned, is so slight that there is no way to distinguish which one will prove superior. This is assuming, of course, that the market rewards the superior stock with a higher valuation!
But, don't assume this will happen in the very near future. Undervalued stocks will not instantly increase in stock price, just because you now own them. But, we can say this: Companies that prosper as businesses, companies that grow their sales revenue and profits over the years will almost certainly appreciate in stock price. And, even if appreciation is not tremendous, a steady stream of growing dividends will probably be paid to the investor, providing an excellent return on his investment.
We must avoid shifting money between indistinguishable opportunities. Commissions and taxes will kill performance. This is the motto of "Sell reluctantly." Today, with Internet stock trading, commissions are sufficiently low that excessive portfolio turnover is no longer the concern it once was. Yet, high portfolio turnover seldom enhances overall return.
Playing investment like a loser’s game means taking advantage of long-term compounding, diversification, managing risk, and controlling the urge to imbibe in speculative excess. If you understand only this single concept, that investing is a loser’s game, you will do well as an investor throughout your life.
*The Speech, "Everybody's Free To Wear Sunscreen" was incorrectly attributed to Kurt Vonnegut who, in fact, never delivered this particular speech to any college. The speech was actually based upon a Chicago Tribune article by Mary Schmich. The speech was so popular, Baz Luhrmann had it made into a popular song. Radio stations everywhere played the song and incorrectly attributed it to Kurt's commencement address at MIT. Where did all the confusion and misinformation come from? Rumors and e-mail on the Internet. Fortunately, investors aren't subject to such foolishness. Unlike the mass media, they'll be sure to check their information over carefully.
http://www.hcmpublishing.com/Investment/sample-chapter-losers-game.html
What determines success and what determines failure? Are there principles that can be understood to help the individual invest more successfully? I believe that the best principle that can be adopted by the individual investor is to ignore the market, minimize trading expenses, think a bit like a business owner, invest long-term, and, most crucially, know your limitations as an investor.
There are two types of games: "Winner’s Games" and "Loser’s Games." Now this doesn’t mean that losers play only certain games, while winners play other games. It has nothing to do with personality characteristics. By "Loser’s Game," I don’t mean that investors are losers. It is just a way to classify games to help us understand them better.
The outcome of any competitive game depends upon the actions of both the winner and the loser of the game. This does not always imply the winner’s actions will dominate the outcome. Many games are not won, but rather, are lost. It is important to understand the distinction.
Winner’s Games are those games whose outcome is largely determined by the actions of the winner. Loser’s Games are those games whose outcome is largely determined by the actions of the loser.
Amateur tennis is a loser’s game. Non-highly-trained players do not possess the skills to deliver excellent serves and returns with consistency. An attempt to try harder to deliver superior shots, compared to the opponent, will not meet with success, but double faults and shots that go out of bounds. Trying harder to make great shots will mean that you are giving the opponent points. The player is not only competing against the other player, but also against the inherent difficulties of the game. The more competitive the amateur tries to be, the more the inherent difficulties of the game will beat him down.
The amateur who has not mastered the fundamentals of the game is far better off just trying to deliver a shot within the tennis court bounds than trying to outplay the opponent. Keep the ball in play and give the opponent the opportunity to mess up the shot. And, the harder the opponent tries, the more likely he will mess up!
If you were playing a professional tennis player, the situation would change drastically. Professional tennis is a winner’s game. Professional tennis players have mastered the fundamentals of the game. You must not only master the fundamentals of the game to win, but you must also deliver superior shots. You must outplay your opponent to win. Returning the ball within court bounds is not enough. The opponent probably won’t mess up and might well force a shot you can’t return.
In amateur tennis, having the opportunity to hit the ball is an opportunity for the opponent. In professional tennis, hitting the ball is an opportunity for the hitter. Professionals look upon having the serve as an advantage. Amateurs are better off the less contact they need to have with the ball!
Loser’s games are the competitive person’s bane until the fundamentals of the game are mastered. When I was younger, I once lost about twenty-six tennis matches in a row to a friend. The further behind I felt, the more I tried to cream the ball and deliver a killer shot.
I remember one shot actually being in bounds and drilling right through the fence behind the court. Wow! What Power! That was fun. What potential I had! Unfortunately, for that one shot, there were many more shots that hit the net, went out-of-bounds, or, in some other way, cost me a point. The more I tried to deliver superior play, the further behind I got. I had not mastered the fundamentals of the game. Nor, would I ever.
Competitive people want to win. Often, they derive much of their sense of self-worth from winning. So, as the competitive person loses more and more, he will either try harder and harder to win, or else give up. That is a natural human tendency. With tennis, an individual who really wants to win will, in time, learn that by just easing up a bit, more games are won.
Some people make excellent amateur tennis players. They learn just to keep the ball in play. Sometimes, they even feel they will be able to become a professional. Then, they find they are never able to beat the better, more professional players. They have been able to win consistently, despite never really mastering the fundamentals of the game and constantly pushing themselves to improve as players. They win, by letting the other amateur lose.
The very best players have mastered the game and work to improve, to learn to force more shots. With tennis, there is the potential to master the game and learn to force good shots, if only you work enough at it.
So, the best players will start to develop a unique approach to play as they grow in ability. They will play conservatively when it is needed. But, if they are far enough ahead, they will push themselves to force a few shots. In that way they can grow from being a good amateur into having a more professional level of play. In time, the best will learn to play tennis as a winner’s game. If they continue to count on the opponent's messing up to win games, they will never move to a professional level.
You now have a complete understanding of the difference between winner's games and loser's games.
Investing is a loser’s game. It is a loser’s game, not only at the amateur level, but also at the professional level. Over time, trying harder to achieve superior returns will usually lead to inferior returns. Trying to time the stock market, day trading, buying options, and most active investment advice approaches investing as though it were a winner’s game—believing you can actually conquer and beat the market.
If, for example, you had felt that the stock market was overvalued and due for a correction, and you had remained out of the stock market for the year 1995, you would have missed one of the market’s best years ever. But, maybe, you also missed the big market drop of 1987. What could you conclude from this? Probably, as with my streak of tennis losses, you would tend to remember the victories (or, near victory shots that led to losing the game!) and forget the defeats.
You reason that if only all your tennis shots or investment decisions had been as great as the best ones you remember, you would have won decisively! But, seeking that one great shot is what cost you the match.
You would tend to explain your victory as confirming proof of market timing and your skill to do it, while the defeat would be interpreted as only indicating a need to improve your methods slightly! You are interpreting investing, and more specifically, market timing, as though it were a winner’s game. It is not! It has never been shown that anyone, I repeat anyone, can master stock market timing.
Looking for stocks you feel might go up ten or twenty times from their present price in a few short years is also a form of trying to invest in the stock market as though it were a winner’s game. Or, given the late 1990’s you might be seeking growth stocks that go up 100 times or more in a few short years!
After all, you recall Dell, Cisco, Yahoo, and other companies which shot up by amazing amounts. To buy such speculative stocks implies you feel confident in finding opportunities that are grossly misevaluated by the market. Usually, you will not invest in the next Dell or Cisco, but, rather, the next He-Ro apparel company of the day. That is to say, a lousy investment. This can lead to huge losses.
Individual investors usually have not mastered business evaluation and fundamental analysis sufficiently to actively select the very best aggressively-chosen stocks from among the larger market. But don't feel bad. The professionals who are paid millions of dollars haven't done much better.
Yet, the human need to try to force a shot now and then reoccurs. If you must try to invest on winner’s game terms, I will show you what I feel are two of the best strategies.
One is investing in turnaround companies. Those are stocks that have hit bad times and are largely disliked by most investors. I can’t show you how to select the real winners from the pack of dogs. No one really can. But, I can help you learn to protect yourself from investing in obviously crummy companies. That is a skill well worth having.
The other strategy is seeking out growth companies. Again, I can’t tell you how to find the next Microsoft. No one can. But, I can help give you some general principles to keep in mind. Things to watch out for. Things that help you decide not to invest in a potential growth company. This is my sunscreen advice. If you must sit out in the blazing sun, protect yourself as best as you can!
Understanding that investing is a loser’s game at heart should keep you from trying to force too many shots. Rather than looking for one big winner, aim for consistency in your results. The bulk of an intelligent investor’s portfolio should be invested in high-quality, larger companies purchased at reasonable prices. Such a portfolio will likely beat, not only a market timer’s portfolio, but also a speculative portfolio of "carefully" selected, aggressive stocks on a risk-adjusted basis.
High portfolio turnover is indicative of trying to play the investment game as though it were a winner’s game. Shifting money rapidly from one investment to another indicates a belief that you can place the two possible investments on a scale of their relative merit with a high degree of accuracy. Further, you are expecting that the market will, in short order, realize just how knowledgeable you are and correct the valuations!
Any individual investor who buys individual stocks must be able to make an estimate of the relative merit of two stocks. However, we must be realistic about our ability to distinguish opportunities. Often the difference between two stocks, as far as investment desirability is concerned, is so slight that there is no way to distinguish which one will prove superior. This is assuming, of course, that the market rewards the superior stock with a higher valuation!
But, don't assume this will happen in the very near future. Undervalued stocks will not instantly increase in stock price, just because you now own them. But, we can say this: Companies that prosper as businesses, companies that grow their sales revenue and profits over the years will almost certainly appreciate in stock price. And, even if appreciation is not tremendous, a steady stream of growing dividends will probably be paid to the investor, providing an excellent return on his investment.
We must avoid shifting money between indistinguishable opportunities. Commissions and taxes will kill performance. This is the motto of "Sell reluctantly." Today, with Internet stock trading, commissions are sufficiently low that excessive portfolio turnover is no longer the concern it once was. Yet, high portfolio turnover seldom enhances overall return.
Playing investment like a loser’s game means taking advantage of long-term compounding, diversification, managing risk, and controlling the urge to imbibe in speculative excess. If you understand only this single concept, that investing is a loser’s game, you will do well as an investor throughout your life.
*The Speech, "Everybody's Free To Wear Sunscreen" was incorrectly attributed to Kurt Vonnegut who, in fact, never delivered this particular speech to any college. The speech was actually based upon a Chicago Tribune article by Mary Schmich. The speech was so popular, Baz Luhrmann had it made into a popular song. Radio stations everywhere played the song and incorrectly attributed it to Kurt's commencement address at MIT. Where did all the confusion and misinformation come from? Rumors and e-mail on the Internet. Fortunately, investors aren't subject to such foolishness. Unlike the mass media, they'll be sure to check their information over carefully.
http://www.hcmpublishing.com/Investment/sample-chapter-losers-game.html
Ride Your Winners, Dump Your Losers
Ride Your Winners, Dump Your Losers
www.mastersuniverse.net
Assume that you have invested into two stocks - Stock A and Stock B. You made 50% on Stock A and lost 50% on Stock B. If you need to liquidate one stock to get some cash, which stock would you sell? It is human nature for people to take profits on Stock A and keep the losing trade until Stock B rebounds. Chances are Stock A is so wonderful that it will keep going up after you sold, and Stock B will keep going down and your loss becomes bigger. The bigger your loss, the more reluctant you are to sell and eventually you will end up with a bunch of losers.
Ride Your Winners
Momentum Trading
According to the “Ride Your Winners, Dump Your Losers” theory, if you manage to fight off your human nature and keep the winners instead of the losers, you will make money. This seems to fit in well with the theory of momentum trading – buy the strongest stocks with the highest momentum, i.e. the stocks that are increasing quickly on higher volume than the market. Disciplined momentum traders would buy with the flow of the market, if a trade goes against them, they would sell without hesitation. They follow the market trend with no question ask.
As the theory goes, you should not be emotionally attached to your trade. If you have invested in a dud, you should just admit your mistake and cut the loss. This theory sounds credible and sensible.
Value Investing
This theory may make sense for a short-term momentum trader, but it certainly does not make sense for a long-term value investor. Assuming that you have done your homework and the two stocks were the same valuation at the time of investment, the fact that Stock A has gone up and Stock B has gone down means that Stock A is now far more expensive than Stock B. A prudent value investor would switch out of the expensive Stock A and switch into the much better valued Stock B, provided the fundamentals of the two stocks have not changed.
Instead of blindly selling the losers until all you have are winners, you should really look at whether the fundamentals have changed for the stocks. There may indeed be a good reason for the relative underperformance of Stock B – e.g. poor management or grim industry outlook. However if nothing has changed and you thought Stock B was good value when you first bought it, it must be an absolute bargain after dropping an extra 50%! Shouldn’t you be buying more instead of selling?
Winners Always Outperform Losers?
The key question in deciding whether this is a valid theory is whether winners are more likely to outperform the losers? If that is the case, the same group of winners should always dominate the world economy. Taking the component stocks of the Dow Jones Industrial as examples, which are the winners of the winners. Do these blue chip winners always outperform the market? Looking at the original dozen component stocks of the Dow in 1896:
American Sugar Now Domino Foods, Inc., part of Sweden’s Assa Abloy
American Cotton Oil Now Bestfoods, part of Unilever
North American Company Electric company broken up in the 1940s
Chicago Gas
Now a subsidiary of Integrys Energy Group, Inc
Laclede Gas Still in operation as The Laclede Group
National Lead Now NL Industries
Tennessee Coal & Iron Swallowed by U.S. Steel
American Tobacco Broken up into Fortune Brands and R.J. Reynolds
Distilling & Cattle Feeding Predecessor of Millennium Chemical, part of LyondellBasell
U.S. Leather Liquidated in 1952
U.S. Rubber Company Merged with B.F. Goodrich, now part of Michelin
General Electric Only one that is still around
The only company that you may still recognize is General Electric (even General Electric has been dropped from the Dow for 9 years). The rests have either been taken over or wound up. Had your great great grandpa set up a family trust to invest in these winners 100 years ago, there would probably not be a lot inheritance left for you.
In fact, some academics have noticed the opposite effect - “the small stock anomaly”. For example, Rolf W. Banz has shown that smaller companies (which tend to include a lot of “losers”) from 1926 to 1980 outperformed the larger companies.
The Winner Takes It All
It Really Comes Down to Your Trading Style
Ultimately it really depends on your trading style. If you are a momentum trader that trade purely on the basis of a surge in price and high trading volume, it is wise to scramble for the exit when the stock loses its momentum. However if you have picked the stock on the basis of its valuation, the fact that it drops more means it is even better value – time to buy more instead of sell. Obviously if the fundamentals (future prospects and changing sector conditions) of the company have deteriorated, you may need to admit your mistake and sell.
This theory sounds more credible than it really is in countering the human tendency to keep the losers. The fact that it identifies a stock as a winner or loser on the basis of the entry price already introduces an element of subjectivity. An emotion free investor would only look objectively at the fundamentals and the valuation of the stock, instead of getting hung up on the entry price.
www.mastersuniverse.net
Assume that you have invested into two stocks - Stock A and Stock B. You made 50% on Stock A and lost 50% on Stock B. If you need to liquidate one stock to get some cash, which stock would you sell? It is human nature for people to take profits on Stock A and keep the losing trade until Stock B rebounds. Chances are Stock A is so wonderful that it will keep going up after you sold, and Stock B will keep going down and your loss becomes bigger. The bigger your loss, the more reluctant you are to sell and eventually you will end up with a bunch of losers.
Ride Your Winners
Momentum Trading
According to the “Ride Your Winners, Dump Your Losers” theory, if you manage to fight off your human nature and keep the winners instead of the losers, you will make money. This seems to fit in well with the theory of momentum trading – buy the strongest stocks with the highest momentum, i.e. the stocks that are increasing quickly on higher volume than the market. Disciplined momentum traders would buy with the flow of the market, if a trade goes against them, they would sell without hesitation. They follow the market trend with no question ask.
As the theory goes, you should not be emotionally attached to your trade. If you have invested in a dud, you should just admit your mistake and cut the loss. This theory sounds credible and sensible.
Value Investing
This theory may make sense for a short-term momentum trader, but it certainly does not make sense for a long-term value investor. Assuming that you have done your homework and the two stocks were the same valuation at the time of investment, the fact that Stock A has gone up and Stock B has gone down means that Stock A is now far more expensive than Stock B. A prudent value investor would switch out of the expensive Stock A and switch into the much better valued Stock B, provided the fundamentals of the two stocks have not changed.
Instead of blindly selling the losers until all you have are winners, you should really look at whether the fundamentals have changed for the stocks. There may indeed be a good reason for the relative underperformance of Stock B – e.g. poor management or grim industry outlook. However if nothing has changed and you thought Stock B was good value when you first bought it, it must be an absolute bargain after dropping an extra 50%! Shouldn’t you be buying more instead of selling?
Winners Always Outperform Losers?
The key question in deciding whether this is a valid theory is whether winners are more likely to outperform the losers? If that is the case, the same group of winners should always dominate the world economy. Taking the component stocks of the Dow Jones Industrial as examples, which are the winners of the winners. Do these blue chip winners always outperform the market? Looking at the original dozen component stocks of the Dow in 1896:
American Sugar Now Domino Foods, Inc., part of Sweden’s Assa Abloy
American Cotton Oil Now Bestfoods, part of Unilever
North American Company Electric company broken up in the 1940s
Chicago Gas
Now a subsidiary of Integrys Energy Group, Inc
Laclede Gas Still in operation as The Laclede Group
National Lead Now NL Industries
Tennessee Coal & Iron Swallowed by U.S. Steel
American Tobacco Broken up into Fortune Brands and R.J. Reynolds
Distilling & Cattle Feeding Predecessor of Millennium Chemical, part of LyondellBasell
U.S. Leather Liquidated in 1952
U.S. Rubber Company Merged with B.F. Goodrich, now part of Michelin
General Electric Only one that is still around
The only company that you may still recognize is General Electric (even General Electric has been dropped from the Dow for 9 years). The rests have either been taken over or wound up. Had your great great grandpa set up a family trust to invest in these winners 100 years ago, there would probably not be a lot inheritance left for you.
In fact, some academics have noticed the opposite effect - “the small stock anomaly”. For example, Rolf W. Banz has shown that smaller companies (which tend to include a lot of “losers”) from 1926 to 1980 outperformed the larger companies.
The Winner Takes It All
It Really Comes Down to Your Trading Style
Ultimately it really depends on your trading style. If you are a momentum trader that trade purely on the basis of a surge in price and high trading volume, it is wise to scramble for the exit when the stock loses its momentum. However if you have picked the stock on the basis of its valuation, the fact that it drops more means it is even better value – time to buy more instead of sell. Obviously if the fundamentals (future prospects and changing sector conditions) of the company have deteriorated, you may need to admit your mistake and sell.
This theory sounds more credible than it really is in countering the human tendency to keep the losers. The fact that it identifies a stock as a winner or loser on the basis of the entry price already introduces an element of subjectivity. An emotion free investor would only look objectively at the fundamentals and the valuation of the stock, instead of getting hung up on the entry price.
Flip the losers, let the winners run
Thursday, April 2, 2009
Sell the losers, let the winners run
Why selling is a common problem
Published: 2009/02/04
Most investors tend to agree that the decision to sell a stock is one of the most difficult to make. Sometimes it is more difficult to decide when and what to sell than to buy. Ever wondered why?
* People tend to sell winners too soon and hold on to losers too long
You will find that regardless of whether the market is running hot or is coming down, there are still a lot of people out there who either sell their stocks too early only to realize that the prices continue to soar, or hold on to losers for too long only to see them continue to bleed further.
From a behavioural finance standpoint, this phenomenon is held by Hersh Shefrin and Meir Statman (1985) as the "disposition effect". This was discovered from their research entitled, "The disposition to sell winners too early and ride losers too long: theory and evidence".
Based on research, individual investors are more likely to sell stocks that have gone up in value, rather than those that have gone down. By not selling, they are hoping that the price of the losers will eventually go back to their purchase price or even higher, saving them from experiencing a painful loss.
In the end, most investors will end up selling good quality stocks the minute the prices move up and hold on to those poor fundamental stocks for the long term, while the performances of these stocks continue to deteriorate.
* People tend to forget their original objectives
In stock market investment, there are two types of investment activities, trading versus investing. Trading means "buy and sell" while investing means "buy and hold". The stock selection criteria for these two types of activities are entirely different.
Most of the time those involved in trading will choose stocks based on factors which will affect the price movement in short term, paying less attention to the companies' fundamentals whereas those involved in investment will go for good quality stocks which are more suitable for long-term holding.
However, you will find that many people get their objectives mixed up in the process. They get distracted by external factors so much so that some panic when the market goes in the direction that is not in line with their expectation, and as a result, end up selling the stocks that they find too expensive to buy back later.
On the other hand, some force themselves to change the status of the stocks that were originally meant for short-term trading into long-term investment as they are unable to face the harsh fact that they have to sell the stocks at a loss, even though they know that the stocks are not good fundamental stocks that can appreciate in value.
So, when to sell then?
There are few different schools of thoughts on this. Based on the advice from the investments gurus, like Benjamin Graham, Warren Buffet and Philip Fisher, when you buy a stock, you need to make sure that you understand the companies that you are buying, and these are good fundamental stocks, which will provide good income and appreciate in value in long term.
Therefore, you will be treating your stock purchase as a business you bought, which is meant for long term. You should not be affected by any temporary price movement due to overall market volatility.
You will only consider selling the company if the growth of the company's intrinsic value falls below "satisfactory" level or you find out that a mistake was made in the original analysis as you grow more familiar to the business or industry.
However, if you find that your investment portfolio is highly concentrated on one single company, then you might want to consider diversifying your portfolio and lowering your risk.
Any single investment that is more than 10 per cent to 15 per cent of your portfolio value should be reconsidered no matter how solid the company performance or prospect is, suggested Pat Dorsey of Morningstar.
Last but not least, if you find that by selling the stock, you can invest the money in a better option, then that is a good reason to sell.
In summary, successful investing is highly dependent on your self-discipline, taking away the emotional factors and not going with the crowd. It should always be backed by sound investment principles.
Always remember there is no short cut in investment, only hard work and patience.
Securities Industry Development Corp, the leading capital markets education, training and information resource provider in Asean, is the training and development arm of the Securities Commission. It was established in 1994 and incorporated in 2007.
http://www.btimes.com.my/Current_News/BTIMES/articles/SIDC2/Article/index_html
Sell the losers, let the winners run
Why selling is a common problem
Published: 2009/02/04
Most investors tend to agree that the decision to sell a stock is one of the most difficult to make. Sometimes it is more difficult to decide when and what to sell than to buy. Ever wondered why?
* People tend to sell winners too soon and hold on to losers too long
You will find that regardless of whether the market is running hot or is coming down, there are still a lot of people out there who either sell their stocks too early only to realize that the prices continue to soar, or hold on to losers for too long only to see them continue to bleed further.
From a behavioural finance standpoint, this phenomenon is held by Hersh Shefrin and Meir Statman (1985) as the "disposition effect". This was discovered from their research entitled, "The disposition to sell winners too early and ride losers too long: theory and evidence".
Based on research, individual investors are more likely to sell stocks that have gone up in value, rather than those that have gone down. By not selling, they are hoping that the price of the losers will eventually go back to their purchase price or even higher, saving them from experiencing a painful loss.
In the end, most investors will end up selling good quality stocks the minute the prices move up and hold on to those poor fundamental stocks for the long term, while the performances of these stocks continue to deteriorate.
* People tend to forget their original objectives
In stock market investment, there are two types of investment activities, trading versus investing. Trading means "buy and sell" while investing means "buy and hold". The stock selection criteria for these two types of activities are entirely different.
Most of the time those involved in trading will choose stocks based on factors which will affect the price movement in short term, paying less attention to the companies' fundamentals whereas those involved in investment will go for good quality stocks which are more suitable for long-term holding.
However, you will find that many people get their objectives mixed up in the process. They get distracted by external factors so much so that some panic when the market goes in the direction that is not in line with their expectation, and as a result, end up selling the stocks that they find too expensive to buy back later.
On the other hand, some force themselves to change the status of the stocks that were originally meant for short-term trading into long-term investment as they are unable to face the harsh fact that they have to sell the stocks at a loss, even though they know that the stocks are not good fundamental stocks that can appreciate in value.
So, when to sell then?
There are few different schools of thoughts on this. Based on the advice from the investments gurus, like Benjamin Graham, Warren Buffet and Philip Fisher, when you buy a stock, you need to make sure that you understand the companies that you are buying, and these are good fundamental stocks, which will provide good income and appreciate in value in long term.
Therefore, you will be treating your stock purchase as a business you bought, which is meant for long term. You should not be affected by any temporary price movement due to overall market volatility.
You will only consider selling the company if the growth of the company's intrinsic value falls below "satisfactory" level or you find out that a mistake was made in the original analysis as you grow more familiar to the business or industry.
However, if you find that your investment portfolio is highly concentrated on one single company, then you might want to consider diversifying your portfolio and lowering your risk.
Any single investment that is more than 10 per cent to 15 per cent of your portfolio value should be reconsidered no matter how solid the company performance or prospect is, suggested Pat Dorsey of Morningstar.
Last but not least, if you find that by selling the stock, you can invest the money in a better option, then that is a good reason to sell.
In summary, successful investing is highly dependent on your self-discipline, taking away the emotional factors and not going with the crowd. It should always be backed by sound investment principles.
Always remember there is no short cut in investment, only hard work and patience.
Securities Industry Development Corp, the leading capital markets education, training and information resource provider in Asean, is the training and development arm of the Securities Commission. It was established in 1994 and incorporated in 2007.
http://www.btimes.com.my/Current_News/BTIMES/articles/SIDC2/Article/index_html
Thursday, 20 August 2009
Trading Versus Investing
Trading Versus Investing
Not only is technical analysis more short term in nature than fundamental analysis, but the goals of a purchase (or sale) of a stock are usually different for each approach.
In general, technical analysis is used for a trade, whereas fundamental analysis is used to make an investment.
Investors buy assets they believe can increase in value, while traders buy assets they believe they can sell to somebody else at a greater price.
The line between a trade and an investment can be blurry, but it does characterize a difference between the two schools.
http://www.investopedia.com/university/technical/techanalysis2.asp
Not only is technical analysis more short term in nature than fundamental analysis, but the goals of a purchase (or sale) of a stock are usually different for each approach.
In general, technical analysis is used for a trade, whereas fundamental analysis is used to make an investment.
Investors buy assets they believe can increase in value, while traders buy assets they believe they can sell to somebody else at a greater price.
The line between a trade and an investment can be blurry, but it does characterize a difference between the two schools.
http://www.investopedia.com/university/technical/techanalysis2.asp
Chinese shares tip into a bear market
Chinese shares tip into a bear market
The Shanghai stock exchange suffered another major fall on Wednesday, closing down 4.3pc to bring the declines over the past two weeks to around 20pc, a technical bear market.
By Malcolm Moore in Shanghai
Published: 11:10AM BST 19 Aug 2009
A Chinese investor monitors screens showing stock indexes at a trading house in Shanghai on August 19, 2009. Photo: AFP
Until this month, Shanghai had been the world's best-performing stock exchange, recording a rise of 89pc as money poured into the market from China's fiscal stimulus policies.
Banks loaned more than £700bn in the first half of the year, and analysts believe a sizeable proportion of that cash flowed directly into speculation. Even after the latest reversal, Shanghai is up some 53pc this year.
State-owned behemoths led the declines, with Baoshan Steel dropping 7.18pc to 7.11 yuan and Angang Steel falling 6.23pc to 13.25 yuan.
PetroChina, China's largest oil producer, fell 2.33pc to close at 12.99 yuan.
China's enormous banks are also reporting interim results this year, and analysts believe their revenues will be down because of lower interest payments.
Property shares were also hit by fears that the housing bubble may also pop. Vanke, the country's largest developer, fell 5.58pc to 11 yuan.
Investors, who maintain a firm belief that the Chinese government will intervene to prop up the market, took flight when no such relief appeared. The only sign of government aid came in the form of editorials in three influential newspapers, talking up the benefits of buying shares.
"Investors are disappointed that regulators failed to take any concrete steps to support the market," said Chen Huiqin, at Huatai Securities.
Chinese institutional investors are also cashing out, in the hope of finding better returns elsewhere after Shanghai's phenomenal rise, according to Zhang Suyu, a strategist at Dongxing Securities.
Other analysts said the falls in the market did not reflect the health of the broader Chinese economy. "Rocketing and slumping has always been a characteristic of the market. It took only one year for the index to rise from 1,664 to 6,124 points and vice versa," said Dong Dengxin, a professor at Wuhan Science University.
The Shanghai exchange is all but closed to foreign investors, while Chinese investors have few other options to place their money, since they cannot buy overseas shares. Consequently, the exchange remains extremely volatile, according to local brokers.
The Shanghai stock exchange suffered another major fall on Wednesday, closing down 4.3pc to bring the declines over the past two weeks to around 20pc, a technical bear market.
By Malcolm Moore in Shanghai
Published: 11:10AM BST 19 Aug 2009
A Chinese investor monitors screens showing stock indexes at a trading house in Shanghai on August 19, 2009. Photo: AFP
Until this month, Shanghai had been the world's best-performing stock exchange, recording a rise of 89pc as money poured into the market from China's fiscal stimulus policies.
Banks loaned more than £700bn in the first half of the year, and analysts believe a sizeable proportion of that cash flowed directly into speculation. Even after the latest reversal, Shanghai is up some 53pc this year.
State-owned behemoths led the declines, with Baoshan Steel dropping 7.18pc to 7.11 yuan and Angang Steel falling 6.23pc to 13.25 yuan.
PetroChina, China's largest oil producer, fell 2.33pc to close at 12.99 yuan.
China's enormous banks are also reporting interim results this year, and analysts believe their revenues will be down because of lower interest payments.
Property shares were also hit by fears that the housing bubble may also pop. Vanke, the country's largest developer, fell 5.58pc to 11 yuan.
Investors, who maintain a firm belief that the Chinese government will intervene to prop up the market, took flight when no such relief appeared. The only sign of government aid came in the form of editorials in three influential newspapers, talking up the benefits of buying shares.
"Investors are disappointed that regulators failed to take any concrete steps to support the market," said Chen Huiqin, at Huatai Securities.
Chinese institutional investors are also cashing out, in the hope of finding better returns elsewhere after Shanghai's phenomenal rise, according to Zhang Suyu, a strategist at Dongxing Securities.
Other analysts said the falls in the market did not reflect the health of the broader Chinese economy. "Rocketing and slumping has always been a characteristic of the market. It took only one year for the index to rise from 1,664 to 6,124 points and vice versa," said Dong Dengxin, a professor at Wuhan Science University.
The Shanghai exchange is all but closed to foreign investors, while Chinese investors have few other options to place their money, since they cannot buy overseas shares. Consequently, the exchange remains extremely volatile, according to local brokers.
Follow Graham: profit from folly rather than participate in it.
If you follow the behavioural and business principles that Graham advocates - and if you pay special attention to the invaluable advice in Chapters 8 and 20 - you will not get a poor result from your investments. (That represents more of a accomplishment than you might think.)
Whether you achieve outstanding results will depend on the effort and intellect you apply to your investments, as well as on the amplitudes of stock-market folly that prevail during your investing career.
The sillier the market's behaviour, the greater the opportunity for the business-like investor.
Follow Graham and you will profit from folly rather than participate in it.
Ref: Intelligent Investor by Benjamin Graham
Whether you achieve outstanding results will depend on the effort and intellect you apply to your investments, as well as on the amplitudes of stock-market folly that prevail during your investing career.
The sillier the market's behaviour, the greater the opportunity for the business-like investor.
Follow Graham and you will profit from folly rather than participate in it.
Ref: Intelligent Investor by Benjamin Graham
Uncertainty = Investing
"Investors don't like uncertainty."
But investors have never liked uncertainty - and yet it is the most fundamental and enduring condition of the investing world. It always has been, and it always will be.
At heart, "uncertainty" and "investing" are synonyms.
In the real world, no one has ever been given the ability to see that any particular time is the best time to buy stocks.
Without a saving faith in the future, no one would ever invest at all. To be an investor, you must be a believer in a better tomorrow.
But investors have never liked uncertainty - and yet it is the most fundamental and enduring condition of the investing world. It always has been, and it always will be.
At heart, "uncertainty" and "investing" are synonyms.
In the real world, no one has ever been given the ability to see that any particular time is the best time to buy stocks.
Without a saving faith in the future, no one would ever invest at all. To be an investor, you must be a believer in a better tomorrow.
Wednesday, 19 August 2009
How To Make Your First $1 Million
The Three Ps
Persistence, patience and purpose are common traits that you'll find in every millionaire from John Jacob Astor to Bill Gates. Even though inflation has brought the value of $1 million down from its lofty perch, you still need these traits to reach it. Why isn't everyone a millionaire? Maybe because it is easier to spend now, buy big and put off saving and investing than it is to sacrifice to reach the goal of becoming a millionaire. Using the tips given here can help you on your way, but you have to be brave enough to take the steps - first, final and all the hard ones that lay in between.
http://investopedia.com/slide-show/millionaire-mindset/
http://investopedia.com/Slides/LastSlide.aspx
How To Make Your First $1 Million
Increase Your Income
There is nothing terribly romantic about becoming a millionaire while working a regular job, but it is probably the avenue available to most people. You don't need to start your own business to pull in a high income, and you don't even need to pull in a high income if your saving, spending and investing habits are sound. Asking for a raise, upgrading your skills or taking a second job will add that much more to your savings and investments and subtract that same amount from the countdown to your first million. If you are entrepreneurial at heart, starting a business on the side can actually decrease your overall tax bill, rather than putting you in a higher income tax bracket. (See Increase Your Disposable Income for more.)
How To Make Your First $1 Million
Reconsider Real Estate
Owning real estate provides equity and diversity to your investments. If you own your own home, then paying your rent builds up equity. If you invest in real estate, then someone else's rent builds up your equity. Real estate investing isn't for everyone, but it has built fortunes for many savvy people. Owning your own home, however, is usually a good idea regardless of your opinion on real estate bubbles. Peter Lynch, one of the greatest stock investors of all time, believed that you should own your first home before you buy your first stock. (If you feel ready, see Investing In Real Estate for more.)
How To Make Your First $1 Million
Dare To Diversify
If your portfolio is made up entirely of American companies or is even all held in stocks, then you may need to diversify. In the first case, more and more financial activity is out there in the wider world. This doesn't just mean investing in emerging economies like China and India that are producing huge gains, but recognizing that there are companies in Europe and Asia that are just as good (maybe better) as investments in the U.S.. Diversifying also means not putting all your money into one type of asset. Being a financial omnivore opens up that much more opportunity in times of growth and makes certain you won't go hungry when one source dries up. (See The Importance Of Diversification for more.)
How To Make Your First $1 Million
Incremental Investing
If you've got your retirement portfolios where you want them and are ready to start a pure income portfolio, then incremental investing is an excellent way to begin. You don't have to jump into the market with your life savings to make money. Even relatively small amounts can result in decent returns. The important thing to remember with your income portfolio is that capital gains taxes will be applied yearly to any income you pull out. Again, improving your tax awareness will help reduce the bite, but it takes time and knowledge to make one million solely from a taxable portfolio. Still, it has been done and will be done again. (See Investing 101 to get started.
How To Make Your First $1 Million
Ramp-Up Your Retirement Savings
Rather than letting your boss's contribution lessen your load, try to put a little extra into your retirement plan whenever you can. Automating your account contributions will make setting your money aside that much easier. That said, making extra contributions a priority will speed up your journey to $1 million and make your golden years that much more golden. You don't have to eat cat food to do this, just keep your retirement in mind when you've got extra cash on hand. (For more in this vein, see Playing Retirement Catch-Up.)
How To Make Your First $1 Million
Build Through Your Boss
If you're looking to save $1 million dollars for retirement, look no further than your boss. With matching contributions, your employer can be your best ally when it comes to building up retirement funds. If you think you need to squirrel away 20% of your income for retirement and your boss puts up 6% in matched contributions, then you're left with a much more manageable 14%. Even if you are your own boss, there are still options under SEPs. (For more on this see Making Salary Deferral Contributions.)
How To Make Your First $1 Million
Crafty Compounding
Time is on your side when you've got compounding working on your savings. The earlier you start saving and the earlier you get your savings into a financial instrument that compounds, the easier your path to $1 million will be. You may be thinking of tenbaggers or hot issues that return 10 times their value in a few weeks, but it is the boring, year-on-year compounding that builds fortune for most people. (To learn more, read Compound Your Way To Retirement.)
How To Make Your First $1 Million
Target Your Taxes
Another leaky hole you need to plug is the parasitic drain of big government. While you are expected to pay your taxes, it's the right of every taxpayer to try and reduce their tax bills to the absolute minimum allowed by law. Increasing your tax awareness means making taxes a quarterly chore rather than an annual scourge. Keeping abreast of allowable deductions, changes to your withholding and changes in tax limits will allow you to keep more of what you earn, so that you can put that money to work for you. (See 10 Steps To Tax Preparation for more.)
How To Make Your First $1 Million
Prune Your Purchases
When you do have to spend, try to get the most utility, not simply the most you can. The difference between great value and utility is a fine line. Buying too much house or too costly a car comes from confusing the two. If you shop for what you need and buy it cheaper than you'd planned, that's a great deal. By keeping the end use of large purchases in mind, you can avoid this drain on your cash. Before paying more than you can afford, remember that Warren Buffet, a man who constantly jockeys for richest person on earth, still lives in his humble Omaha abode. (For more on the value of frugality see Save Money The Scottish Way.)
How To Make Your First $1 Million
Stop Senseless Spending
It's easy to spend your way out of a fortune. Fortunately, the opposite is also true - you can save your way into your first million. Most people working in North America right now will earn well over $1 million during their working lives. The secret to saving $1 million lies in keeping more of what you earn. Just as extending your earnings offers a unique perspective, doing the same with your spending sheds a ghastly light on the waste. If you spend $5 every day of your working life on coffee, snacks, etc., you lose $73,000 of your lifetime earnings, making it that much harder to hit the $1 million mark in savings. (For more, see Squeeze A Greenback Out Of Your Latte.)
How To Make Your First $1 Million
The Millionaire's Mindset
When your grandparents lamented that a dollar just isn't a dollar anymore, they weren't just bellyaching. Inflation attacks the value of a dollar, reducing it as time goes by so you need more dollars as time goes on. That is one of the reasons that $1 million is often thrown around as a retirement goal. Back in 1900, a $1 million retirement would include a mansion and a bevy of servants, but now, it has become a benchmark for the average retirement portfolio. The upside is that it is easier to become a millionaire now than at any time before. While you won't be buying islands, it is still a goal worth shooting for. Read on for 10 ways to make your first million.
Tuesday, 18 August 2009
A Relevant Tale Of The Mouse, Frog And Hawk
A Relevant Tale Of The Mouse, Frog And Hawk
Jim Oberweis, Oberweis Report 08.06.09, 5:40 PM ET
If fable-teller Aesop sat down with China's President Hu Jintao and Federal Reserve Chairman Ben Bernanke, the meeting would begin with the story of the Mouse, the Frog and the Hawk:
"A mouse who always lived on the land, by an unlucky chance, formed an intimate acquaintance with a frog, who lived, for the most part, in the water. One day, the frog was intent on mischief. He tied the foot of the mouse tightly to his own. Thus joined together, the frog led his friend the mouse to the meadow where they usually searched for food. After this, he gradually led him toward the pond in which he lived. Upon reaching the banks of the water, he suddenly jumped in, dragging the mouse with him.
"The frog enjoyed the water amazingly, and swam croaking about, as if he had done a good deed. The unhappy mouse was soon sputtered and drowned in the water, and his poor dead body floating about on the surface. A hawk observed the floating mouse from the sky, and dove down and grabbed it with his talons, carrying it back to his nest. The frog, being still fastened to the leg of the mouse, was also carried off a prisoner, and was eaten by the hawk."
Ah, but who is the frog and who is the mouse? Is the mouse an allegorical depiction of the U.S., with the death of its manufacturing powerhouse catalyzed by the subsidies and currency manipulation of the Chinese frog? Or is China the mouse, whose export-based economy remains susceptible to the unsustainable and careless spending of the overleveraged western frog? In the latter scenario, the Chinese mouse's life (or at least savings) lay in the hands of the frog, steep in danger, an eventual victim to the hawk of Inflation.
Let us not forget that most unhappy final twist: the frog dies too, bound at the leg to the mouse. And so might the film roll, with an unhappy ending for the American frog. As the U.S. inflates away the burden of its debt (jargonized as "quantitative easing"), we may have fooled the Chinese this time, but future creditors will vanish, and the U.S.' ability to finance deficit spending on absurdly attractive terms will be relinquished for the foreseeable future.
It doesn't take an expert in game theory to realize that the mouse will try to untie itself before it gets dragged under water. In fact, China recently made waves with a proposal for alternatives to the U.S. dollar as a reserve currency. Bernanke, in fulfilling his patriotic cheerleading duties, recently sought to quell inflation worries with a promise to maintain harmony and balance throughout the universe: "I think that they are misguided in the sense that … the Federal Reserve is able to draw those reserves out and raise interest rates at an appropriate time to make sure that we don't have an inflation problem."
Borrowing a line I recently heard from a Harvard-educated economist, "That's bunk!" How popular will it be to raise rates and curtail economic growth just as the economy edges out of the worst recession since the Great Depression? More important, how will he do that as election season approaches and political pressure intensifies?
Besides the potential for intentional deception, one must also consider the chance for unwillful error, or being too late to the punch. In the same way that it is possible that an elephant guided by a troupe of chimpanzees might learn to ride a bicycle, it just isn't particularly likely. The Fed won't get the equilibrium just right. Bernanke has himself suggested it is better to err on the side of inflation rather than deflation, and it is inflation we expect to see, yet significant inflation is not yet imputed into bond prices, likely because the Fed itself is propping up prices for the moment by scooping up bonds to keep yields low. That sounds a bit like the mouse helplessly trying to stay afloat as the hawk lurks overhead.
Inflation is coming. In an inflationary world, stocks outperform bonds and long-term bonds fare particularly badly. Foreign stocks with undervalued currencies outperform stocks denominated in inflating currencies. For these reasons, equities will outpace fixed income for the decade to come (though not so in every year). Chinese equities will continue to offer their outsized gains over the next several years, even after its amazing run thus far in 2009.
That's not to say there won't be plenty of micro-cap stocks in the U.S. that have carved out growth opportunities, but don't ignore the low hanging fruit. Small-cap growth stocks in China--companies like Asia Info Holdings (ASIA), E-House (EJ), Baidu.com, Ctrip (CTRP), American Dairy (ADP), Perfect World (PFWD) and Rino (RINO)--as well as diversified China mutual funds, offer the benefits of foreign currency exposure and higher Chinese GDP growth to your aggressive growth portfolio.
So what's the moral of the story of The Mouse, the Frog and the Hawk? Be the hawk.
Jim Oberweis, CFA, is editor of the Oberweis Report and manager of several mutual funds focused on small-cap growth stocks and China.
http://www.forbes.com/2009/08/06/baidu-ctrip-asiainfo-personal-finance-investing-ideas-inflation-china_print.html
Jim Oberweis, Oberweis Report 08.06.09, 5:40 PM ET
If fable-teller Aesop sat down with China's President Hu Jintao and Federal Reserve Chairman Ben Bernanke, the meeting would begin with the story of the Mouse, the Frog and the Hawk:
"A mouse who always lived on the land, by an unlucky chance, formed an intimate acquaintance with a frog, who lived, for the most part, in the water. One day, the frog was intent on mischief. He tied the foot of the mouse tightly to his own. Thus joined together, the frog led his friend the mouse to the meadow where they usually searched for food. After this, he gradually led him toward the pond in which he lived. Upon reaching the banks of the water, he suddenly jumped in, dragging the mouse with him.
"The frog enjoyed the water amazingly, and swam croaking about, as if he had done a good deed. The unhappy mouse was soon sputtered and drowned in the water, and his poor dead body floating about on the surface. A hawk observed the floating mouse from the sky, and dove down and grabbed it with his talons, carrying it back to his nest. The frog, being still fastened to the leg of the mouse, was also carried off a prisoner, and was eaten by the hawk."
Ah, but who is the frog and who is the mouse? Is the mouse an allegorical depiction of the U.S., with the death of its manufacturing powerhouse catalyzed by the subsidies and currency manipulation of the Chinese frog? Or is China the mouse, whose export-based economy remains susceptible to the unsustainable and careless spending of the overleveraged western frog? In the latter scenario, the Chinese mouse's life (or at least savings) lay in the hands of the frog, steep in danger, an eventual victim to the hawk of Inflation.
Let us not forget that most unhappy final twist: the frog dies too, bound at the leg to the mouse. And so might the film roll, with an unhappy ending for the American frog. As the U.S. inflates away the burden of its debt (jargonized as "quantitative easing"), we may have fooled the Chinese this time, but future creditors will vanish, and the U.S.' ability to finance deficit spending on absurdly attractive terms will be relinquished for the foreseeable future.
It doesn't take an expert in game theory to realize that the mouse will try to untie itself before it gets dragged under water. In fact, China recently made waves with a proposal for alternatives to the U.S. dollar as a reserve currency. Bernanke, in fulfilling his patriotic cheerleading duties, recently sought to quell inflation worries with a promise to maintain harmony and balance throughout the universe: "I think that they are misguided in the sense that … the Federal Reserve is able to draw those reserves out and raise interest rates at an appropriate time to make sure that we don't have an inflation problem."
Borrowing a line I recently heard from a Harvard-educated economist, "That's bunk!" How popular will it be to raise rates and curtail economic growth just as the economy edges out of the worst recession since the Great Depression? More important, how will he do that as election season approaches and political pressure intensifies?
Besides the potential for intentional deception, one must also consider the chance for unwillful error, or being too late to the punch. In the same way that it is possible that an elephant guided by a troupe of chimpanzees might learn to ride a bicycle, it just isn't particularly likely. The Fed won't get the equilibrium just right. Bernanke has himself suggested it is better to err on the side of inflation rather than deflation, and it is inflation we expect to see, yet significant inflation is not yet imputed into bond prices, likely because the Fed itself is propping up prices for the moment by scooping up bonds to keep yields low. That sounds a bit like the mouse helplessly trying to stay afloat as the hawk lurks overhead.
Inflation is coming. In an inflationary world, stocks outperform bonds and long-term bonds fare particularly badly. Foreign stocks with undervalued currencies outperform stocks denominated in inflating currencies. For these reasons, equities will outpace fixed income for the decade to come (though not so in every year). Chinese equities will continue to offer their outsized gains over the next several years, even after its amazing run thus far in 2009.
That's not to say there won't be plenty of micro-cap stocks in the U.S. that have carved out growth opportunities, but don't ignore the low hanging fruit. Small-cap growth stocks in China--companies like Asia Info Holdings (ASIA), E-House (EJ), Baidu.com, Ctrip (CTRP), American Dairy (ADP), Perfect World (PFWD) and Rino (RINO)--as well as diversified China mutual funds, offer the benefits of foreign currency exposure and higher Chinese GDP growth to your aggressive growth portfolio.
So what's the moral of the story of The Mouse, the Frog and the Hawk? Be the hawk.
Jim Oberweis, CFA, is editor of the Oberweis Report and manager of several mutual funds focused on small-cap growth stocks and China.
http://www.forbes.com/2009/08/06/baidu-ctrip-asiainfo-personal-finance-investing-ideas-inflation-china_print.html
Monday, 17 August 2009
Latexx
Price 2.10
latest eps 5.86
annualised eps 23.4
annualised PE = 8.9
Market cap 383.555 m
NAV 72 sen
latest eps 5.86
annualised eps 23.4
annualised PE = 8.9
Market cap 383.555 m
NAV 72 sen
Hartalega
Hartalega
Price 5.20
latest qtr eps 10.88
annualised eps 4x 10.88 = 43.5
annualised PE = 12
Market cap = 1.3 billion
NAV 1.12
Date Announced : 12/08/2009
Type : Announcement
Subject : HARTALEGA HOLDINGS BERHAD ("HARTA and/or Company")
-Director's dealing in shares in HARTA during closed period pursuant to paragraph 14.08(c) of the Listing Requirements of Bursa Malaysia Securities Berhad
Contents : Pursuant to paragraph 14.08(c) of the Bursa Securities Listing Requirements, Encik Sannusi Bin Ngah, a Non-Independent Non-Executive Director of the Company has given a notification that he has disposed a total of 3,000,000 ordinary shares of RM0.50 each in HARTA, details of which are set out in the table below.
Price 5.20
latest qtr eps 10.88
annualised eps 4x 10.88 = 43.5
annualised PE = 12
Market cap = 1.3 billion
NAV 1.12
Date Announced : 12/08/2009
Type : Announcement
Subject : HARTALEGA HOLDINGS BERHAD ("HARTA and/or Company")
-Director's dealing in shares in HARTA during closed period pursuant to paragraph 14.08(c) of the Listing Requirements of Bursa Malaysia Securities Berhad
Contents : Pursuant to paragraph 14.08(c) of the Bursa Securities Listing Requirements, Encik Sannusi Bin Ngah, a Non-Independent Non-Executive Director of the Company has given a notification that he has disposed a total of 3,000,000 ordinary shares of RM0.50 each in HARTA, details of which are set out in the table below.
Saturday, 15 August 2009
Glove makers to ride on strong demand growth
Glove makers to ride on strong demand growth
Tags: Hartalega | Kossan | Top Glove
Written by The Edge Financial Daily
Friday, 14 August 2009 12:07
KUALA LUMPUR: Maybank Investment Research remains overweight on Malaysia's glove manufacturing sector, which has the top manufacturers in the world.
The research house said on Aug 14 it had raised the target prices of Hartalega and Top Glove by 19%-23% to RM6.50 and RM8.30. It also retained the Buy calls on Hartalega, Top Glove and Kossan.
It said expectation is for demand to grow by a strong 10%-12% per annum over the next five years, above its 5%-8% forecast.
Maybank Investment Research said the drivers are improved hygiene standards and healthcare awareness in developing countries like Latin America and Asia; higher incidences of major infectious disease outbreaks, an ageing population and rising economic and social conditions, and more outsourcing by large medical companies in US.
The challenges for the sector is the government's stand on foreign labour, double levy and tax benefits; lack of R&D in the industry; volatile latex prices and currencies, and energy issues.
However, glove makers should be able to continue passing on additional costs over time to mitigate exposure.
"We shall see selling prices being adjusted upwards in 3Q09 to accommodate latex prices' current uptrend," it said.
All producers are expected to post above-par core second quarter 2009 earnings, riding on lower material costs and orders surge owing to the H1N1 outbreak. Demand growth should be stronger ahead.
"We have raised Top Glove and Hartalega's FY09-12 net profits by 7%-13% but lowered Kossan's FY09 by 10% due to losses in structured currency product. The combined net profits of the producers are still expected to record a three-year compounded annual growth rate (CAGR) of 14%. Capacity expansion should support demand growth.
"Considering their dominant global market share, the sector's 2009-10 price-to-earnings ratio (PER) of 11 times to 13 times is undemanding relative to the FBM-KLCI 30's 17 times. We raise Hartalega's and Top Glove's TP to RM6.50 (+19%) and RM8.30 (+23%) respectively. We maintain Kossan's TP at RM5.30," it said.
From the Edge
Tags: Hartalega | Kossan | Top Glove
Written by The Edge Financial Daily
Friday, 14 August 2009 12:07
KUALA LUMPUR: Maybank Investment Research remains overweight on Malaysia's glove manufacturing sector, which has the top manufacturers in the world.
The research house said on Aug 14 it had raised the target prices of Hartalega and Top Glove by 19%-23% to RM6.50 and RM8.30. It also retained the Buy calls on Hartalega, Top Glove and Kossan.
It said expectation is for demand to grow by a strong 10%-12% per annum over the next five years, above its 5%-8% forecast.
Maybank Investment Research said the drivers are improved hygiene standards and healthcare awareness in developing countries like Latin America and Asia; higher incidences of major infectious disease outbreaks, an ageing population and rising economic and social conditions, and more outsourcing by large medical companies in US.
The challenges for the sector is the government's stand on foreign labour, double levy and tax benefits; lack of R&D in the industry; volatile latex prices and currencies, and energy issues.
However, glove makers should be able to continue passing on additional costs over time to mitigate exposure.
"We shall see selling prices being adjusted upwards in 3Q09 to accommodate latex prices' current uptrend," it said.
All producers are expected to post above-par core second quarter 2009 earnings, riding on lower material costs and orders surge owing to the H1N1 outbreak. Demand growth should be stronger ahead.
"We have raised Top Glove and Hartalega's FY09-12 net profits by 7%-13% but lowered Kossan's FY09 by 10% due to losses in structured currency product. The combined net profits of the producers are still expected to record a three-year compounded annual growth rate (CAGR) of 14%. Capacity expansion should support demand growth.
"Considering their dominant global market share, the sector's 2009-10 price-to-earnings ratio (PER) of 11 times to 13 times is undemanding relative to the FBM-KLCI 30's 17 times. We raise Hartalega's and Top Glove's TP to RM6.50 (+19%) and RM8.30 (+23%) respectively. We maintain Kossan's TP at RM5.30," it said.
From the Edge
Warren Buffett Was Right
Warren Buffett Was Right
By: Zacks Investment Research
Friday, August 07, 2009 6:35 PM
Did you follow Warren Buffett's advice last year to buy American stocks? In that now famous October 17, 2008 Op-Ed piece in the New York Times, Buffet shared his simple rule for buying stocks: "Be fearful when others are greedy, and be greedy when others are fearful." Certainly at that time fear had gripped the markets and investors were fleeing equities into cash.
Well if you did buy at that time, then you are one of the few, the proud, and the bold value investors who made a prudent call that is now paying off handsomely. And if you didn’t buy then lets review the lessons that Warren was trying to share and how it will benefit you going forward.
1. The Markets Rebound Long Before the Economy
Buffett believed that equities would far outperform other asset classes, especially cash, over the next 5, 10 or 20 years as the stock market rises in anticipation of an economic recovery, even if we weren't in one yet.
A perfect example is the Dow's behavior during the Great Depression. Buffett wrote that it took several years for the Dow to hit its low of 41 on Jul 8, 1932. But you wouldn't have known that that was "the bottom" based on economic conditions. The economy continued to worsen until March 1933, when Franklin Roosevelt took office.
Meanwhile, from the market lows in July 1932 to March 1933, the Dow rebounded 30%.
We've seen a similar rebound in the last 5 months but no one knows how long the rally will last or if it's the start of a new bull market. Still, while your cash is getting virtually no interest in this zero-rate interest environment, equities are paying a dividend yield and have the possibility of more upside. In this kind of environment, cash is not king.
2. Long-Term Outlook For Equities Is Good
The stock markets have been around much longer than any of us. During that time, the world suffered through world wars, influenza outbreaks, terrorist attacks, recessions and one depression but still, businesses created new products and made profit. They will continue to do so in the future.
Consider Apple and the iPhone. Even in the midst of this recession, millions of people bought the iPhone around the world. Investors who understood that Apple was still selling its products at a fast clip were rewarded with a stock that jumped over 90% from the beginning of the year.
Apple won't be the last company to cash in on its powerful brand and host of good products. The key for investors is to find other companies that will be next to do the same.
3. Prepare for Inflation
Buffett wrote that greater inflation was a possibility as the government printing presses work overtime to alleviate the recession and liquidity enters the economic system. Cash is where you will NOT want to be. The value of your cash will actually decline under those conditions.
There are now exchange-traded funds (ETFs) and other instruments available to investors to prepare for inflation including owning TIPs, Treasury-Inflation Protected Securities, and the precious metals through the gold or silver ETFs or precious metal mining stocks.
4. Finding Great Stocks
The great thing about being an investor is that there are always hidden gems to be uncovered in any kind of market.
Despite the massive rally we've seen on the markets in the past few months, you can still hunt for undervalued stocks that will see a big upside when investors figure out that the fundamentals are great and the stock is cheap.
For example, in May, well after the rally began, the Value Trader portfolio, which buys a basket of stocks with a holding period of 3 months, bought shares of Western Digital and sold in late July for a 23.44% profit.
We try and find these kind of stocks every day.
5. It's Not Too Late to Invest
By March, it seemed that Buffett's advice to buy equities was very, very wrong. But that was his point. You can't time it. He said he had no idea what stocks would do in the short term. But it's not too late.
http://www.istockanalyst.com/article/viewarticle/articleid/3402145
By: Zacks Investment Research
Friday, August 07, 2009 6:35 PM
Did you follow Warren Buffett's advice last year to buy American stocks? In that now famous October 17, 2008 Op-Ed piece in the New York Times, Buffet shared his simple rule for buying stocks: "Be fearful when others are greedy, and be greedy when others are fearful." Certainly at that time fear had gripped the markets and investors were fleeing equities into cash.
Well if you did buy at that time, then you are one of the few, the proud, and the bold value investors who made a prudent call that is now paying off handsomely. And if you didn’t buy then lets review the lessons that Warren was trying to share and how it will benefit you going forward.
1. The Markets Rebound Long Before the Economy
Buffett believed that equities would far outperform other asset classes, especially cash, over the next 5, 10 or 20 years as the stock market rises in anticipation of an economic recovery, even if we weren't in one yet.
A perfect example is the Dow's behavior during the Great Depression. Buffett wrote that it took several years for the Dow to hit its low of 41 on Jul 8, 1932. But you wouldn't have known that that was "the bottom" based on economic conditions. The economy continued to worsen until March 1933, when Franklin Roosevelt took office.
Meanwhile, from the market lows in July 1932 to March 1933, the Dow rebounded 30%.
We've seen a similar rebound in the last 5 months but no one knows how long the rally will last or if it's the start of a new bull market. Still, while your cash is getting virtually no interest in this zero-rate interest environment, equities are paying a dividend yield and have the possibility of more upside. In this kind of environment, cash is not king.
2. Long-Term Outlook For Equities Is Good
The stock markets have been around much longer than any of us. During that time, the world suffered through world wars, influenza outbreaks, terrorist attacks, recessions and one depression but still, businesses created new products and made profit. They will continue to do so in the future.
Consider Apple and the iPhone. Even in the midst of this recession, millions of people bought the iPhone around the world. Investors who understood that Apple was still selling its products at a fast clip were rewarded with a stock that jumped over 90% from the beginning of the year.
Apple won't be the last company to cash in on its powerful brand and host of good products. The key for investors is to find other companies that will be next to do the same.
3. Prepare for Inflation
Buffett wrote that greater inflation was a possibility as the government printing presses work overtime to alleviate the recession and liquidity enters the economic system. Cash is where you will NOT want to be. The value of your cash will actually decline under those conditions.
There are now exchange-traded funds (ETFs) and other instruments available to investors to prepare for inflation including owning TIPs, Treasury-Inflation Protected Securities, and the precious metals through the gold or silver ETFs or precious metal mining stocks.
4. Finding Great Stocks
The great thing about being an investor is that there are always hidden gems to be uncovered in any kind of market.
Despite the massive rally we've seen on the markets in the past few months, you can still hunt for undervalued stocks that will see a big upside when investors figure out that the fundamentals are great and the stock is cheap.
For example, in May, well after the rally began, the Value Trader portfolio, which buys a basket of stocks with a holding period of 3 months, bought shares of Western Digital and sold in late July for a 23.44% profit.
We try and find these kind of stocks every day.
5. It's Not Too Late to Invest
By March, it seemed that Buffett's advice to buy equities was very, very wrong. But that was his point. You can't time it. He said he had no idea what stocks would do in the short term. But it's not too late.
http://www.istockanalyst.com/article/viewarticle/articleid/3402145
Friday, 14 August 2009
Reviewing my Sell Transactions
http://spreadsheets.google.com/pub?key=t0sOF20dGoiu6n90X-XiAfA&output=html
Reasons for selling:
1. When cash is needed urgently for emergencies. Hopefully you will have cash kept aside for such contingencies.
2. When the fundamentals of the company has deteriorated. The stock should be sold urgently.
3. When the share is deemed overpriced, reducing its upside potential and increasing its downside risk.
4. To switch a stock to another stock with better upside potential and lower downside risk.
Reasons for selling:
1. When cash is needed urgently for emergencies. Hopefully you will have cash kept aside for such contingencies.
2. When the fundamentals of the company has deteriorated. The stock should be sold urgently.
3. When the share is deemed overpriced, reducing its upside potential and increasing its downside risk.
4. To switch a stock to another stock with better upside potential and lower downside risk.
Thursday, 13 August 2009
Buffett: Principles of fundamental business analysis should guide investment practice.
Focussed investing: allocating capital by concentrating on businesses with outstanding economic characteristics and run by first-rate manager.
The central theme uniting Buffett's investing is that the principles of fundamental business analysis, first formulated by his teachers Ben Graham and David Dodd, should guide investment practice. Linked to that theme are investment pricniples that define the proper role of corporate managers as the stewards of invested capital, and the proper role of shareholders as the suppliers and owners of capital.
Buffett and Berkshire Vice Chairman Charlie Munger have built Berkshire Hathaway into a $70-plus billion enterprise by investing in business with excellent economic characteristics and run by outstanding managers. While they prefer negotiated acquisitions of 100% of such a business at a fair price, they take a "double-barreled approach" of buying on the open market less than 100% of such businesses when they can do so at a pro-rata price well below what it would take to buy 100%.
The double-barreled approach pays off handsomely. The value of marketable securities in Berkshire's portfolio, on a per share basis, increased from $4 in 1965 to nearly $50,000 in 2000, about a 25% annual increase. Per share operating earnings increased in the same period from just over $4 to around $500, an annual increase of about 18%. According to Buffett, these results follow not from any master plan but from focussed investing - allocating capital by concentrating on businesses with outstanding economic characteristics and run by first-rate manager.
Learning from Buffett
Buffett views Berkshire as a partnership among him, Munger and other shareholders, and virtually all his $20-plus billion net worth is in Berkshire stock. His economic goal is long-term - to maximize Berkshire's per share intrinsic value by owning all or part of a diversified group of businesses that generate cash and above-average returns. In achieving this goal, Buffett foregoes expansion for the sake of expansion and foregoes divestment of businesses so long as they generate some cash and have good management.
Berkshire retains and reinvests earnings when doing so delivers at least proportional increases in per share market value over time. It uses debt sparingly and sells equity only when it receives as much in value as it gives. Buffett penetrates acounting conventions, especially those that obscure real economic earnings.
It is true that investors should focus on fundamentals, be patient, and exercise good judgment based on common sense. Many people speculate on what Berkshire and Buffett are doing or plan to do. Their speculation is sometimes right and sometimes wrong, but always foolish. People would be far better off not attempting to ferret out what specific investments are being made at Berkshire, but thinking about how to make sound investment selections based on Berkshire's teaching. That means they should think about Buffett's writings and learn from them, rather than try to emulate Berkshire's porfolio.
Buffett modestly confesses that most of the ideas were taught to him by Ben Graham. He considers himself the conduit through which Graham's ideas have proven their value. Buffett recognizes the risk of popularizing his business and investment philosophy. But he notes that he benefited enormously from Graham's intellectual generosity and believes it is appropriate that he pass the wisdom on, even if that means creating investment competitors.
-----
Buffett has applied the traditional principles as CEO of Berkshire Hathaway, a company with roots in a group of textile operations begun in the early 1800s. Buffett took the helm of Berkshire in 1964, when its book value per share was $19.46 and its intrinsic value per share far lower. Today (2002), its book value per share is around $40,000 and its intrinsic vlaue far higher. The growth rate in book value per share during that period is about 24% compounded annually.
Berkshire is now a holding company engaged in a variety of businesses, not including textiles. Berkshire's most important business is insurance, carried on through various companies including its 100% owned subsidiary, GEICO Corporation, the sixth largest auto insurer in the United States, and General Re Corporation, one of the four largest reinsurers in the world. Berkshire publishes The Buffalo News and owns other businesses that manufacture or distribute products ranging from carpeting, briks, paint, encyclopedias, home furnishings, and cleaning systems, to chocolate candies, ice cream, jewelry, footwear, uniforms, and air compressors, as well as businesses that provide training to operators of aircrafts and ships worldwide, fractional ownership interests in general aviation aircraft, and electric and gas power generation. Berkshire also wons substantial equity interests in major corporations, including American Express, Coca-Cola, Gillette, The Washington Post, and Wells Fargo.
The central theme uniting Buffett's investing is that the principles of fundamental business analysis, first formulated by his teachers Ben Graham and David Dodd, should guide investment practice. Linked to that theme are investment pricniples that define the proper role of corporate managers as the stewards of invested capital, and the proper role of shareholders as the suppliers and owners of capital.
Buffett and Berkshire Vice Chairman Charlie Munger have built Berkshire Hathaway into a $70-plus billion enterprise by investing in business with excellent economic characteristics and run by outstanding managers. While they prefer negotiated acquisitions of 100% of such a business at a fair price, they take a "double-barreled approach" of buying on the open market less than 100% of such businesses when they can do so at a pro-rata price well below what it would take to buy 100%.
The double-barreled approach pays off handsomely. The value of marketable securities in Berkshire's portfolio, on a per share basis, increased from $4 in 1965 to nearly $50,000 in 2000, about a 25% annual increase. Per share operating earnings increased in the same period from just over $4 to around $500, an annual increase of about 18%. According to Buffett, these results follow not from any master plan but from focussed investing - allocating capital by concentrating on businesses with outstanding economic characteristics and run by first-rate manager.
Learning from Buffett
Buffett views Berkshire as a partnership among him, Munger and other shareholders, and virtually all his $20-plus billion net worth is in Berkshire stock. His economic goal is long-term - to maximize Berkshire's per share intrinsic value by owning all or part of a diversified group of businesses that generate cash and above-average returns. In achieving this goal, Buffett foregoes expansion for the sake of expansion and foregoes divestment of businesses so long as they generate some cash and have good management.
Berkshire retains and reinvests earnings when doing so delivers at least proportional increases in per share market value over time. It uses debt sparingly and sells equity only when it receives as much in value as it gives. Buffett penetrates acounting conventions, especially those that obscure real economic earnings.
It is true that investors should focus on fundamentals, be patient, and exercise good judgment based on common sense. Many people speculate on what Berkshire and Buffett are doing or plan to do. Their speculation is sometimes right and sometimes wrong, but always foolish. People would be far better off not attempting to ferret out what specific investments are being made at Berkshire, but thinking about how to make sound investment selections based on Berkshire's teaching. That means they should think about Buffett's writings and learn from them, rather than try to emulate Berkshire's porfolio.
Buffett modestly confesses that most of the ideas were taught to him by Ben Graham. He considers himself the conduit through which Graham's ideas have proven their value. Buffett recognizes the risk of popularizing his business and investment philosophy. But he notes that he benefited enormously from Graham's intellectual generosity and believes it is appropriate that he pass the wisdom on, even if that means creating investment competitors.
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Buffett has applied the traditional principles as CEO of Berkshire Hathaway, a company with roots in a group of textile operations begun in the early 1800s. Buffett took the helm of Berkshire in 1964, when its book value per share was $19.46 and its intrinsic value per share far lower. Today (2002), its book value per share is around $40,000 and its intrinsic vlaue far higher. The growth rate in book value per share during that period is about 24% compounded annually.
Berkshire is now a holding company engaged in a variety of businesses, not including textiles. Berkshire's most important business is insurance, carried on through various companies including its 100% owned subsidiary, GEICO Corporation, the sixth largest auto insurer in the United States, and General Re Corporation, one of the four largest reinsurers in the world. Berkshire publishes The Buffalo News and owns other businesses that manufacture or distribute products ranging from carpeting, briks, paint, encyclopedias, home furnishings, and cleaning systems, to chocolate candies, ice cream, jewelry, footwear, uniforms, and air compressors, as well as businesses that provide training to operators of aircrafts and ships worldwide, fractional ownership interests in general aviation aircraft, and electric and gas power generation. Berkshire also wons substantial equity interests in major corporations, including American Express, Coca-Cola, Gillette, The Washington Post, and Wells Fargo.
What guides your investing?
It is surprising to know of many remisiers who cannot give you a short account of their investment principles. In conversations, they talk about short term "hot stocks". So and so "smart" investor is buying. So and so "smart" investor is selling. This stock should go up higher soon because of this and that. This is not such a good stock. This is a good stock.
Such "guide" is of little use for a serious investor who seeks to "invest" significant amount into the market for good returns (either for dividend and/or capital gains) over a life-time.
It is surprising why so many investors do not have a "good" guide for their investing. Many understand the buy low and sell high approach (or for some, buy high and sell higher approach), but with little application of fundamental business analysis. They have little control over the controllables, therefore, their approach is very much dependent on the play of the market and chance.
However, by adopting certain investment philosophy and understanding their emotion and behaviour, their investment operations can be safer with a higher probability of a positive moderate return. And there is no need to have a superior IQ to do so.
Such "guide" is of little use for a serious investor who seeks to "invest" significant amount into the market for good returns (either for dividend and/or capital gains) over a life-time.
It is surprising why so many investors do not have a "good" guide for their investing. Many understand the buy low and sell high approach (or for some, buy high and sell higher approach), but with little application of fundamental business analysis. They have little control over the controllables, therefore, their approach is very much dependent on the play of the market and chance.
However, by adopting certain investment philosophy and understanding their emotion and behaviour, their investment operations can be safer with a higher probability of a positive moderate return. And there is no need to have a superior IQ to do so.
Wednesday, 12 August 2009
How to screen overseas stocks
Wednesday August 12, 2009
How to screen overseas stocks
Personal Investing - By ooi Kok Hwa
Four criteria to look at when choosing counters that are suitable for long-term investment
LATELY, interest has grown in overseas stock investment. Given the foreign markets’ relatively high volatility of returns compared with the local market, a lot of retail investors find it more exciting to invest in overseas stocks.
However, a common problem most investors face is how to filter, from among all the listed companies in the respective markets, the right stocks that are suitable for long-term investment.
Market capitalisation
One of the most important selection criteria is buying stocks with big market capitalisation. The market cap of a listed company can be computed by multiplying the number of its outstanding shares with the current share price.
In general, we should buy stocks with big market cap because they are normally well-established blue-chip stocks with higher turnover and widely-accepted products and services.
Even though some academic research shows that buying into small market cap stocks can provide higher returns compared with big market cap companies, unless we are quite familiar with the stocks available in those overseas markets, it is safer to put our money into bigger market cap stocks.
It is not difficult to find out which companies have the largest market cap in any stock exchange.
Such information is available in most major newspapers in that particular country or the stock exchanges themselves.
For example, if we intend to buy some Singapore stocks, we should pay attention to companies that are ranked in the top 30 in terms of market cap. One can get the rankings by market cap for the Singapore Exchange in StarBiz monthly.
Price/earnings ratio
Once we have filtered out the blue-chip stocks, the next selection criteria is the price/earnings ratio (PER), which should be lower than the overall market PER. This is computed by dividing the current stock price by the earnings per share (EPS) of the company. It represents the number of years that we need to get back our money, assuming the company maintains identical earnings throughout the period.
Even though some published PER may use historical audited EPS compared with forecast EPS, given that our key objective is to do stock screening, the PER testing will provide us with a quick check on the top 30 companies – whether they are profitable and selling at reasonable PER compared with the overall market PER.
If we cannot get access to the overall market PER, we may want to consider Benjamin Graham’s suggestion of buying stocks with PER of lower than 15 times.
Dividend yield
A good company should pay dividends. We strongly believe that this is one of the most important ways for the investors to get any returns from the companies that they invest in.
Our rule of thumb is that a good company should have a dividend yield that at least equals or is higher than the risk-free return, which is usually based on the fixed deposit rates.
The dividend yield is computed by dividing the dividend per share by the current share price. In general, most blue-chip stocks do have a fixed dividend payout policy and reward investors with a consistent and growing dividend returns.
Based on our observation, most smaller companies may not be able to pay good dividends as they may need the capital for future expansion programmes.
Price-to-book ratio
Most investors would like to invest at a market price lower than the owners’ costs in the company. The book value of a company represents the owners’ costs invested in it.
In a normal business environment, unless the company has some problems that the general public may not be aware of, it is quite difficult to find stocks selling at a price lower than the book value of the company.
As a result, we may need to purchase at a market price higher than the book value. According to Graham, the maximum price one should pay for any stock is the price which gives a price-to-book ratio no greater than 1.5 times. This means that we should not pay more than 1.5 times the owners’ costs invested in the company.
Lastly, the above four selection criteria are merely a preliminary quick stock screening process. Even though investors may be able to find stocks that fit the criteria, we suggest investors check further the fundamentals of the company, such as the balance sheet strength, its gearing, future business prospects and the quality of the management before deciding to invest.
● Ooi Kok Hwa is an investment adviser and managing partner of MRR Consulting.
From The Star newspaper
How to screen overseas stocks
Personal Investing - By ooi Kok Hwa
Four criteria to look at when choosing counters that are suitable for long-term investment
LATELY, interest has grown in overseas stock investment. Given the foreign markets’ relatively high volatility of returns compared with the local market, a lot of retail investors find it more exciting to invest in overseas stocks.
However, a common problem most investors face is how to filter, from among all the listed companies in the respective markets, the right stocks that are suitable for long-term investment.
Market capitalisation
One of the most important selection criteria is buying stocks with big market capitalisation. The market cap of a listed company can be computed by multiplying the number of its outstanding shares with the current share price.
In general, we should buy stocks with big market cap because they are normally well-established blue-chip stocks with higher turnover and widely-accepted products and services.
Even though some academic research shows that buying into small market cap stocks can provide higher returns compared with big market cap companies, unless we are quite familiar with the stocks available in those overseas markets, it is safer to put our money into bigger market cap stocks.
It is not difficult to find out which companies have the largest market cap in any stock exchange.
Such information is available in most major newspapers in that particular country or the stock exchanges themselves.
For example, if we intend to buy some Singapore stocks, we should pay attention to companies that are ranked in the top 30 in terms of market cap. One can get the rankings by market cap for the Singapore Exchange in StarBiz monthly.
Price/earnings ratio
Once we have filtered out the blue-chip stocks, the next selection criteria is the price/earnings ratio (PER), which should be lower than the overall market PER. This is computed by dividing the current stock price by the earnings per share (EPS) of the company. It represents the number of years that we need to get back our money, assuming the company maintains identical earnings throughout the period.
Even though some published PER may use historical audited EPS compared with forecast EPS, given that our key objective is to do stock screening, the PER testing will provide us with a quick check on the top 30 companies – whether they are profitable and selling at reasonable PER compared with the overall market PER.
If we cannot get access to the overall market PER, we may want to consider Benjamin Graham’s suggestion of buying stocks with PER of lower than 15 times.
Dividend yield
A good company should pay dividends. We strongly believe that this is one of the most important ways for the investors to get any returns from the companies that they invest in.
Our rule of thumb is that a good company should have a dividend yield that at least equals or is higher than the risk-free return, which is usually based on the fixed deposit rates.
The dividend yield is computed by dividing the dividend per share by the current share price. In general, most blue-chip stocks do have a fixed dividend payout policy and reward investors with a consistent and growing dividend returns.
Based on our observation, most smaller companies may not be able to pay good dividends as they may need the capital for future expansion programmes.
Price-to-book ratio
Most investors would like to invest at a market price lower than the owners’ costs in the company. The book value of a company represents the owners’ costs invested in it.
In a normal business environment, unless the company has some problems that the general public may not be aware of, it is quite difficult to find stocks selling at a price lower than the book value of the company.
As a result, we may need to purchase at a market price higher than the book value. According to Graham, the maximum price one should pay for any stock is the price which gives a price-to-book ratio no greater than 1.5 times. This means that we should not pay more than 1.5 times the owners’ costs invested in the company.
Lastly, the above four selection criteria are merely a preliminary quick stock screening process. Even though investors may be able to find stocks that fit the criteria, we suggest investors check further the fundamentals of the company, such as the balance sheet strength, its gearing, future business prospects and the quality of the management before deciding to invest.
● Ooi Kok Hwa is an investment adviser and managing partner of MRR Consulting.
From The Star newspaper
KFC Holdings (Malaysia) Bhd
*Wright Quality Rating: DAB1
Liquidity D (Fair)
Financial Strength A (Outstanding)
Profitability B (Excellent)
Growth 1 (Lowest)
Announcement
Date/ Fin.Yr. End/ Qtr/ Period End/ Rev RM '000/ Profit RM'000 /EPS Amended
21-May-09 31-Dec-09 1 31-Mar-09 526,639 29,433 14.47 -
26-Feb-09 31-Dec-08 4 31-Dec-08 601,907 28,717 14.32 -
20-Nov-08 31-Dec-08 3 30-Sep-08 552,440 31,824 15.86 -
20-Aug-08 31-Dec-08 2 30-Jun-08 529,843 31,002 15.34 -
(Based on above: ttm-eps was 60 sen)
Higher contribution from the KFC Restaurants segment: (1) from continuing network expansion (38 new restaurants added last year), and (2) from new sales channel such as breakfast and extension of operating hours of certain outlets to 24 hours. This is negated by increased cost of raw material.
Poultry Integrated segment: Higher turnover due to (1) improved sales to the KFC restaurants and (2) better sales of its Ayamas products both locally and in export sector. This is partially negated by the increasing cost of commodities which resulted in higher cost of internally produced poultry products.
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Historical data:
Last 5-Yr
DY Range 3.4% - 2.4%
PE Range 9.3 - 13.2 (Mean PE 11.25)
EPSGR 28.4%
Last 10-Yr
DY Range 2.9% - 2.0%
PE Range 12.7 - 18.6
EPSGR 47.1%
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What the management wrote in the last quarter release:
Current Year Prospects
The global economy deteriorated further during the first quarter. In Singapore, initial estimates indicated that the Singapore economy registered a negative growth of 11.5% in the first quarter and the Ministry of Trade and Industry announced that the Gross Domestic Product would contract by 6% to 9% in 2009. (Source : Ministry of Trade and Industry, Singapore). It was widely expected that the Malaysian economy will improve in the second half of 2009 supported by the stabilization in global economic conditions. These expectations were however dampened by the outbreak of Influenza A (H1N1) in late April 2009, which may slow down the economic recovery process.
With the prevalent economic uncertainties, consumer spending is expected to be negatively affected. Thus the Group will continue to focus on value to customers by offering value for money products to align with its customers spending ability.
Based on the foregoing, the Board is optimistic of sustaining the Group’s performance in the balance of the year. The Group has laid down plans to increase revenue and profitability by increasing the restaurants network, enhancing customer experience, developing new and improved products, expanding business activities, developing better cost efficiencies and improving productivity at all the restaurants and manufacturing facilities.
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Using ttm-eps 60 sen and expected estimated dividend (SPG) 16.5 sen
At today's price of 7.30:
DY is estimated 2.26% (Below the mean of the DY range)
PE is 12.2 (Just above the mean of the PE range)
PEG is 12.2/28.4 = 0.43 (Cheap)
At 7.30, one would be buying at slightly higher than the fair PE for KFC. However, valuation based on PEG is cheap.
The uncertainty as usual is in judging how the business will grow in the future. However, it is alright to acquire a good company at fair price. The question you should ask is: Will KFC be able to grow its business and earnings strongly in the next few years? The last 4 quarters revenues and earnings have been flat, probably due to the weak economic environment.
Anyway, KFC has done well the last 5 years and should continues to prosper, given the increasing numbers of Malaysians entering the middle income class group.
As usual, you will have to make your own decision in investing.
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*Wright Quality Ratings are based on numerous individual measures of quality, grouped into four principal components: (1) Investment Acceptance (i.e. stock liquidity), (2) Financial Strength, (3) Profitability & Stability, and (4) Growth. The ratings are based on established principles using 5-6 years of corporate record and other investment data.
The ratings consist of three letters and a number. Each letter reflects a composite qualitative measurement of numerous individual standards which may be summarized as follows:
A = Outstanding; B = Excellent; C = Good; D = Fair; L = Limited; N = Not Rated.
The number component of the Quality Rating is also a composite measurement of the annual corporate growth, based on earnings and modified by growth rates of equity, dividends, and sales per common share. The Growth rating may vary from 0 (lowest) to 20 (highest).
Nestle eyes ‘vital’ role in halal food industry via helping SMEs
Tuesday August 11, 2009
Nestle eyes ‘vital’ role in halal food industry via helping SMEs
PETALING JAYA: Nestle (M) Bhd wants to play a vital role to boost the halal food industry by helping local small and medium enterprises (SMEs) be competent suppliers to the company.
Managing director Sullivan O’Carroll said, at the same time, Nestle wanted to promote Malaysia as the global halal hub for its products.
“We have the expertise and experience to help local SMEs produce quality products that meet the international standard.
“At the same time SME players will have the opportunity to contribute through supplying of raw/semi-processed materials to us,” he said yesterday at the memorandum of agreement signing ceremony between Nestle, Small & Medium Industries Development Corp (Smidec) and Halal Industry Development Corp (HDC).
From left: SMIDEC chief executive officer Datuk Hafsah Hashim, SMIDEC chairman Datuk Ir. Mohamed Al Amin Abdul Majid, Nestle(M) Bhd technical and production executive director Detlef Krost, International Trade and Industry Minister Datuk Mustapa Mohamed, HDC chairman Tan Sri Datuk Dr Syed Jalaludin Syed Salim, HDC chief executive officer Datuk Seri Jamil Bidin and Nestle (M) Bhd managing director Sullivan O' Caroll after the signing of MOA on Monday.
The strategic collaboration between the three parties is to enhance the capacity and capability development of potential SMEs to become suppliers to Nestle.
O’Carroll said Nestle was currently importing most of its raw/semi-processed materials from Europe and the US for its products and wanted more contribution from the local SMEs.
“Europe and the US, for example, have a very high standard for any food players to be in their market and we need to fulfil their regulatory food standard. We believe Nestle can help the local SMEs reach the standard required by these international markets through our expertise and research and development technology,” he said.
HDC chief executive officer Datuk Seri Jamil Bidin said the collaboration confirmed the common desire of the three parties to cooperate for the purpose of promoting the development of business opportunities for SMEs involved in the halal food and beverages industry in Malaysia.
“Over time, the selected local SMEs suppliers will be able to benefit from the learning curve, compliance of standards, best practices and innovation to enhance their own capabilities and competencies,” he said.
Smidec chief executive officer Datuk Hafsah Hashim said the demand for halal food was increasing globally as more countries, such as Japan, were interested to be part of this industry.
“During our visit to Japan end of last month, five or six Japanese food companies had shown interest in this industry. They were also asking for assistance from HDC regarding halal certification,” she said, adding that one Japanese food company had already set up its facility in Johor Baru while another one was in the process of doing so in Malacca.
Smidec will identify and recommend potential SMEs in the halal ingredient industry to HDC and Nestle based on its evaluation system.
The selected SMEs will then be equipped with the requisite technology and financial assistance to ensure that they fulfil the requirement and meet the specifications set by Nestle to enable them to be considered as suppliers.
Currently, Nestle has about 150 suppliers, of which 40 are local companies and, in terms of value, these 40 companies supply only 10% of its required raw materials and ingredients.
Nestle eyes ‘vital’ role in halal food industry via helping SMEs
PETALING JAYA: Nestle (M) Bhd wants to play a vital role to boost the halal food industry by helping local small and medium enterprises (SMEs) be competent suppliers to the company.
Managing director Sullivan O’Carroll said, at the same time, Nestle wanted to promote Malaysia as the global halal hub for its products.
“We have the expertise and experience to help local SMEs produce quality products that meet the international standard.
“At the same time SME players will have the opportunity to contribute through supplying of raw/semi-processed materials to us,” he said yesterday at the memorandum of agreement signing ceremony between Nestle, Small & Medium Industries Development Corp (Smidec) and Halal Industry Development Corp (HDC).
From left: SMIDEC chief executive officer Datuk Hafsah Hashim, SMIDEC chairman Datuk Ir. Mohamed Al Amin Abdul Majid, Nestle(M) Bhd technical and production executive director Detlef Krost, International Trade and Industry Minister Datuk Mustapa Mohamed, HDC chairman Tan Sri Datuk Dr Syed Jalaludin Syed Salim, HDC chief executive officer Datuk Seri Jamil Bidin and Nestle (M) Bhd managing director Sullivan O' Caroll after the signing of MOA on Monday.
The strategic collaboration between the three parties is to enhance the capacity and capability development of potential SMEs to become suppliers to Nestle.
O’Carroll said Nestle was currently importing most of its raw/semi-processed materials from Europe and the US for its products and wanted more contribution from the local SMEs.
“Europe and the US, for example, have a very high standard for any food players to be in their market and we need to fulfil their regulatory food standard. We believe Nestle can help the local SMEs reach the standard required by these international markets through our expertise and research and development technology,” he said.
HDC chief executive officer Datuk Seri Jamil Bidin said the collaboration confirmed the common desire of the three parties to cooperate for the purpose of promoting the development of business opportunities for SMEs involved in the halal food and beverages industry in Malaysia.
“Over time, the selected local SMEs suppliers will be able to benefit from the learning curve, compliance of standards, best practices and innovation to enhance their own capabilities and competencies,” he said.
Smidec chief executive officer Datuk Hafsah Hashim said the demand for halal food was increasing globally as more countries, such as Japan, were interested to be part of this industry.
“During our visit to Japan end of last month, five or six Japanese food companies had shown interest in this industry. They were also asking for assistance from HDC regarding halal certification,” she said, adding that one Japanese food company had already set up its facility in Johor Baru while another one was in the process of doing so in Malacca.
Smidec will identify and recommend potential SMEs in the halal ingredient industry to HDC and Nestle based on its evaluation system.
The selected SMEs will then be equipped with the requisite technology and financial assistance to ensure that they fulfil the requirement and meet the specifications set by Nestle to enable them to be considered as suppliers.
Currently, Nestle has about 150 suppliers, of which 40 are local companies and, in terms of value, these 40 companies supply only 10% of its required raw materials and ingredients.
Tuesday, 11 August 2009
AmResearch sees exciting times ahead for Parkson
AmResearch sees exciting times ahead for Parkson
Tags: AmResearch | Brokers Call | Parkson
Written by Financial Daily
Tuesday, 28 July 2009 11:57
AMRESEARCH has initiated coverage on PARKSON HOLDINGS BHD [ PARKSON 5.400 -0.130 (-2.351%) ] (PHB) with a buy recommendation and a sum-of-parts (SOP) fair value of RM6.60 per share.
The valuation was derived by pegging the group’s core Hong Kong-listed Parkson Retail Group (PRG) at 22 times forecast earnings for CY10, Parkson Malaysia at nine times CY10 earnings and Parkson Vietnam at eight times CY10 earnings.
Being the retail gem of Lion Group, Parkson’s key driver of growth over the past few years had been its operations in Hong Kong and China, which contributed 69% to Parkson’s earnings, while Malaysia and Vietnam contributed 27% and 4%, respectively (FY08), said the research house.
It noted that Parkson was on firm ground post-restructuring and re-branding exercises, with FY09F earnings expected to grow 24% year-on-year (y-o-y) to RM250 million, on the back of a 3%-8% blended same-store sales (SSS) growth in FY09F.
“More importantly, we see better prospects going forward, with earnings growth of 30% and 34% y-o-y for FY10F-11F underpinned by increased spending on a consumer sentiment uptrend along with China’s economic recovery,” AmReserach said.
The research house added that there was tremendous scope for seven to 10 new stores per annum on average — two to three in Malaysia, four to five in China and one or two in Vietnam — potentially increasing Parkson’s total lettable area by 10%-12% to 750,000 sq m by end-2010.
Under management’s plans, the group planned to venture into other untapped markets, notably neighbouring Cambodia and Indochina at large.
“We expect a successful replication of its concessionaire model to power the group’s earnings in the future, with increased earnings from Vietnam to match that of Malaysia’s in three years.
“We see PHB as a cheaper proxy to PRG for exposure to China’s retail industry. We believe Parkson’s share price would continue to attract support given the current discount of 16%-18% to Parkson — due to the latter’s strong earnings composition in Parkson,” it noted.
AmResearch added that despite its expansion plans, the group was expected to remain on a net cash position on a growing cash pile going into FY09-11F, with cash flow per share increasing 31% to 77 sen/share for FY10F from 59 sen/share.
Parkson rose 15 sen to close at RM5.50 yesterday.
This article appeared in The Edge Financial Daily, July 28, 2009.
Unexciting earnings for Petronas Dagangan
Unexciting earnings for PDB
Tags: Brokers Call | HwangDBS | PDB | Petronas Dagangan Bhd
Written by Financial Daily
Tuesday, 28 July 2009 12:01
ANALYSTS remained subdued on PETRONAS DAGANGAN BHD [ PETDAG 8.600 0.020 (0.233%) ] (PDB) due to unexciting earnings prospects, with HwangDBS Vickers Research maintaining its fully valued call on the stock against a revised 12-month target price of RM7.20, up from RM6.40 previously.
It said PDB’s overall sales volume would further decline in FY10 (-1.7% to 12.3 billion litres based on its estimate) after dropping by 6.6% to 12.5 billion litres in FY09.
“This is likely to be due to weaker demand from the commercial segment, especially for diesel and jet fuel, which made up 70% of total commercial volume. This could more than offset an expected recovery in mogas/petrol demand, which has already surpassed its pre-June 2008 level, just before the demand plunge due to the steep pump price hike in Jan 2009,” it said.
Although PDB’s fundamentals remained resilient, HwangDBS said earnings prospects were unexciting at a two-year compound annual growth rate (CAGR) of 6.4% with competition intensifying. The company lost 1.6-percentage point market share to 42.5% in FY09, it added.
It said valuations were also unattractive with one-year forward price earnings ratio (PER) at 13.3 times at the upper end of its historical range of two times to 14 times.
“We tweaked our forecasts and bumped up our target price to RM7.20 based on 11 times CY10F earnings per share, to reflect a similar valuation discount vis-Ã -vis the broad market following the rally since mid-March,” it said.
HwangDBS also believed the introduction of RON95 petrol grade effective Sept 1 would not affect PDB’s earnings as it would continue to earn the same fixed margin under the automated pricing mechanism formula.
CIMB Research, meanwhile, maintained its underperform rating on PDB.
“We maintain our forecasts and target price of RM7.20, pegged to an unchanged 10 times PER, which is lower than the 15 times PER we attach to upstream players. Given its defensive qualities, we expect PDB to continue to underperform the benchmark KLCI and lag behind higher-beta stocks,” CIMB said.
PDB closed unchanged yesterday at RM8.45.
This article appeared in The Edge Financial Daily, July 28, 2009.
Tags: Brokers Call | HwangDBS | PDB | Petronas Dagangan Bhd
Written by Financial Daily
Tuesday, 28 July 2009 12:01
ANALYSTS remained subdued on PETRONAS DAGANGAN BHD [ PETDAG 8.600 0.020 (0.233%) ] (PDB) due to unexciting earnings prospects, with HwangDBS Vickers Research maintaining its fully valued call on the stock against a revised 12-month target price of RM7.20, up from RM6.40 previously.
It said PDB’s overall sales volume would further decline in FY10 (-1.7% to 12.3 billion litres based on its estimate) after dropping by 6.6% to 12.5 billion litres in FY09.
“This is likely to be due to weaker demand from the commercial segment, especially for diesel and jet fuel, which made up 70% of total commercial volume. This could more than offset an expected recovery in mogas/petrol demand, which has already surpassed its pre-June 2008 level, just before the demand plunge due to the steep pump price hike in Jan 2009,” it said.
Although PDB’s fundamentals remained resilient, HwangDBS said earnings prospects were unexciting at a two-year compound annual growth rate (CAGR) of 6.4% with competition intensifying. The company lost 1.6-percentage point market share to 42.5% in FY09, it added.
It said valuations were also unattractive with one-year forward price earnings ratio (PER) at 13.3 times at the upper end of its historical range of two times to 14 times.
“We tweaked our forecasts and bumped up our target price to RM7.20 based on 11 times CY10F earnings per share, to reflect a similar valuation discount vis-Ã -vis the broad market following the rally since mid-March,” it said.
HwangDBS also believed the introduction of RON95 petrol grade effective Sept 1 would not affect PDB’s earnings as it would continue to earn the same fixed margin under the automated pricing mechanism formula.
CIMB Research, meanwhile, maintained its underperform rating on PDB.
“We maintain our forecasts and target price of RM7.20, pegged to an unchanged 10 times PER, which is lower than the 15 times PER we attach to upstream players. Given its defensive qualities, we expect PDB to continue to underperform the benchmark KLCI and lag behind higher-beta stocks,” CIMB said.
PDB closed unchanged yesterday at RM8.45.
This article appeared in The Edge Financial Daily, July 28, 2009.
Boustead to raise RM1.3b from rights issue, asset sale
Boustead to raise RM1.3b from rights issue, asset sale
Tags: BH Insurance (M) Bhd | Boustead Holdings Bhd | Boustead Naval Shipyard | expansion | Plantation land | rights issue | Tan Sri Lodin Wok Kamarudin
Written by Joy Lee
Thursday, 30 July 2009 11:05
KUALA LUMPUR: BOUSTEAD HOLDINGS BHD [ BSTEAD 3.960 0.020 (0.508%) ] plans to divest its non-core businesses by year-end, which along with proceeds from its rights issue, will raise some RM1.3 billion to pare borrowings and to fund expansion.
The firm is in talks with several Indonesian parties to sell off its PLANTATION [ PLANTATION 5,793.760 27.410 (0.475%) ] land in Sumatra, Indonesia measuring 17,000ha, of which about 9,000ha are planted with mature trees.
“We want to rationalise our operations and focus on key areas. Indonesia presents some problems in terms of yield and logistics and we want to focus our plantation activities in Sarawak and Sabah. “We are also looking to sell our 80% stake in BH Insurance (M) Bhd,” managing director Tan Sri Lodin Wok Kamarudin said after the company’s EGM yesterday.
He added that the company hoped to conclude both disposals by year-end. The divestments would bring in some RM500 million to RM600 million.
Boustead yesterday received shareholders’ approval for the rights issue of 260.41 million shares at RM2.80 each to raise up to RM729 million. The issue is on the basis of two shares for every five existing shares held.
“Based on the feedback from shareholders, we are confident the exercise will do very well. This will provide us with fresh funds for new acquisitions when the opportunity comes,” he said.
The funds would be used to trim borrowings, which would result in about RM24 million in interest savings. According to its circular, RM300 million to RM400 million from the proceeds will be used to reduce borrowings, which stood at RM3.6 billion as at March 31, 2009.
Lodin said with the rights issue and the divestment, the company’s gearing would be reduced to between 0.6 and 0.7 times from 1.2 times currently.
The company would also be expanding its property development and shipbuilding businesses, he said, adding that it was going through several proposals for land acquisition, including one or two possible acquisitions in the Klang Valley.
Currently, its landbank consists of over 323.75ha in Johor, 16ha in Mutiara Damansara and about 1ha in Jalan Ampang, Kuala Lumpur.
As for its shipyard business, Lodin said it would deliver the remaining three offshore patrol vessels (OPVs) ordered by the government early next year. “We hope to get more contracts from the government as we have the capacity to take on new jobs once the current orders are completed.”
Its subsidiary, Boustead Naval Shipyard, has the rights to build a total of 27 OPVs for the government.
This article appeared in The Edge Financial Daily, July 30, 2009.
(Pg40of500)
Tags: BH Insurance (M) Bhd | Boustead Holdings Bhd | Boustead Naval Shipyard | expansion | Plantation land | rights issue | Tan Sri Lodin Wok Kamarudin
Written by Joy Lee
Thursday, 30 July 2009 11:05
KUALA LUMPUR: BOUSTEAD HOLDINGS BHD [ BSTEAD 3.960 0.020 (0.508%) ] plans to divest its non-core businesses by year-end, which along with proceeds from its rights issue, will raise some RM1.3 billion to pare borrowings and to fund expansion.
The firm is in talks with several Indonesian parties to sell off its PLANTATION [ PLANTATION 5,793.760 27.410 (0.475%) ] land in Sumatra, Indonesia measuring 17,000ha, of which about 9,000ha are planted with mature trees.
“We want to rationalise our operations and focus on key areas. Indonesia presents some problems in terms of yield and logistics and we want to focus our plantation activities in Sarawak and Sabah. “We are also looking to sell our 80% stake in BH Insurance (M) Bhd,” managing director Tan Sri Lodin Wok Kamarudin said after the company’s EGM yesterday.
He added that the company hoped to conclude both disposals by year-end. The divestments would bring in some RM500 million to RM600 million.
Boustead yesterday received shareholders’ approval for the rights issue of 260.41 million shares at RM2.80 each to raise up to RM729 million. The issue is on the basis of two shares for every five existing shares held.
“Based on the feedback from shareholders, we are confident the exercise will do very well. This will provide us with fresh funds for new acquisitions when the opportunity comes,” he said.
The funds would be used to trim borrowings, which would result in about RM24 million in interest savings. According to its circular, RM300 million to RM400 million from the proceeds will be used to reduce borrowings, which stood at RM3.6 billion as at March 31, 2009.
Lodin said with the rights issue and the divestment, the company’s gearing would be reduced to between 0.6 and 0.7 times from 1.2 times currently.
The company would also be expanding its property development and shipbuilding businesses, he said, adding that it was going through several proposals for land acquisition, including one or two possible acquisitions in the Klang Valley.
Currently, its landbank consists of over 323.75ha in Johor, 16ha in Mutiara Damansara and about 1ha in Jalan Ampang, Kuala Lumpur.
As for its shipyard business, Lodin said it would deliver the remaining three offshore patrol vessels (OPVs) ordered by the government early next year. “We hope to get more contracts from the government as we have the capacity to take on new jobs once the current orders are completed.”
Its subsidiary, Boustead Naval Shipyard, has the rights to build a total of 27 OPVs for the government.
This article appeared in The Edge Financial Daily, July 30, 2009.
(Pg40of500)
Carlsberg M’sia expects S’pore ops to contribute 30% to net profit in 2010
Carlsberg M’sia expects S’pore ops to contribute 30% to net profit in 2010
Tags: Carlsberg Malaysia | Carlsberg Singapore | CBMB
Written by Surin Murugiah
Thursday, 30 July 2009 11:16
SHAH ALAM: CARLSBERG BREWERY MALAYSIA BHD [ CARLSBG 4.410 -0.050 (-1.121%) ] (CBMB) expects Carlsberg Singapore Pte Ltd (CSPL) to contribute about 30% to its net profit in the financial year ending Dec 31, 2010 pursuant to its proposal to acquire the latter.
CBMB also expects to resume its dividend payout at previous levels after surprising the market with a lower dividend early this year.
It paid out a total of 12.5 sen in dividends last year, against 35 sen in each of its previous three financial years.
CBMB managing director Soren Holm Jensen said CSPL was already a successful and profitable entity, having posted a revenue of S$78 million and a net profit of S$10 million in 2008.
“A key binding factor is the significant sourcing and operational synergy that would create RM22 million cost savings. The total incremental net profit from the acquisition, excluding funding cost, is RM46 million,” he said.
“The main synergies are that it would shift sourcing back to Carlsberg Malaysia; advertising and promotions would enjoy double tax deduction, as well as the operational synergies,” he said at media briefing on its proposed acquisition of CSPL.
CBMB announced on Tuesday it had entered into a memorandum of understanding (MoU) with its Denmark-based parent company Carlsberg Breweries AS (Carlsberg) to acquire the latter’s Singapore operations held by CSPL for RM370 million cash.
Among the salient features of the MoU to be included in the sales and purchase agreement are 20 years of territorial rights; sourcing rights with significant synergies; profit guarantee for CSPL for the financial years 2009 and 2010; and Carlsberg to support any board proposal to declare a dividend of between 50% and 70% of CBMB’s distributable profit for a duration of five years.
Jensen said preliminary estimates showed CBMB’s net profit for 2010 to increase to RM113 million from RM76 million in 2008, on the assumption that the proposal to acquire CSPL was approved by minority shareholders.
“The estimates need further verification and is subject to a full due diligence and final evaluation by an independent adviser,” he said.
Jensen said CBMB would likely complete the acquisition without borrowing as it had RM260 million cash and would be able to accumulate sufficient cash by year-end.
“But we might require short-term borrowings for working capital. In any event, we will return to a net cash level in a short period,” he said,
On CSPL, Jensen said it held a 21% market share in Singapore and that the Carlsberg brand ranked second in the republic after the locally brewed Tiger beer.
“The brand is positioned in the upper mainstream segment and has been steadily gaining share in the segment since the 1990s. It also has a stronghold in coffee shops and hawker centres, supported by strong branding in both on- and off-trade,” he said.
He said Singapore was an attractive beer market, with a compound annual growth rate of 4% from 2000 to 2008, from 642,000 hectolitres (HL) to 858,000HL.
Jensen said CBMB also viewed its proposed acquisition of CSPL as an added advantage as it would give the brewer a better understanding of new Tiger beer products, which are generally launched in Singapore first before Malaysia.
For the three months ended March 31, CBMB posted a 19% year-on-year lower net profit of RM21.4 million on the back of a marginally higher revenue of RM289.8 million.
As at end-March, CBMB had cash and cash equivalents of RM231.7 million while its trade receivables stood at RM140.5 million. Total liabilities were RM123.6 million.
CBMB’s brands include Tuborg, SKOL Beer, Danish Royal Stout, Tetley’s English Ale, Jolly Shandy and Nutrimalt.
This article appeared in The Edge Financial Daily, July 30, 2009.
Tags: Carlsberg Malaysia | Carlsberg Singapore | CBMB
Written by Surin Murugiah
Thursday, 30 July 2009 11:16
SHAH ALAM: CARLSBERG BREWERY MALAYSIA BHD [ CARLSBG 4.410 -0.050 (-1.121%) ] (CBMB) expects Carlsberg Singapore Pte Ltd (CSPL) to contribute about 30% to its net profit in the financial year ending Dec 31, 2010 pursuant to its proposal to acquire the latter.
CBMB also expects to resume its dividend payout at previous levels after surprising the market with a lower dividend early this year.
It paid out a total of 12.5 sen in dividends last year, against 35 sen in each of its previous three financial years.
CBMB managing director Soren Holm Jensen said CSPL was already a successful and profitable entity, having posted a revenue of S$78 million and a net profit of S$10 million in 2008.
“A key binding factor is the significant sourcing and operational synergy that would create RM22 million cost savings. The total incremental net profit from the acquisition, excluding funding cost, is RM46 million,” he said.
“The main synergies are that it would shift sourcing back to Carlsberg Malaysia; advertising and promotions would enjoy double tax deduction, as well as the operational synergies,” he said at media briefing on its proposed acquisition of CSPL.
CBMB announced on Tuesday it had entered into a memorandum of understanding (MoU) with its Denmark-based parent company Carlsberg Breweries AS (Carlsberg) to acquire the latter’s Singapore operations held by CSPL for RM370 million cash.
Among the salient features of the MoU to be included in the sales and purchase agreement are 20 years of territorial rights; sourcing rights with significant synergies; profit guarantee for CSPL for the financial years 2009 and 2010; and Carlsberg to support any board proposal to declare a dividend of between 50% and 70% of CBMB’s distributable profit for a duration of five years.
Jensen said preliminary estimates showed CBMB’s net profit for 2010 to increase to RM113 million from RM76 million in 2008, on the assumption that the proposal to acquire CSPL was approved by minority shareholders.
“The estimates need further verification and is subject to a full due diligence and final evaluation by an independent adviser,” he said.
Jensen said CBMB would likely complete the acquisition without borrowing as it had RM260 million cash and would be able to accumulate sufficient cash by year-end.
“But we might require short-term borrowings for working capital. In any event, we will return to a net cash level in a short period,” he said,
On CSPL, Jensen said it held a 21% market share in Singapore and that the Carlsberg brand ranked second in the republic after the locally brewed Tiger beer.
“The brand is positioned in the upper mainstream segment and has been steadily gaining share in the segment since the 1990s. It also has a stronghold in coffee shops and hawker centres, supported by strong branding in both on- and off-trade,” he said.
He said Singapore was an attractive beer market, with a compound annual growth rate of 4% from 2000 to 2008, from 642,000 hectolitres (HL) to 858,000HL.
Jensen said CBMB also viewed its proposed acquisition of CSPL as an added advantage as it would give the brewer a better understanding of new Tiger beer products, which are generally launched in Singapore first before Malaysia.
For the three months ended March 31, CBMB posted a 19% year-on-year lower net profit of RM21.4 million on the back of a marginally higher revenue of RM289.8 million.
As at end-March, CBMB had cash and cash equivalents of RM231.7 million while its trade receivables stood at RM140.5 million. Total liabilities were RM123.6 million.
CBMB’s brands include Tuborg, SKOL Beer, Danish Royal Stout, Tetley’s English Ale, Jolly Shandy and Nutrimalt.
This article appeared in The Edge Financial Daily, July 30, 2009.
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