Quick Comment: Is the market short of retail players?
After reading some articles in the newspapers today, I feel that Bursa Malaysia is managed by a pack of jokers (management of Bursa Malaysia). Not only that, these jokers are supported by another group of jokers (brokerage and remisiers). And since they are all jokers, smarter opportunists out there took advantage of the market to make some good money. Here is what I read and my comments:
First article: Bursa woos retail investors
In the article, it says "BURSA Malaysia Bhd is working with several broking houses to increase retail participation in the stock market. Bursa Malaysia chief executive officer Yusli Mohamed Yusoff said that while the stock market had been performing relatively well in the past few months, more could be done to improve retail participation."
Investssmart: Do we actually need more retail participation? What we lack now is foreign funds participation. We have enough of retail participation. After all, retail participation will not help Bursa Malaysia because most Malaysian retail investors are interested in speculative stocks like TIMECOM, NSCOM and the chicken stocks. By encouraging more retail investors to invest in these kinda stocks is to cheat them off their money because most will end up losing. Where are the foreign funds? Everyone knows Malaysia has hardly any foreign funds participation. Bursa Malaysia should work hard with the government to get the foreign funds. Without them, Bursa Malaysia cannot perform well. Enough of swindling retailers money.
Second article: Advice from broking houses to retail players
Advice from broking houses? What? Aren't these the people who managed the unit trusts that losses money year after year? Yes, it is a shame that most of the unit trusts and funds managed by Malaysian fund managers are losing money. Of course there are exceptional ones like Public Mutual and ICapital but for every good one in Malaysia, there are probably 9 lousy ones. A lot of these funds are there just to support the market, not to maximise your wealth. Is their advise (or bullshit to some of us) worth listening to? Of course not. Even Investssmart is better.
Third article: SMR Technologies 108 times oversubscribed
Bursa Malaysia says they want more retail participation but their latest IPO was oversuscribed an astonishing 108x! How much money were there in just this IPO just from retail investors? 2.5m shares were offered to the public at 33c each. Oversuscription of 108x means that the public suscribed a total of $90m just for one IPO! And yet, Bursa Malaysia complained of the lack of retail participation. Where are their senses? What the market lack is foreign funds participation! Not retail investors.
SMR Technologies offered only 2.5m shares for the public. At 33c, it is only raising $825k from the public! What a joke! If you convert that to USD, it will be just USD223k. If you want to raise so little from the public, don't even go for listing. Or at least, Bursa Malaysia should not allow the listing. We have enough companies on Bursa Malaysia and one which raises $825k from the public is just not needed. If they don't want to let the public own more of their shares, just ask them to keep it as a private company!
These companies are listed by those who is taking advantage of the stupidity of the management of Bursa Malaysia. They are all going for the easy money. All they need to do is offer as little shares as possible and make it look very much in demand. Then, on the first day of trading, its share price will soar at least 50%! These opportunists will then start unloading their shares. Investors overseas will laugh if they hear an IPO raising USD223k from the public. They are probably already laughing. What can we expect? We have a market managed and supported by jokers.
Disclaimer: This report is brought to you by Investssmart, an unlicensed investment adviser. Please exercise your own judgment or seek professional advice from your remisiers. By law, they are the experts. I am not responsible for your investment decisions.
http://investssmart.blogspot.com/2006_03_01_archive.html
Thursday, 14 January 2010
Warrants
Questions: Warrants
Question: Let say i have a warrant at 50c and the mother share is $1.50 with exercise price at $1.10..so the premium is 10c.. are we actually banking for the mother share to rise b4 expiry to earn some money? let say b4 expiry it goes up to 2.00, that means we get profit 40c izzit? next, if in betweeen there are any divs and cap repayment of let say 20c...then $1.50 will be adjusted to $1.30 and exercise price will go down from $1.10 to 90c ... am i correct?
Investssmart: Yes, the premium is 10c or 6.7% (10c out of $1.50). That means that the warrant will reach its fair value when the mother share rises 10c or 6.7% to $1.60. Yes, we are banking on the mother share to rise. If the mother share rises 33% or 50c to $2 before its expiry, it is highly likely that the warrant will rise 40-50c as well. Taking into account a gain of 50c for the warrants will equate to a 100% profit. It is amplified by three times because of the 3x leverage ($1.50/50c). IJM-WB offers a leverage of 10x!
You are right on the reduction of exercise price but it will be reduced only when there is a capital repayment. It will not be reduced because of dividends. In other words, the lower the dividend, the better for the warrants. It has to be noted that the time span to expiry is very important for warrants. The longer it is from expiry, the higher should be the premium because longer time will be afforded for the mother share to rise.
Disclaimer: This report is brought to you by Investssmart, an unlicensed investment adviser. Please exercise your own judgment or seek professional advice from your remisiers. By law, they are the experts. I am not responsible for your investment decisions.
Tuesday, March 07, 2006
Comments: Warrants
kchim26 said...
One thing not mentioned here is that, buying warrant, u r betting against time. It is true that warrant can provide leveraging oppotunity, one negative point is that we have limited time on our side. If price go against us, we might lose all our investment in the warrant when it is expired while investing in Mother share will provide us unlimited time to wait for the price to recover.
Conclusion is that, only buy warrant for short term bet, for long term bet, buying mother is better. If we wish to buy warrant to capitalize on higher return, we need to have enough confidence that the company will be performing well before the expiry date. Just my 2cents. ;)
Investssmart: I have to say that I disagree with most of your points. Time is always against warrants but it is not that bad unless your purchase warrants that are way out of money. I recommended earlier in the year YTLPOWR-WA, MTDINFR-WA and ILB-WB. They are all in the money. IJM-WB is just 2% away from being in the money. Warrants actually limit your losses. The important part is not to overexpose yourself. If you would normally purchase 1000 of the company shares, then purchase 2500 warrants at most.
Consider this case: I were to purchase YTLPOWR-WA (expiring 2010 and exercise price $1.43) now at 75c and you were to purchase YTLPOWR now at $2.18. If it drops to just $1 in 2010, I will end up losing all the 75c because the warrants expire out of money. On the other hand, you will lose $1.18.
But you have to remember that I can just purchase these shares from the market at $1 at the time in 2010. That means that both of us are now equal shareholders but your cost stays at $2.18 whereas mine is just $1.75 (75c for warrants+$1 for shares at 2010). Therefore, your statement that mother share is better because it provides unlimited time is not true. Through the warrants, I get the cheaper option as well as the unlimited time by purchasing the shares when the warrants expire out of money.
Of course, you are entitled to dividends as shareholders, but as a warrant holder, I only need to pay a fraction of what shareholders pay. The rest of the money could be used to generate more money by investing in pure dividend stocks. I have to emphasise that warrants are generally undervalued in Malaysia from my experience trading in Australia. Most Malaysian investors do not have a good understanding of warrants. However, it must be noted that we should not purchase warrants that are grossly out of money. I give IJM-WB (2% out of money) an exception because of its long date to expiry, world class management, 10x leverage and low dividend yield.
Disclaimer: This report is brought to you by Investssmart, an unlicensed investment adviser. Please exercise your own judgment or seek professional advice from your remisiers. By law, they are the experts. I am not responsible for your investment decisions.
http://investssmart.blogspot.com/2006_03_01_archive.html
Question: Let say i have a warrant at 50c and the mother share is $1.50 with exercise price at $1.10..so the premium is 10c.. are we actually banking for the mother share to rise b4 expiry to earn some money? let say b4 expiry it goes up to 2.00, that means we get profit 40c izzit? next, if in betweeen there are any divs and cap repayment of let say 20c...then $1.50 will be adjusted to $1.30 and exercise price will go down from $1.10 to 90c ... am i correct?
Investssmart: Yes, the premium is 10c or 6.7% (10c out of $1.50). That means that the warrant will reach its fair value when the mother share rises 10c or 6.7% to $1.60. Yes, we are banking on the mother share to rise. If the mother share rises 33% or 50c to $2 before its expiry, it is highly likely that the warrant will rise 40-50c as well. Taking into account a gain of 50c for the warrants will equate to a 100% profit. It is amplified by three times because of the 3x leverage ($1.50/50c). IJM-WB offers a leverage of 10x!
You are right on the reduction of exercise price but it will be reduced only when there is a capital repayment. It will not be reduced because of dividends. In other words, the lower the dividend, the better for the warrants. It has to be noted that the time span to expiry is very important for warrants. The longer it is from expiry, the higher should be the premium because longer time will be afforded for the mother share to rise.
Disclaimer: This report is brought to you by Investssmart, an unlicensed investment adviser. Please exercise your own judgment or seek professional advice from your remisiers. By law, they are the experts. I am not responsible for your investment decisions.
Tuesday, March 07, 2006
Comments: Warrants
kchim26 said...
One thing not mentioned here is that, buying warrant, u r betting against time. It is true that warrant can provide leveraging oppotunity, one negative point is that we have limited time on our side. If price go against us, we might lose all our investment in the warrant when it is expired while investing in Mother share will provide us unlimited time to wait for the price to recover.
Conclusion is that, only buy warrant for short term bet, for long term bet, buying mother is better. If we wish to buy warrant to capitalize on higher return, we need to have enough confidence that the company will be performing well before the expiry date. Just my 2cents. ;)
Investssmart: I have to say that I disagree with most of your points. Time is always against warrants but it is not that bad unless your purchase warrants that are way out of money. I recommended earlier in the year YTLPOWR-WA, MTDINFR-WA and ILB-WB. They are all in the money. IJM-WB is just 2% away from being in the money. Warrants actually limit your losses. The important part is not to overexpose yourself. If you would normally purchase 1000 of the company shares, then purchase 2500 warrants at most.
Consider this case: I were to purchase YTLPOWR-WA (expiring 2010 and exercise price $1.43) now at 75c and you were to purchase YTLPOWR now at $2.18. If it drops to just $1 in 2010, I will end up losing all the 75c because the warrants expire out of money. On the other hand, you will lose $1.18.
But you have to remember that I can just purchase these shares from the market at $1 at the time in 2010. That means that both of us are now equal shareholders but your cost stays at $2.18 whereas mine is just $1.75 (75c for warrants+$1 for shares at 2010). Therefore, your statement that mother share is better because it provides unlimited time is not true. Through the warrants, I get the cheaper option as well as the unlimited time by purchasing the shares when the warrants expire out of money.
Of course, you are entitled to dividends as shareholders, but as a warrant holder, I only need to pay a fraction of what shareholders pay. The rest of the money could be used to generate more money by investing in pure dividend stocks. I have to emphasise that warrants are generally undervalued in Malaysia from my experience trading in Australia. Most Malaysian investors do not have a good understanding of warrants. However, it must be noted that we should not purchase warrants that are grossly out of money. I give IJM-WB (2% out of money) an exception because of its long date to expiry, world class management, 10x leverage and low dividend yield.
Disclaimer: This report is brought to you by Investssmart, an unlicensed investment adviser. Please exercise your own judgment or seek professional advice from your remisiers. By law, they are the experts. I am not responsible for your investment decisions.
http://investssmart.blogspot.com/2006_03_01_archive.html
Making a million made easy
Sunday, February 19, 2006
News article: Making a million made easy
Just came across this article in TheAge Australia and thought it would be a good article to share with you guys. For your info, Kerry Packer, the richest Australia, passed away recently. For those who have the time, it is good to read the whole lot but for those who don't, here are the quotes I would like to share.
"The stockmarket is not life changing — 9.5 per cent per annum plus dividends is not going to turn you and I into Kerry Packer. But there are plenty of people in the stockmarket that have made it. Maybe not the billions, maybe not the millions, but plenty the million."
"You need patience. If you try to rush your financial transformation you will fail. Patience is about having realistic expectations. You won't get anywhere trying to make money every day. I've seen people in the market who spend most of the time doing nothing. Just sitting watching things going by. On the lookout. They don't try to generate opportunities out of nothing, they just wait for them."
"The mistake too many people make is to pursue opportunities frantically. Let them come. They always do. If you miss one, there'll be another."
"Terrific gains come from terrific information. Information is everywhere but most people don't use it, probably because they haven't got the time. There is plenty of money to be made out of the information gap. Knowing more than anyone else, because you bothered to do the work. Investssmart: Best describe the situation in Malaysia. Investors don't bother doing any research. They just buy TIMECOM, the billion dollar company which has never made an operating profit.
"You will not make extraordinary gains without investing in volatile (small and risky) stocks. The only way to do that is to narrow your odds significantly, minimise the risk. That means knowing what the company does. Knowing where it is in its development. Knowing what's ahead. Knowing more about it than almost anyone else. Getting to know people in the company. Talking to them. Only then can you take a big slug in a small stock that might see extraordinary gains."
Investssmart: This does not necessarily work in Malaysia because of syndicates and also because people tend to lie a lot more.
"You need mates. Kerry Packer had them. You will not make a fortune in the stockmarket by shutting yourself off in a small dark room. Information comes from mates. Opportunities come from mates."
Investssmart: Can I be your mates? :)
"Patience, information and mates. Your recipe for success."
"This isn't how you become a billionaire. The only real way to make a fortune is to build a business, build assets and employ people to build them for you."
Investssmart: That is very true. Warren Buffett is not an legendary investor for nothing. Being a multi-millionaire is enough for me.
Disclaimer: This report is brought to you by Investssmart, an unlicensed investment adviser. Please exercise your own judgment or seek professional advice from your remisiers. By law, they are the experts. I am not responsible for your investment decisions.
http://investssmart.blogspot.com/2006_02_01_archive.html
News article: Making a million made easy
Just came across this article in TheAge Australia and thought it would be a good article to share with you guys. For your info, Kerry Packer, the richest Australia, passed away recently. For those who have the time, it is good to read the whole lot but for those who don't, here are the quotes I would like to share.
"The stockmarket is not life changing — 9.5 per cent per annum plus dividends is not going to turn you and I into Kerry Packer. But there are plenty of people in the stockmarket that have made it. Maybe not the billions, maybe not the millions, but plenty the million."
"You need patience. If you try to rush your financial transformation you will fail. Patience is about having realistic expectations. You won't get anywhere trying to make money every day. I've seen people in the market who spend most of the time doing nothing. Just sitting watching things going by. On the lookout. They don't try to generate opportunities out of nothing, they just wait for them."
"The mistake too many people make is to pursue opportunities frantically. Let them come. They always do. If you miss one, there'll be another."
"Terrific gains come from terrific information. Information is everywhere but most people don't use it, probably because they haven't got the time. There is plenty of money to be made out of the information gap. Knowing more than anyone else, because you bothered to do the work. Investssmart: Best describe the situation in Malaysia. Investors don't bother doing any research. They just buy TIMECOM, the billion dollar company which has never made an operating profit.
"You will not make extraordinary gains without investing in volatile (small and risky) stocks. The only way to do that is to narrow your odds significantly, minimise the risk. That means knowing what the company does. Knowing where it is in its development. Knowing what's ahead. Knowing more about it than almost anyone else. Getting to know people in the company. Talking to them. Only then can you take a big slug in a small stock that might see extraordinary gains."
Investssmart: This does not necessarily work in Malaysia because of syndicates and also because people tend to lie a lot more.
"You need mates. Kerry Packer had them. You will not make a fortune in the stockmarket by shutting yourself off in a small dark room. Information comes from mates. Opportunities come from mates."
Investssmart: Can I be your mates? :)
"Patience, information and mates. Your recipe for success."
"This isn't how you become a billionaire. The only real way to make a fortune is to build a business, build assets and employ people to build them for you."
Investssmart: That is very true. Warren Buffett is not an legendary investor for nothing. Being a multi-millionaire is enough for me.
Disclaimer: This report is brought to you by Investssmart, an unlicensed investment adviser. Please exercise your own judgment or seek professional advice from your remisiers. By law, they are the experts. I am not responsible for your investment decisions.
http://investssmart.blogspot.com/2006_02_01_archive.html
Questions: Why are manipulated stocks so risky?
Questions: Why are manipulated stocks so risky?
There are just simply too many counters on Bursa Malaysia, most of which are hardly touched by investors. Singapore Exchange is about 0.5x larger than Bursa Malaysia in terms of total market cap. We are 3x smaller than Taiwan, 5x smaller than Hong Kong and 200x smaller than South Korea! But we have the most number of listed companies in the world (close to 1400) after US! How can such a small economy have so many listed companies? That is because most of them are as good as worthless, which become a heaven for manipulators.
During the bull run in the early 90s, manipulators pushed the stock prices up to ridiculous prices and keep them at that level so that they can use the stocks as collateral to borrow huge sums from financial institutions. When the market crashed in the 1997-98, these financial institutions suffered huge losses because many companies defaulted on their payment and their shares which are placed as collateral are worth close to nothing. As a result, financial institutions are very careful when lending money to those who use stocks as collateral. Nowadays, they do their on valuation on the stocks before lending out money.
Since they can't mortgage the stocks, how can the manipulators gain by pushing the stock price up? The most common way these manipulators earn money is by accumulating these shares at low prices (20c for example). In most cases, the shares are cornered before they start manipulating ths prices. They will then push up the share price to maybe $1 and in the process, create large volumes. There is a case recently where someone was charged with creating about 100 trading accounts to create fake trading volume by using the accounts to repeatedly buy and sell shares of the same company.
When these shares are being pushed to $1, many punters will be enticed to join in. In the process of pushing the share price, some manipulators are smart enough to make a few super ambitious announcements to stir up interest. Some even put in large buy orders to create strong demand for the shares to further entice punters. As punters get into the stock, they will slowly release shares into the market while at the same time, put in large buy orders to create the so called fake demand.
The most risky part occurs when the manipulators have released enough stocks to the market. They will then dump the rest of their shares at lower prices (maybe 50c-80c). When the shares drop to 40-50c level, more punters will be interested to pick them up, believing that the stock could rebound. However, this only gives the manipulators another chance to dump their remaining shares.
Manipulators make huge profits when punters join in the 'bull run' in the counter. You can make money if you are lucky enough to exit at the right time before they dump the shares. It is very hard to predict when they will dump it. Most of the time, manipulators dump their shares when the counter looked like it was undroppable. Purchasing stocks that is being pushed is extremely risky because when it drops, it practically crashes. You can possibly earn some money every time you exit at the right time but when you fail to exit before the dump, you stand to lose a bomb.
The share market is meant for investors. I have seen many punters (some of whom are my friends) who have left the share market because they lose too much trading speculative stocks. For those who still follow stocks that are being pushed, I would suggest you just bring your money to Genting Casino. The chances are better and you can feel more adrenalin rush watching the roulette wheel that some blinking on the computer screen.
In Malaysia, most of these speculative stocks are on the brink of bankruptcy. The chances of them surviving or turning around is close to nil. Businesses are not easy to turn around, especially with the corrupt practices and poor managements in Malaysia. In Australia, the speculative stocks are mostly exploration companies searching for resources like gold, copper, zinc, uranium and others. These explorers all have chances of striking it rich with a bit of luck. Therefore, I would suggest to those who like to follow the speculative stocks in Malaysia to try trade on ASX (you have to figure out how to create an account), where you can make a lot with some luck. In Malaysia, luck alone wont be enough. Investing based on fundamentals and track record is the only way.
Disclaimer: This report is brought to you by Investssmart, an unlicensed investment adviser. Please exercise your own judgment or seek professional advice from your remisiers. By law, they are the experts. I am not responsible for your investment decisions.
http://investssmart.blogspot.com/2006_01_01_archive.html
There are just simply too many counters on Bursa Malaysia, most of which are hardly touched by investors. Singapore Exchange is about 0.5x larger than Bursa Malaysia in terms of total market cap. We are 3x smaller than Taiwan, 5x smaller than Hong Kong and 200x smaller than South Korea! But we have the most number of listed companies in the world (close to 1400) after US! How can such a small economy have so many listed companies? That is because most of them are as good as worthless, which become a heaven for manipulators.
During the bull run in the early 90s, manipulators pushed the stock prices up to ridiculous prices and keep them at that level so that they can use the stocks as collateral to borrow huge sums from financial institutions. When the market crashed in the 1997-98, these financial institutions suffered huge losses because many companies defaulted on their payment and their shares which are placed as collateral are worth close to nothing. As a result, financial institutions are very careful when lending money to those who use stocks as collateral. Nowadays, they do their on valuation on the stocks before lending out money.
Since they can't mortgage the stocks, how can the manipulators gain by pushing the stock price up? The most common way these manipulators earn money is by accumulating these shares at low prices (20c for example). In most cases, the shares are cornered before they start manipulating ths prices. They will then push up the share price to maybe $1 and in the process, create large volumes. There is a case recently where someone was charged with creating about 100 trading accounts to create fake trading volume by using the accounts to repeatedly buy and sell shares of the same company.
When these shares are being pushed to $1, many punters will be enticed to join in. In the process of pushing the share price, some manipulators are smart enough to make a few super ambitious announcements to stir up interest. Some even put in large buy orders to create strong demand for the shares to further entice punters. As punters get into the stock, they will slowly release shares into the market while at the same time, put in large buy orders to create the so called fake demand.
The most risky part occurs when the manipulators have released enough stocks to the market. They will then dump the rest of their shares at lower prices (maybe 50c-80c). When the shares drop to 40-50c level, more punters will be interested to pick them up, believing that the stock could rebound. However, this only gives the manipulators another chance to dump their remaining shares.
Manipulators make huge profits when punters join in the 'bull run' in the counter. You can make money if you are lucky enough to exit at the right time before they dump the shares. It is very hard to predict when they will dump it. Most of the time, manipulators dump their shares when the counter looked like it was undroppable. Purchasing stocks that is being pushed is extremely risky because when it drops, it practically crashes. You can possibly earn some money every time you exit at the right time but when you fail to exit before the dump, you stand to lose a bomb.
The share market is meant for investors. I have seen many punters (some of whom are my friends) who have left the share market because they lose too much trading speculative stocks. For those who still follow stocks that are being pushed, I would suggest you just bring your money to Genting Casino. The chances are better and you can feel more adrenalin rush watching the roulette wheel that some blinking on the computer screen.
In Malaysia, most of these speculative stocks are on the brink of bankruptcy. The chances of them surviving or turning around is close to nil. Businesses are not easy to turn around, especially with the corrupt practices and poor managements in Malaysia. In Australia, the speculative stocks are mostly exploration companies searching for resources like gold, copper, zinc, uranium and others. These explorers all have chances of striking it rich with a bit of luck. Therefore, I would suggest to those who like to follow the speculative stocks in Malaysia to try trade on ASX (you have to figure out how to create an account), where you can make a lot with some luck. In Malaysia, luck alone wont be enough. Investing based on fundamentals and track record is the only way.
Disclaimer: This report is brought to you by Investssmart, an unlicensed investment adviser. Please exercise your own judgment or seek professional advice from your remisiers. By law, they are the experts. I am not responsible for your investment decisions.
http://investssmart.blogspot.com/2006_01_01_archive.html
Investsmart blogsite is still a good useful resource for serious investors
http://investssmart.blogspot.com/
Investsmart blogged on his investing in the KLSE for a short while. He had an impressive record. He started blogging at the time when the market was low and was just on the way up. His reasoning and analysis were very educational and sound. His blog remains a good site to visit to learn of the way he picked and analysed the stocks he invested in.
A Better Way to Calculate Earnings Yield
Value Stock Investing - A Better Way to Calculate Earnings Yield
By Lee Franzen Lee Franzen
Value stock investing is a favorite method used by many long term investors to generate profits that regularly beat the stock markets annual returns. Value investors generally look for stocks that are currently out of favor with Wall Street, but also have an underlying value that should make them worth more in the future. Put another way, value stocks are currently relatively cheap - you may even want to call them temporarily on sale.
One of the primary screens that can be used in value stock investing to find candidates to buy is earnings yield (EY). This screen is available on some of the free money research sites. On the surface, EY is a simple concept - take a company's net earnings per share (EPS), divide that EPS by the price per share, multiply by 100%, and you have a percentage that equates to what the stock would yield if it distributed all of it's earnings. If you cannot find this indicator on your favorite stock screening web site, just take the P/E ratio (which is contained on nearly all of those screening web sites), and invert it - or multiply it by 1/x. Obviously, the higher the number, the cheaper the stock is relative to it's earnings.
Another way that you should consider calculating earnings yield is more complicated, but will give you a much better view of the way a company is valued relative to it's earnings. This alternate form of the EY calculation was discussed by Joel Greenblatt in his book, "The Little Book That Beats the Market". The alternative EY that he wrote about is useful in comparing stocks that have different tax rates and different levels of debt. Greenblatt's alternative formula is:
EY = pre-tax operating profit (EBIT) / Enterprise Value
First, the numerator in this value stock investing equation (EBIT) is derived from the company's income statement, and the equations denominator (Enterprise Value) is determined by adding the value of all common and preferred equity (number of shares outstanding multiplied by price per share) to the value of all interest bearing debt that the company owes. Interest bearing debt is located on the company's balance sheet.
This alternative way of calculating earnings yield is better than the much more popular E/P method highlighted at the beginning of this article, since it gives a more accurate view of what is happening with cash flows inside of a company, and also gives a more balanced view when comparing multiple companies to each other. Think about it - if a company is using debt to finance it's growth, and you are comparing it to a company with little or no debt, this method of calculating earnings yield clarifies which company is yielding better earnings relative to it's overall financial structure, and is clearly superior for value stock investing.
http://ezinearticles.com/?Value-Stock-Investing---A-Better-Way-to-Calculate-Earnings-Yield&id=3528291
By Lee Franzen Lee Franzen
Value stock investing is a favorite method used by many long term investors to generate profits that regularly beat the stock markets annual returns. Value investors generally look for stocks that are currently out of favor with Wall Street, but also have an underlying value that should make them worth more in the future. Put another way, value stocks are currently relatively cheap - you may even want to call them temporarily on sale.
One of the primary screens that can be used in value stock investing to find candidates to buy is earnings yield (EY). This screen is available on some of the free money research sites. On the surface, EY is a simple concept - take a company's net earnings per share (EPS), divide that EPS by the price per share, multiply by 100%, and you have a percentage that equates to what the stock would yield if it distributed all of it's earnings. If you cannot find this indicator on your favorite stock screening web site, just take the P/E ratio (which is contained on nearly all of those screening web sites), and invert it - or multiply it by 1/x. Obviously, the higher the number, the cheaper the stock is relative to it's earnings.
Another way that you should consider calculating earnings yield is more complicated, but will give you a much better view of the way a company is valued relative to it's earnings. This alternate form of the EY calculation was discussed by Joel Greenblatt in his book, "The Little Book That Beats the Market". The alternative EY that he wrote about is useful in comparing stocks that have different tax rates and different levels of debt. Greenblatt's alternative formula is:
EY = pre-tax operating profit (EBIT) / Enterprise Value
First, the numerator in this value stock investing equation (EBIT) is derived from the company's income statement, and the equations denominator (Enterprise Value) is determined by adding the value of all common and preferred equity (number of shares outstanding multiplied by price per share) to the value of all interest bearing debt that the company owes. Interest bearing debt is located on the company's balance sheet.
This alternative way of calculating earnings yield is better than the much more popular E/P method highlighted at the beginning of this article, since it gives a more accurate view of what is happening with cash flows inside of a company, and also gives a more balanced view when comparing multiple companies to each other. Think about it - if a company is using debt to finance it's growth, and you are comparing it to a company with little or no debt, this method of calculating earnings yield clarifies which company is yielding better earnings relative to it's overall financial structure, and is clearly superior for value stock investing.
http://ezinearticles.com/?Value-Stock-Investing---A-Better-Way-to-Calculate-Earnings-Yield&id=3528291
Shariah-compliant companies
Shariah-compliant companies can’t run casinos or sell tobacco, alcohol, pork, or pornography. Also, debt can’t exceed 30 percent of equity.
http://www.businessweek.com/news/2010-01-13/mobius-says-templeton-may-set-up-shariah-compliant-equity-fund.html
http://www.businessweek.com/news/2010-01-13/mobius-says-templeton-may-set-up-shariah-compliant-equity-fund.html
Wednesday, 13 January 2010
Winners Keep on Winning
Winners Keep on Winning
By Rick Aristotle Munarriz
January 12, 2010
Some of last year's biggest winners aren't showing any signs of slowing down in 2010.
From resurgent automaker Ford (NYSE: F) to comeback kid Sirius XM Radio (Nasdaq: SIRI), many of the stocks that thrilled investors by doubling, tripling, or taking even bigger steps through 2009 are off to races again this year.
Take Dollar Thrifty Automotive Group (NYSE: DTG), for starters. Auto rental agencies were scorchers last year after being left for dead in 2008. Dollar Thrifty and Avis Budget (NYSE: CAR) appreciated several times over after bottoming out early last year. In Dollar Thrifty's case, the stock that began 2009 priced at a mere $1.09 closed out the year revving up to $25.61.
Dollar Thrifty now finds itself fetching $27.58. A nearly 8% gain may not seem all that scintillating, but keep in mind that we're just six trading days into the new year. Whole Foods Market (Nasdaq: WFMI), Ford, and Sirius are off to even better starts in 2010.
Company
2009
2010
Ford
337%
21%
Sirius XM Radio
400%
15%
Dollar Thrifty
2,250%
8%
Whole Foods
191%
8%
Source: Yahoo! Finance.
The momentum is impressive, since this could have been a logical time for many giddy investors to cash out. Instead of a hefty capital gains hit in 2009, many could have punched out at the start of 2010.
Why are they still hanging on? Well, the prospects are a whole lot brighter for these four companies now than they were a year ago.
Ford hit a new 52-week high yesterday. Technically speaking, it's closer to a 250-week high, since Ford hasn't traded this high since March of 2005. It's hard to bet against the automaker, especially after its head-turning 33% surge in December sales.
Sirius XM Radio had a prosperous 2009, particularly in the latter half of the year, when subscriber growth resumed and cash flow growth accelerated. Like many of last year's winners, Sirius XM had the luxury of an easy starting line -- its stock began the year at a just $0.12 a share -- but its surprising breakeven third-quarter results and renewed optimism for auto sales, where most of its new subscribers are coming from these days, find the satellite-radio monopoly sitting pretty.
Analysts see Dollar Thrifty earning $1.52 a share this year. Yes, it's expected to earn more than its entire market cap at the start of 2009. An economic recovery has lifted hopes for upticks in corporate and leisure travel, and Dollar Thirfty is a clear beneficiary.
Whole Foods is another company positioned for a big bounce if the economy continues to improve. Shoppers cut back on expensive organic groceries during the recession, but they should storm back soon.
So why are 2009's winners among the stocks with the healthiest starts in 2010? That's easy. They're earning it.
http://www.fool.com/investing/general/2010/01/12/winners-keep-on-winning.aspx
By Rick Aristotle Munarriz
January 12, 2010
Some of last year's biggest winners aren't showing any signs of slowing down in 2010.
From resurgent automaker Ford (NYSE: F) to comeback kid Sirius XM Radio (Nasdaq: SIRI), many of the stocks that thrilled investors by doubling, tripling, or taking even bigger steps through 2009 are off to races again this year.
Take Dollar Thrifty Automotive Group (NYSE: DTG), for starters. Auto rental agencies were scorchers last year after being left for dead in 2008. Dollar Thrifty and Avis Budget (NYSE: CAR) appreciated several times over after bottoming out early last year. In Dollar Thrifty's case, the stock that began 2009 priced at a mere $1.09 closed out the year revving up to $25.61.
Dollar Thrifty now finds itself fetching $27.58. A nearly 8% gain may not seem all that scintillating, but keep in mind that we're just six trading days into the new year. Whole Foods Market (Nasdaq: WFMI), Ford, and Sirius are off to even better starts in 2010.
Company
2009
2010
Ford
337%
21%
Sirius XM Radio
400%
15%
Dollar Thrifty
2,250%
8%
Whole Foods
191%
8%
Source: Yahoo! Finance.
The momentum is impressive, since this could have been a logical time for many giddy investors to cash out. Instead of a hefty capital gains hit in 2009, many could have punched out at the start of 2010.
Why are they still hanging on? Well, the prospects are a whole lot brighter for these four companies now than they were a year ago.
Ford hit a new 52-week high yesterday. Technically speaking, it's closer to a 250-week high, since Ford hasn't traded this high since March of 2005. It's hard to bet against the automaker, especially after its head-turning 33% surge in December sales.
Sirius XM Radio had a prosperous 2009, particularly in the latter half of the year, when subscriber growth resumed and cash flow growth accelerated. Like many of last year's winners, Sirius XM had the luxury of an easy starting line -- its stock began the year at a just $0.12 a share -- but its surprising breakeven third-quarter results and renewed optimism for auto sales, where most of its new subscribers are coming from these days, find the satellite-radio monopoly sitting pretty.
Analysts see Dollar Thrifty earning $1.52 a share this year. Yes, it's expected to earn more than its entire market cap at the start of 2009. An economic recovery has lifted hopes for upticks in corporate and leisure travel, and Dollar Thirfty is a clear beneficiary.
Whole Foods is another company positioned for a big bounce if the economy continues to improve. Shoppers cut back on expensive organic groceries during the recession, but they should storm back soon.
So why are 2009's winners among the stocks with the healthiest starts in 2010? That's easy. They're earning it.
http://www.fool.com/investing/general/2010/01/12/winners-keep-on-winning.aspx
Profit whether up or down
Bull or Bear, Profit Anyway
By Jeff Fischer
January 12, 2010 |
Following last year's record rebound, and awaiting economic data along with January and February earnings reports, everyone is on pins and needles waiting to see if stocks can continue their enthusiastic climb.
Will there be a recovery in the United States? Or will we just muddle along? We'd all like to see a recovery, but that's far from assured. And even if we enjoy a broad economic recovery, it may not lead to more stock gains in the near term, because the market has already soared in anticipation of a stronger economy.
The market is usually a few steps ahead like that, which makes predicting it nearly impossible. Thankfully, we don't need to know what it will do next. We have strategies that can profit whichever way stocks turn.
Profit whether up or down
Most of us have favorite stocks that we've been comfortable with for a long time, stocks we don't expect to soar anytime soon, but which we wish to own regardless. Maybe you'd like to buy more, too, if the price declined.
But it all depends on the market, right? If it goes down, you'll buy. If it goes up, you'll sit on what you have or sell at a higher price.
What you may not know is that those stocks could be generating profit for you even if the price they're selling for barely changes. In fact, this unclear market situation may be perfect for setting up income-generating option strategies called ... drumroll, please ... strangles and straddles.
Strangle profits from the market
Let's assume you own at least 100 shares of networking giant Cisco Systems (Nasdaq: CSCO), recently $24.30 per share. If the shares declined, you would be happy to add another 100 shares to your position. (All options contracts work in 100-share lots.) If the price appreciates, you'd be willing to sell your existing stock. This situation is ideal for writing (or selling) a strangle option strategy.
Writing a strangle, you sell put options on a stock at a strike price below the current share price, and sell covered call options on your shares, too, at a higher strike price -- selling the same number of contracts of each.
The puts obligate you to buy more shares if the stock falls by expiration, and the calls obligate you to sell your existing shares at a higher price if the stock appreciates by expiration.
You're paid for selling both options, putting significant income in your pocket:
Selling Puts
Cisco Systems
Selling Calls
Combined Options
July $23 strike pays you $1.18
$24.66
July $26 strike pays you $1.15
$2.33 payment to you, or 9% of the share price
Source: TD AMERITRADE quotes, Jan. 11.
This strangle trade pays $2.33 per share today, or $233 for every $2,466 in stock that you own. This 9% income is yours to keep.
Your obligations? If Cisco shares are below $23 by the July expiration date, your puts obligate you to buy more shares. Since you keep the $2.33 you were paid, your effective net buy price is $20.67 -- far below today's price. On the flipside, if Cisco is above $26 by expiration, you're obligated to sell your existing shares. Your net sell price equates to $28.33 -- a good sell price.
If Cisco is anywhere between $24 and $26 at expiration, both options you wrote expire, you keep the full payment, and you have no further obligations -- you just made great income even while the stock was flat. In fact, if Cisco is anywhere above $20.67 and below $28.33 by expiration, you can close your option trades for a partial profit and still not have any other obligations. That's a wide profit range.
Straddle your way to profits
Another way to squeeze profits from a stock is to write a straddle. The concept is the same as the strangle that we just explained, but here you use the same strike price on your calls and puts.
You generally use this strategy if you believe a stock is going to be less volatile over time, staying in a tight price range.
For example, Netflix (Nasdaq: NFLX) was up more than 80% last year. If you believe the stock is due to settle down, but you'd be happy to buy more shares cheaper or sell your shares higher, you could straddle the $53.30 shares with options today (this trade is ideal when the stock is right near an option's strike price, but here it's just $0.80 higher). Take a gander:
Selling Puts
Netflix
Selling Calls
Combined Options
March $52.50 puts pay you $3.60
$53.30
March $52.50 calls pay you $4.60.
$8.20 payment to you, or 15% of the stock price
Compared to a strangle, the straddle has much higher odds of resulting in a stock transaction, since you're using strike prices that nearly equal the current share price. If Netflix is below $52.50 by March expiration, you get to add to your position. Your effective net buy price would be $44.30. If Netflix is above $52.50, your existing shares would be sold, resulting in a net $60.70 sell price including everything the options paid you.
However, if Netflix is anywhere above $44.30 and below $60.70 by expiration, you can close your options for a partial profit, and keep your shares with no other obligations. That's another wide range for profits. Finally, if Netflix ends the expiration near $52.50, you'd make most of the $8.20 closing your options early.
Or, if you owned a position in Buffalo Wild Wings (Nasdaq: BWLD), the $40 stock offers a June $40 straddle that pays $8.80 right now. Would you be happy to buy more shares at a net $31.20 or sell your existing shares at $48.80? Or just make option profits as long as the stock is within this range? Bull or bear, it gives you plenty of room to earn option income. Other stocks with options that pay well include GlaxoSmithKline (NYSE: GSK), Hasbro (NYSE: HAS), Under Armour (NYSE: UA), and Apple (Nasdaq: AAPL).
Strangles and straddles summed up
To use a strangle or straddle strategy, you have to own at least 100 shares of a stock, you have to be willing to buy at least 100 shares more, and you have to be ready to sell your existing shares.
So, while the media and most investors obsess over the market's next move, you can set up strategies that will profit whether it's up or down. And if stocks stay in a range, as they eventually will following this record ascent, you'll be ready to keep right on profiting anyway.
http://www.fool.com/investing/general/2010/01/12/bull-or-bear-profit-anyway.aspx
By Jeff Fischer
January 12, 2010 |
Following last year's record rebound, and awaiting economic data along with January and February earnings reports, everyone is on pins and needles waiting to see if stocks can continue their enthusiastic climb.
Will there be a recovery in the United States? Or will we just muddle along? We'd all like to see a recovery, but that's far from assured. And even if we enjoy a broad economic recovery, it may not lead to more stock gains in the near term, because the market has already soared in anticipation of a stronger economy.
The market is usually a few steps ahead like that, which makes predicting it nearly impossible. Thankfully, we don't need to know what it will do next. We have strategies that can profit whichever way stocks turn.
Profit whether up or down
Most of us have favorite stocks that we've been comfortable with for a long time, stocks we don't expect to soar anytime soon, but which we wish to own regardless. Maybe you'd like to buy more, too, if the price declined.
But it all depends on the market, right? If it goes down, you'll buy. If it goes up, you'll sit on what you have or sell at a higher price.
What you may not know is that those stocks could be generating profit for you even if the price they're selling for barely changes. In fact, this unclear market situation may be perfect for setting up income-generating option strategies called ... drumroll, please ... strangles and straddles.
Strangle profits from the market
Let's assume you own at least 100 shares of networking giant Cisco Systems (Nasdaq: CSCO), recently $24.30 per share. If the shares declined, you would be happy to add another 100 shares to your position. (All options contracts work in 100-share lots.) If the price appreciates, you'd be willing to sell your existing stock. This situation is ideal for writing (or selling) a strangle option strategy.
Writing a strangle, you sell put options on a stock at a strike price below the current share price, and sell covered call options on your shares, too, at a higher strike price -- selling the same number of contracts of each.
The puts obligate you to buy more shares if the stock falls by expiration, and the calls obligate you to sell your existing shares at a higher price if the stock appreciates by expiration.
You're paid for selling both options, putting significant income in your pocket:
Selling Puts
Cisco Systems
Selling Calls
Combined Options
July $23 strike pays you $1.18
$24.66
July $26 strike pays you $1.15
$2.33 payment to you, or 9% of the share price
Source: TD AMERITRADE quotes, Jan. 11.
This strangle trade pays $2.33 per share today, or $233 for every $2,466 in stock that you own. This 9% income is yours to keep.
Your obligations? If Cisco shares are below $23 by the July expiration date, your puts obligate you to buy more shares. Since you keep the $2.33 you were paid, your effective net buy price is $20.67 -- far below today's price. On the flipside, if Cisco is above $26 by expiration, you're obligated to sell your existing shares. Your net sell price equates to $28.33 -- a good sell price.
If Cisco is anywhere between $24 and $26 at expiration, both options you wrote expire, you keep the full payment, and you have no further obligations -- you just made great income even while the stock was flat. In fact, if Cisco is anywhere above $20.67 and below $28.33 by expiration, you can close your option trades for a partial profit and still not have any other obligations. That's a wide profit range.
Straddle your way to profits
Another way to squeeze profits from a stock is to write a straddle. The concept is the same as the strangle that we just explained, but here you use the same strike price on your calls and puts.
You generally use this strategy if you believe a stock is going to be less volatile over time, staying in a tight price range.
For example, Netflix (Nasdaq: NFLX) was up more than 80% last year. If you believe the stock is due to settle down, but you'd be happy to buy more shares cheaper or sell your shares higher, you could straddle the $53.30 shares with options today (this trade is ideal when the stock is right near an option's strike price, but here it's just $0.80 higher). Take a gander:
Selling Puts
Netflix
Selling Calls
Combined Options
March $52.50 puts pay you $3.60
$53.30
March $52.50 calls pay you $4.60.
$8.20 payment to you, or 15% of the stock price
Compared to a strangle, the straddle has much higher odds of resulting in a stock transaction, since you're using strike prices that nearly equal the current share price. If Netflix is below $52.50 by March expiration, you get to add to your position. Your effective net buy price would be $44.30. If Netflix is above $52.50, your existing shares would be sold, resulting in a net $60.70 sell price including everything the options paid you.
However, if Netflix is anywhere above $44.30 and below $60.70 by expiration, you can close your options for a partial profit, and keep your shares with no other obligations. That's another wide range for profits. Finally, if Netflix ends the expiration near $52.50, you'd make most of the $8.20 closing your options early.
Or, if you owned a position in Buffalo Wild Wings (Nasdaq: BWLD), the $40 stock offers a June $40 straddle that pays $8.80 right now. Would you be happy to buy more shares at a net $31.20 or sell your existing shares at $48.80? Or just make option profits as long as the stock is within this range? Bull or bear, it gives you plenty of room to earn option income. Other stocks with options that pay well include GlaxoSmithKline (NYSE: GSK), Hasbro (NYSE: HAS), Under Armour (NYSE: UA), and Apple (Nasdaq: AAPL).
Strangles and straddles summed up
To use a strangle or straddle strategy, you have to own at least 100 shares of a stock, you have to be willing to buy at least 100 shares more, and you have to be ready to sell your existing shares.
So, while the media and most investors obsess over the market's next move, you can set up strategies that will profit whether it's up or down. And if stocks stay in a range, as they eventually will following this record ascent, you'll be ready to keep right on profiting anyway.
http://www.fool.com/investing/general/2010/01/12/bull-or-bear-profit-anyway.aspx
Volatility is not risk. Avoid investment advice based on volatility.
Redefining Risk
Risk was the chance that you might not meet your long-term investment goals. And the greatest enemy of reaching those goals: inflation. Nothing is safe from inflation. It's major victims are savings accounts, T-bills, bonds, and other types of fixed-income investments.
Investors usually use Treasury bills as their benchmark for risk. These are considered risk-free because their nominal value can't go down. However, T-bills and bonds are in fact highly risky because of their susceptibility to inflation.
Realistic definition of Risk
A realistic definition of risk recognizes the potential loss of capital through inflation and taxes, and includes:
1. The probability your investment will preserve your capital over your investment time horizon.
2. The probability your investments will outperform alternative investments during the period.
Why Volatility is not Risk?
Traditionally, investors view "risk" as being synonymous with "volatility." They believe that to get higher returns, they must be willing to stomach bigger short-term swings in a stock's price.
There is no correlation between this volatility-related-risk and return.
Higher volatility does not give better results, nor lower volatility worse.
Studies have shown that there is not necessarily any stable long-term relationship between volatility-related-risk and return, and often there is no relationship between the return achieved and the volatility-related-risk taken.
Volatility is not risk. Avoid investment advice based on volatility.
So if volatility is not risk, what is?
The major risk is not the short-term stock price volatility that many thousands of academic articles have been written about. Rather it is the possibility of not reaching your long-term investment goal through the growth of your funds in real terms. To measure monthly or quarterly volatility and call it risk - for investors who have time horizons 5, 10, 15 or even 30 years away - is a completely inappropriate definition. (David Dreman)
Take Home Lesson
Using Dreman's definition of risk, stocks are actually the safest investment out there over the long term.
Investors who put some or most of their money into bonds and other investments on the assumption they are lowering their risk are, in fact, deluding themselves.
"Indeed, it goes against the principle we were taught from childhood - that the safest way to save was putting our money in the bank."
http://myinvestingnotes.blogspot.com/2009/05/redefining-risk.html
Risk was the chance that you might not meet your long-term investment goals. And the greatest enemy of reaching those goals: inflation. Nothing is safe from inflation. It's major victims are savings accounts, T-bills, bonds, and other types of fixed-income investments.
Investors usually use Treasury bills as their benchmark for risk. These are considered risk-free because their nominal value can't go down. However, T-bills and bonds are in fact highly risky because of their susceptibility to inflation.
Realistic definition of Risk
A realistic definition of risk recognizes the potential loss of capital through inflation and taxes, and includes:
1. The probability your investment will preserve your capital over your investment time horizon.
2. The probability your investments will outperform alternative investments during the period.
Why Volatility is not Risk?
Traditionally, investors view "risk" as being synonymous with "volatility." They believe that to get higher returns, they must be willing to stomach bigger short-term swings in a stock's price.
There is no correlation between this volatility-related-risk and return.
Higher volatility does not give better results, nor lower volatility worse.
Studies have shown that there is not necessarily any stable long-term relationship between volatility-related-risk and return, and often there is no relationship between the return achieved and the volatility-related-risk taken.
Volatility is not risk. Avoid investment advice based on volatility.
So if volatility is not risk, what is?
The major risk is not the short-term stock price volatility that many thousands of academic articles have been written about. Rather it is the possibility of not reaching your long-term investment goal through the growth of your funds in real terms. To measure monthly or quarterly volatility and call it risk - for investors who have time horizons 5, 10, 15 or even 30 years away - is a completely inappropriate definition. (David Dreman)
Take Home Lesson
Using Dreman's definition of risk, stocks are actually the safest investment out there over the long term.
Investors who put some or most of their money into bonds and other investments on the assumption they are lowering their risk are, in fact, deluding themselves.
"Indeed, it goes against the principle we were taught from childhood - that the safest way to save was putting our money in the bank."
http://myinvestingnotes.blogspot.com/2009/05/redefining-risk.html
What's in store for investors next?
If we should have learned anything from the past 10 years, it is that valuation matters.
In a dynamic world, a static portfolio is by definition a fatally flawed strategy.
The price of investment success is constant vigilance.
The advice to buy and hold long term begs a critical question: buy and hold what?
In a dynamic world, a static portfolio is by definition a fatally flawed strategy.
The price of investment success is constant vigilance.
The advice to buy and hold long term begs a critical question: buy and hold what?
Younger generation of M'sians not active in stock market. Why?
Wednesday January 13, 2010
Younger generation of M'sians not active in stock market. Why?
By TEE LIN SAY
KUALA LUMPUR: Bursa Malaysia needs to address the low retail participation among the younger generation in the stock market or risk losing out on a huge investor base, said CEO Datuk Yusli Mohamed Yusoff.
There is data to prove it. Based on a survey spearheaded by Bursa and conducted by Synovate Malaysia to understand the investing attitudes and perceptions of Malaysians, it was revealed to StarBiz that only 12% of investors represent the 20-29 age group, while 59% involve those 40 years and above.
In addition, those in the younger and older age groups make up merely 4% and a staggering 61% respectively of the total number of dealers in the market.
“We need to enhance our current business model. The younger generation will not wait for us. If we don’t capture them, they will invest in other products and other markets in the future,” said Yusli at Bursa’s industry leadership forum entitled Rethink Retail yesterday. With 67% of the Malaysian population aged below 25, Yusli said there was tremendous potential in attracting the younger segment.
“We at Bursa are out of touch. If we don’t tap the right age group, we will be in trouble,” said chief operating officer Omar Merican. He highlighted that there was a generation gap between young potential investors and ageing investors and dealers and that half the population used the Internet to monitor share prices.
Yusli also said that one of Bursa’s main tasks in attracting investors was to convince them that it had good products to offer. “There are good companies listed on Bursa ... the only problem is convincing people on that,” he told StarBiz.
The survey also revealed that of an addressable market of 1.2 million, almost 50% of potential investors reject shares while 26% sit on the fence when it comes to shares.
“People are spending on property, cars and going for movies. We want to take some of that spend to the stock market,” said Yusli.
AirAsia X CEO Azran Osman Rani, who participated in the forum, said that wooing greater retail participation had less to do with infrastructure and more to do with content.
“You need to get people excited. If you get people excited, they will walk through cut glass to obtain it. In AirAsia X, we create the demand. Because of our cheap prices, customers fly to locations they had not initally planned on going.”
Synovate Malaysia research director Ben Llewellyn said many viewed investing in shares as requiring very high capital over a short investing period and also having a higher risk premium.
“People shy away from investing because they feel there is a high risk attached and they do not have enough money and don’t know how to invest. Clearly these reasons show a lack of knowledge and can be addressed by education,” he said.
http://biz.thestar.com.my/news/story.asp?file=/2010/1/13/business/5458288&sec=business
Younger generation of M'sians not active in stock market. Why?
By TEE LIN SAY
KUALA LUMPUR: Bursa Malaysia needs to address the low retail participation among the younger generation in the stock market or risk losing out on a huge investor base, said CEO Datuk Yusli Mohamed Yusoff.
There is data to prove it. Based on a survey spearheaded by Bursa and conducted by Synovate Malaysia to understand the investing attitudes and perceptions of Malaysians, it was revealed to StarBiz that only 12% of investors represent the 20-29 age group, while 59% involve those 40 years and above.
In addition, those in the younger and older age groups make up merely 4% and a staggering 61% respectively of the total number of dealers in the market.
“We need to enhance our current business model. The younger generation will not wait for us. If we don’t capture them, they will invest in other products and other markets in the future,” said Yusli at Bursa’s industry leadership forum entitled Rethink Retail yesterday. With 67% of the Malaysian population aged below 25, Yusli said there was tremendous potential in attracting the younger segment.
“We at Bursa are out of touch. If we don’t tap the right age group, we will be in trouble,” said chief operating officer Omar Merican. He highlighted that there was a generation gap between young potential investors and ageing investors and dealers and that half the population used the Internet to monitor share prices.
Yusli also said that one of Bursa’s main tasks in attracting investors was to convince them that it had good products to offer. “There are good companies listed on Bursa ... the only problem is convincing people on that,” he told StarBiz.
The survey also revealed that of an addressable market of 1.2 million, almost 50% of potential investors reject shares while 26% sit on the fence when it comes to shares.
“People are spending on property, cars and going for movies. We want to take some of that spend to the stock market,” said Yusli.
AirAsia X CEO Azran Osman Rani, who participated in the forum, said that wooing greater retail participation had less to do with infrastructure and more to do with content.
“You need to get people excited. If you get people excited, they will walk through cut glass to obtain it. In AirAsia X, we create the demand. Because of our cheap prices, customers fly to locations they had not initally planned on going.”
Synovate Malaysia research director Ben Llewellyn said many viewed investing in shares as requiring very high capital over a short investing period and also having a higher risk premium.
“People shy away from investing because they feel there is a high risk attached and they do not have enough money and don’t know how to invest. Clearly these reasons show a lack of knowledge and can be addressed by education,” he said.
http://biz.thestar.com.my/news/story.asp?file=/2010/1/13/business/5458288&sec=business
Losses are painful. Understand them.
http://myinvestingnotes.blogspot.com/2009/11/when-should-stock-be-sold.html
In a portfolio of good quality stocks bought at fair or bargain price, there are usually few reasons for selling. However, the businesses of these companies need to be tracked regularly and their quarterly results announcements followed.
In a portfolio of good quality stocks bought at fair or bargain price, there are usually few reasons for selling. However, the businesses of these companies need to be tracked regularly and their quarterly results announcements followed.
When should a stock be sold?
Reappraise the fundamentals and valuations of this stock, in particular, its future earnings growth potential.
It maybe timely to cash out on a portion or all of a stock if
-----
http://myinvestingnotes.blogspot.com/2009/11/types-of-stock-market-losses.html
Types of Stock Market Losses
There is no person who likes losing money. However, you should accept the idea of losing some money from time to time. Additionally, whenever you notice that your stocks are losing their positions and their long-term prospects are not good, it may be better to sell them and move on to a better deal.
Types of losses
Capital loss
One of the simplest forms of losing in the stocks market is by selecting and purchasing a stock whose price starts to gradually fall. At a certain point you decide that you have seen enough. You sell the stock and live with the realised losses. This loss is commonly referred to as capital loss. It involves loss of actual dollar amount. Aside from offsetting huge profits for tax purposes, capital losses may be used as a lesson to avoid committing the same mistakes in the future.
Lost opportunity
Another type of loss is the so called lost opportunity. It is less painful than the capital loss, but still has its implications and negative effects. The lost opportunity loss represents the investment you could have made with the money you have locked in a stock that haven't brought you any profits. Even though you haven't lost any dollars from the stock that you have purchased and remained at the same price levels, you could have used the same money for other investment purposes, which could have brought you profits. Even a savings account in a bank would have returned you some money. The lack of movement on the part of the stock means that you are losing money. Even if the stock's price doesn't drop you are sustaining opportunity loss.
Missed profit loss
Missed profit loss results when the investor watches the rising of the price of a stock. When it reaches its top the price starts to fall. The investor has missed the top point at which s/he could have made a profit. Instead, s/he hopes that the stock will resume its high levels. However, this rarely happens and even if it happens it will doubtfully be the same level as the one reached at first.
-----
All the above losses are painful experiences. Investors, being human, avoid pain and may not be rationale in dealing with losses. For example, investors may sit on paper losses when in fact it will be better for them to take the loss and move on.
The rapid rise in the stock market since March 09 too has caused pain to a particular group of investors. They are those who are not in the market before the rise or those who sold their stocks too early only to see them rising up and up later in the recent bull run. For some, this lost opportunity, akin to investing in a "stock named cash" which did not rise in price relative to another stock, can be painful too. Due to the large increase in stock prices the last few months, some investors opined that this large lost opportunity, though usually less painful, can be very intense. How can these investors avoid such 'lost opportunity' pain?
He can reason that it is better to be safe giving a miss to some good investments rather than be sorry ploughing into a stock and realising a loss. He can also rationalise that realising his profits pocketing the cash make him more comfortable and pleasure than risking a missed profit loss or actual capital loss sometime in the future.
A strategy used by some investors is to sell partially, rather than totally when the stock price has risen substantially. How does this benefit them? You need not sell stock just because its price has fallen or risen. It is probably their hedge to minimise the pain that can arise from missed profit loss or "lost opportunity" loss. Should the price of the stock rises, he still has some stocks riding the upside, thereby reducing "lost opportunity" pain. On the other hand, when the price of the stock falls, he has already cashed out some profits, thereby reducing missed profit loss. He can even picked up the same stocks cheaper with his cash.
Understanding losses and your emotional responses to these are important. You need to understand these to make good decisions and to avoid making bad decisions in your investments in the face of uncertainties.
- Firstly, if the fundamentals of the stock are deteriorating, the stock should be sold urgently.
- Another good reason would be when the stock is overpriced.
Reappraise the fundamentals and valuations of this stock, in particular, its future earnings growth potential.
It maybe timely to cash out on a portion or all of a stock if
- the present high PE cannot be justified or
- if the present high PE has run ahead of the fundamentals of the stock.
-----
http://myinvestingnotes.blogspot.com/2009/11/types-of-stock-market-losses.html
Types of Stock Market Losses
There is no person who likes losing money. However, you should accept the idea of losing some money from time to time. Additionally, whenever you notice that your stocks are losing their positions and their long-term prospects are not good, it may be better to sell them and move on to a better deal.
Types of losses
- Capital loss
- Lost opportunity
- Missed profit loss
Capital loss
One of the simplest forms of losing in the stocks market is by selecting and purchasing a stock whose price starts to gradually fall. At a certain point you decide that you have seen enough. You sell the stock and live with the realised losses. This loss is commonly referred to as capital loss. It involves loss of actual dollar amount. Aside from offsetting huge profits for tax purposes, capital losses may be used as a lesson to avoid committing the same mistakes in the future.
Lost opportunity
Another type of loss is the so called lost opportunity. It is less painful than the capital loss, but still has its implications and negative effects. The lost opportunity loss represents the investment you could have made with the money you have locked in a stock that haven't brought you any profits. Even though you haven't lost any dollars from the stock that you have purchased and remained at the same price levels, you could have used the same money for other investment purposes, which could have brought you profits. Even a savings account in a bank would have returned you some money. The lack of movement on the part of the stock means that you are losing money. Even if the stock's price doesn't drop you are sustaining opportunity loss.
Missed profit loss
Missed profit loss results when the investor watches the rising of the price of a stock. When it reaches its top the price starts to fall. The investor has missed the top point at which s/he could have made a profit. Instead, s/he hopes that the stock will resume its high levels. However, this rarely happens and even if it happens it will doubtfully be the same level as the one reached at first.
-----
All the above losses are painful experiences. Investors, being human, avoid pain and may not be rationale in dealing with losses. For example, investors may sit on paper losses when in fact it will be better for them to take the loss and move on.
The rapid rise in the stock market since March 09 too has caused pain to a particular group of investors. They are those who are not in the market before the rise or those who sold their stocks too early only to see them rising up and up later in the recent bull run. For some, this lost opportunity, akin to investing in a "stock named cash" which did not rise in price relative to another stock, can be painful too. Due to the large increase in stock prices the last few months, some investors opined that this large lost opportunity, though usually less painful, can be very intense. How can these investors avoid such 'lost opportunity' pain?
He can reason that it is better to be safe giving a miss to some good investments rather than be sorry ploughing into a stock and realising a loss. He can also rationalise that realising his profits pocketing the cash make him more comfortable and pleasure than risking a missed profit loss or actual capital loss sometime in the future.
A strategy used by some investors is to sell partially, rather than totally when the stock price has risen substantially. How does this benefit them? You need not sell stock just because its price has fallen or risen. It is probably their hedge to minimise the pain that can arise from missed profit loss or "lost opportunity" loss. Should the price of the stock rises, he still has some stocks riding the upside, thereby reducing "lost opportunity" pain. On the other hand, when the price of the stock falls, he has already cashed out some profits, thereby reducing missed profit loss. He can even picked up the same stocks cheaper with his cash.
Understanding losses and your emotional responses to these are important. You need to understand these to make good decisions and to avoid making bad decisions in your investments in the face of uncertainties.
Tuesday, 12 January 2010
Reviewing the rise in KLCI from March 09 to now
The market turned in March 09. Those who continued to hold their stocks during the downturn would have seen substantial rebound in the prices of their stocks. Remarkably many good stocks have risen above their previous highs.
The initial rise in the prices of these stocks was due to the steep bargain offered by the knocked-down prices created during the severe downturn. Soon this steep bargain was eroded and most of the stocks were trading close to their fair price. The market has the tendency to over-react on the downside and the upside. As was mentioned before, this has something to do with the inexact science of finding the intrinsic value of a particular stock. Moreover, there are many participants in the market who felt this is not important, driven mainly in their "trade" or "investing" by studying the sentiment driving the buying and selling of a particular stock.
What can we recollect from March 09 to now in KLSE? The initial price rise from March 09 was broad base. Almost all counters went up. Few were laggards. Soon the initial rise flattened. The blue chips however continued to performed well. The index linked counters continued their steady rise over the last few months, probably supported by huge institutional investors initially. The financial counters moved steadily and swiftly, followed by others blue chips and KLCI component stocks. The other stocks did not move much, though there were much excitement in some individual stocks like Mamee, Daibochi, HaiO and others.
As usual, the retail investors were slow to enter the market missing the steepest part of the market rise. It should be of interest to know the percentage of previous retail investors who are now permanently out of the stock market following the calamity in the market in 2008. But the market is always a huge magnet. When the market rises, new players (and also suckers) are attracted in. The market has paused on a few occasions over the last 9 months. The correction was not painful, the worst was a 6 percentage dip in the index over a brief period so far.
As to whether the market price presently reflects the fundamentals, there are as many who argue either ways. Is the market undervalued at present price? Is the market overvalued at present price levels? Is the market reflecting the fundamentals of the economy? Is the market price ahead of the economy, not supported by the underlying fundamentals? One way to get out of this confusion is to realise that in investing, you are investing into stocks and not into the market. Therefore, for those stock pickers, the importance is in understanding the business of the company, the quality of its management and being able to place a value on the price of the business of this company.
Since the start of market trading this new year, the market has risen upwards extremely fast indeed. Many would have seen significant gains in their portfolio. Many stocks have reached their 52 weeks high and there are also many that reach their all time high prices. The prices of various stocks climbed not by mini-steps but by giant steps. Interestingly, a piece of good news can push up a stock price by a large amount. The present play is in the glove counters. This sector has proven to be resilient and growing. Can one truly believe that the business fundamentals of a stock has increased 2 or 3 folds over this short period as would have to be accounted for by such rising prices in the stock? As with all things too good to be true, be prepared now for when the music stops. This is particularly most relevant for those who are late or recent comers to this wonderful bull party in the stock market.
Among my favourite stock picking matrix: Search for those companies with 5 or 10 years consistent records of :
At bargain prices,
[where,
FCF = Free Cash Flow = Cash Flow from Operation - Cash Flow from Investing = (CFO - CFI)
TOCE = Total Capital Employed = (Equity + LT Debt)
EV = Enterprise Value = (Market Cap + ST Debt + LTL Debt - Cash)]
http://www.investopedia.com/articles/stocks/05/cashcow.asp
The initial rise in the prices of these stocks was due to the steep bargain offered by the knocked-down prices created during the severe downturn. Soon this steep bargain was eroded and most of the stocks were trading close to their fair price. The market has the tendency to over-react on the downside and the upside. As was mentioned before, this has something to do with the inexact science of finding the intrinsic value of a particular stock. Moreover, there are many participants in the market who felt this is not important, driven mainly in their "trade" or "investing" by studying the sentiment driving the buying and selling of a particular stock.
What can we recollect from March 09 to now in KLSE? The initial price rise from March 09 was broad base. Almost all counters went up. Few were laggards. Soon the initial rise flattened. The blue chips however continued to performed well. The index linked counters continued their steady rise over the last few months, probably supported by huge institutional investors initially. The financial counters moved steadily and swiftly, followed by others blue chips and KLCI component stocks. The other stocks did not move much, though there were much excitement in some individual stocks like Mamee, Daibochi, HaiO and others.
As usual, the retail investors were slow to enter the market missing the steepest part of the market rise. It should be of interest to know the percentage of previous retail investors who are now permanently out of the stock market following the calamity in the market in 2008. But the market is always a huge magnet. When the market rises, new players (and also suckers) are attracted in. The market has paused on a few occasions over the last 9 months. The correction was not painful, the worst was a 6 percentage dip in the index over a brief period so far.
As to whether the market price presently reflects the fundamentals, there are as many who argue either ways. Is the market undervalued at present price? Is the market overvalued at present price levels? Is the market reflecting the fundamentals of the economy? Is the market price ahead of the economy, not supported by the underlying fundamentals? One way to get out of this confusion is to realise that in investing, you are investing into stocks and not into the market. Therefore, for those stock pickers, the importance is in understanding the business of the company, the quality of its management and being able to place a value on the price of the business of this company.
Since the start of market trading this new year, the market has risen upwards extremely fast indeed. Many would have seen significant gains in their portfolio. Many stocks have reached their 52 weeks high and there are also many that reach their all time high prices. The prices of various stocks climbed not by mini-steps but by giant steps. Interestingly, a piece of good news can push up a stock price by a large amount. The present play is in the glove counters. This sector has proven to be resilient and growing. Can one truly believe that the business fundamentals of a stock has increased 2 or 3 folds over this short period as would have to be accounted for by such rising prices in the stock? As with all things too good to be true, be prepared now for when the music stops. This is particularly most relevant for those who are late or recent comers to this wonderful bull party in the stock market.
Among my favourite stock picking matrix: Search for those companies with 5 or 10 years consistent records of :
- high ROE of >15% and
- generating large FCF (FCF/Sales >5%, high FCF/TOCE of >10%)
At bargain prices,
- the EYs (EPS/Price) and DYs are at the higher of their usual historical ranges,.and
- the FCF/EV yields are attractive multiples of the risk free interest rates offered by fixed deposits.
[where,
FCF = Free Cash Flow = Cash Flow from Operation - Cash Flow from Investing = (CFO - CFI)
TOCE = Total Capital Employed = (Equity + LT Debt)
EV = Enterprise Value = (Market Cap + ST Debt + LTL Debt - Cash)]
http://www.investopedia.com/articles/stocks/05/cashcow.asp
My occasional rumination
One of the most fascinating figure in investing is the wide range of intrinsic value one can obtain from various types of valuations and by various analysts.
It is this inability to determine the intrinsic value or the lack of consensus of what constitutes the right intrinsic value that allows the price of the market to zig-zag but always tracking the intrinsic value. Over the short term, the price may be up or down by a wide margin. However, over the long term, it always reflect the fundamental value of the business.
Are you a bargain hunter? Are you a trend follower? There are more than one way to make a profit from the stock market. There are also more than one way to make a loss from the stock market. The rules are generally fair, though one need to watch out for manipulations in certain price movements of certain stocks.
There are those who discard the fundamentals and only study and follow the sentiment driving the supply and demand of the stock. Buy low and sell high. Buy high and sell higher. It sounds so easy for an "expert" to pronounce that those who did not do this on the first trading day of this month by following the chart would have been stupid or foolish, given the chart patterns. To these believers, fundamentals do not matter in their trades.
On the other hand, there are those who discard the charts. They painstakingly study the fundamentals. They patiently analyse their thinking and behaviour guiding their investing. They are generally followers of value investing as practised by Benjamin Graham and his students. They track a few high quality stocks and bargain hunt when the price is right. They have strict rules too guiding their selling. Their achievements are not measured by the days, weeks or months, but over a long period of years. After an initial period of investing, their returns are often positive by a huge percentage over their initial cost. Short term fluctuating prices in the stocks of their portfolio rarely cause a capital loss in their portfolio value. The low markets significantly reduced the compound annual growth rate returns for the whole investment when these were measured at those times. On the other hand, the compound annual growth rate rebounded when the returns were calculated at the time when the market shot up to stratosphere.
Those who trade protects their downside with stop loss strategy. They often take profit when a certain percentage gain is achieved. They may also allow the winners to climb higher at the same time moving their stop loss value higher.
Those who employ value investing, protect the downside through buying with a margin of safety and careful stock picking. They often allow these stocks to eventually reflect the fundamental intrinsic value. Often the carefully chosen stock can be held for long term, without the necessity to take short term profit. Compounding over years provide the substantial returns. The reinvested dividend returns contitute a substantial part of the return too, this return is not enjoyed by the chartists whose investing period are often short term..
While the traders may plough in a certain amount onto a certain stock, to make big gains over a short trading period, this amount has to be meaningful and substantial. Short term volatilities are unpredicatable and this constitutes the main risk in trading.
On the other hand, those who value invest can usually afford to keep a large amount in their portfolio permanently. This is safe except druing those times when the market is truly bubbly. The volatilities in the market over the short term do not affect their investment behaviour which is strategized for the long term. The short term volatility is often treated as a "friend" when the price can be taken advantaged of. Over the long term, these short term volatilities - often a tinyl blip on the long term price chart - is in fact very small for carefully chosen good quality stocks.
It is this inability to determine the intrinsic value or the lack of consensus of what constitutes the right intrinsic value that allows the price of the market to zig-zag but always tracking the intrinsic value. Over the short term, the price may be up or down by a wide margin. However, over the long term, it always reflect the fundamental value of the business.
Are you a bargain hunter? Are you a trend follower? There are more than one way to make a profit from the stock market. There are also more than one way to make a loss from the stock market. The rules are generally fair, though one need to watch out for manipulations in certain price movements of certain stocks.
There are those who discard the fundamentals and only study and follow the sentiment driving the supply and demand of the stock. Buy low and sell high. Buy high and sell higher. It sounds so easy for an "expert" to pronounce that those who did not do this on the first trading day of this month by following the chart would have been stupid or foolish, given the chart patterns. To these believers, fundamentals do not matter in their trades.
On the other hand, there are those who discard the charts. They painstakingly study the fundamentals. They patiently analyse their thinking and behaviour guiding their investing. They are generally followers of value investing as practised by Benjamin Graham and his students. They track a few high quality stocks and bargain hunt when the price is right. They have strict rules too guiding their selling. Their achievements are not measured by the days, weeks or months, but over a long period of years. After an initial period of investing, their returns are often positive by a huge percentage over their initial cost. Short term fluctuating prices in the stocks of their portfolio rarely cause a capital loss in their portfolio value. The low markets significantly reduced the compound annual growth rate returns for the whole investment when these were measured at those times. On the other hand, the compound annual growth rate rebounded when the returns were calculated at the time when the market shot up to stratosphere.
Those who trade protects their downside with stop loss strategy. They often take profit when a certain percentage gain is achieved. They may also allow the winners to climb higher at the same time moving their stop loss value higher.
Those who employ value investing, protect the downside through buying with a margin of safety and careful stock picking. They often allow these stocks to eventually reflect the fundamental intrinsic value. Often the carefully chosen stock can be held for long term, without the necessity to take short term profit. Compounding over years provide the substantial returns. The reinvested dividend returns contitute a substantial part of the return too, this return is not enjoyed by the chartists whose investing period are often short term..
While the traders may plough in a certain amount onto a certain stock, to make big gains over a short trading period, this amount has to be meaningful and substantial. Short term volatilities are unpredicatable and this constitutes the main risk in trading.
On the other hand, those who value invest can usually afford to keep a large amount in their portfolio permanently. This is safe except druing those times when the market is truly bubbly. The volatilities in the market over the short term do not affect their investment behaviour which is strategized for the long term. The short term volatility is often treated as a "friend" when the price can be taken advantaged of. Over the long term, these short term volatilities - often a tinyl blip on the long term price chart - is in fact very small for carefully chosen good quality stocks.
Cheap Is No Longer Good Enough, Company must be Excellent too.
Cheap Is No Longer Good Enough
By Toby Shute
January 11, 2010 |
After a recent college reunion/homecoming, I had a chance to connect with fund manager Harry Long, the managing partner of Contrarian Industries. Long's company specializes in alternative asset management, algorithmic system research and development, and strategic consulting. Harry and I had a wide-ranging conversation about fundamental and systematic approaches to investing. Here's an edited portion of our exchange.
Toby Shute: You've described your investing approach as an attempt to marry the qualitative with the systematic. This reminds me of Warren Buffett's description of his investment strategy as 85% Benjamin Graham and 15% Philip Fisher. Let's start with Graham. What was his most important contribution to the investment field?
Harry Long: Graham's most important contribution to investing was the brilliant way he went about systematizing it. He gave very clear, mechanical rules, which outperform most discretionary human investors, even today.
If you look at services like Validea.com, the American Institute for Individual Investors, and countless other services, they have taken his dictates from The Intelligent Investor and put them into a screen, which beats the pants off just about everything else developed since.
I think Joel Greenblatt is trying to follow in that tradition. We'll see how he stacks up to Graham. It's a noble pursuit.
Shute: Phil Fisher is known for focusing on the characteristics of a great growth franchise, some of which are impossible to quantify. Importantly, though, he weeded out potential investments using a 15-point checklist that he applied pretty strictly. Are checklists an effective way of systematizing a qualitatively oriented investment process?
Long: When it comes to checklists, I've seen many, but very few good ones. It's really multiple simple rules, when applied in combination, that get you performance. For instance, if investors automatically sold, or had a rule against investing in, any company with earnings decreases of greater than 14% in any quarter, they should have sold almost all bank stocks in 2008.
In practice, you'll find that a well-designed system, using objective data, will often key in on companies that Fisher would have appreciated qualitatively. You have to do both, but I would encourage your readers to find businesses with great metrics and then ask "why?" rather than trying to find great stories which may or may not be executing.
Shute: What else can investors learn from Phil Fisher?
Long: Most investors would do best to stick to Fisher's basic tenet -- buy businesses with strong competitive positions. As Fisher pointed out, if you avoid companies with unhealthy profit margins, you save yourself a lot of money, sleep, and heartache. On the other hand, there are occasionally companies such as Wal-Mart (NYSE: WMT) that have low margins on purpose.
As for his focus on R&D, it's pretty hit-or-miss. Apple (Nasdaq: AAPL) and Google (Nasdaq: GOOG) would be examples of great success stories. However, while the Intels (Nasdaq: INTC) of the world had great runs, they are still plowing billions into R&D and hitting a growth wall.
Investors should have a diversified portfolio of quality. Cheap is no longer good enough -- investors need to search for cheap and excellent. Competition is simply too brutal, unless you are in a position to take control of ailing firms.
Shute: Can you apply this advice to a particular sector?
Long: In the financial sector, rather than owning banks, which risk capital through lending and have infinite competition, [investors] could own something like MSCI, which gets fee income from its MSCI indices. It doesn't risk capital. Simple business -- you hand me money, I hand you information -- and it has very little strong competition in the index business. MasterCard (NYSE: MA) and Visa (NYSE: V) also don't have the same balance-sheet risk as an issuer like American Express.
I could go on and on. Just because you're investing in the financial sector, you don't have to be conventional.
[Michael] Bloomberg understood that the way to be successful is to sell the miners their picks and shovels. Why does everyone spend time studying banks, rather than his example? Why aren't people obsessed with studying FactSet Research Systems (NYSE: FDS)? Maybe it's a tabloid phenomenon where success is simply too boring.
Stay tuned as Toby's conversation with Harry Long continues tomorrow. Harry Long's comments are purely his personal opinions and should not be construed as financial or investment advice.
So, Fool, how do you weigh the quantitative and qualitative aspects of a business in your own investing decisions? Share your philosophy in the comments section below.
http://www.fool.com/investing/value/2010/01/11/cheap-is-no-longer-good-enough.aspx
By Toby Shute
January 11, 2010 |
After a recent college reunion/homecoming, I had a chance to connect with fund manager Harry Long, the managing partner of Contrarian Industries. Long's company specializes in alternative asset management, algorithmic system research and development, and strategic consulting. Harry and I had a wide-ranging conversation about fundamental and systematic approaches to investing. Here's an edited portion of our exchange.
Toby Shute: You've described your investing approach as an attempt to marry the qualitative with the systematic. This reminds me of Warren Buffett's description of his investment strategy as 85% Benjamin Graham and 15% Philip Fisher. Let's start with Graham. What was his most important contribution to the investment field?
Harry Long: Graham's most important contribution to investing was the brilliant way he went about systematizing it. He gave very clear, mechanical rules, which outperform most discretionary human investors, even today.
If you look at services like Validea.com, the American Institute for Individual Investors, and countless other services, they have taken his dictates from The Intelligent Investor and put them into a screen, which beats the pants off just about everything else developed since.
I think Joel Greenblatt is trying to follow in that tradition. We'll see how he stacks up to Graham. It's a noble pursuit.
Shute: Phil Fisher is known for focusing on the characteristics of a great growth franchise, some of which are impossible to quantify. Importantly, though, he weeded out potential investments using a 15-point checklist that he applied pretty strictly. Are checklists an effective way of systematizing a qualitatively oriented investment process?
Long: When it comes to checklists, I've seen many, but very few good ones. It's really multiple simple rules, when applied in combination, that get you performance. For instance, if investors automatically sold, or had a rule against investing in, any company with earnings decreases of greater than 14% in any quarter, they should have sold almost all bank stocks in 2008.
In practice, you'll find that a well-designed system, using objective data, will often key in on companies that Fisher would have appreciated qualitatively. You have to do both, but I would encourage your readers to find businesses with great metrics and then ask "why?" rather than trying to find great stories which may or may not be executing.
Shute: What else can investors learn from Phil Fisher?
Long: Most investors would do best to stick to Fisher's basic tenet -- buy businesses with strong competitive positions. As Fisher pointed out, if you avoid companies with unhealthy profit margins, you save yourself a lot of money, sleep, and heartache. On the other hand, there are occasionally companies such as Wal-Mart (NYSE: WMT) that have low margins on purpose.
As for his focus on R&D, it's pretty hit-or-miss. Apple (Nasdaq: AAPL) and Google (Nasdaq: GOOG) would be examples of great success stories. However, while the Intels (Nasdaq: INTC) of the world had great runs, they are still plowing billions into R&D and hitting a growth wall.
Investors should have a diversified portfolio of quality. Cheap is no longer good enough -- investors need to search for cheap and excellent. Competition is simply too brutal, unless you are in a position to take control of ailing firms.
Shute: Can you apply this advice to a particular sector?
Long: In the financial sector, rather than owning banks, which risk capital through lending and have infinite competition, [investors] could own something like MSCI, which gets fee income from its MSCI indices. It doesn't risk capital. Simple business -- you hand me money, I hand you information -- and it has very little strong competition in the index business. MasterCard (NYSE: MA) and Visa (NYSE: V) also don't have the same balance-sheet risk as an issuer like American Express.
I could go on and on. Just because you're investing in the financial sector, you don't have to be conventional.
[Michael] Bloomberg understood that the way to be successful is to sell the miners their picks and shovels. Why does everyone spend time studying banks, rather than his example? Why aren't people obsessed with studying FactSet Research Systems (NYSE: FDS)? Maybe it's a tabloid phenomenon where success is simply too boring.
Stay tuned as Toby's conversation with Harry Long continues tomorrow. Harry Long's comments are purely his personal opinions and should not be construed as financial or investment advice.
So, Fool, how do you weigh the quantitative and qualitative aspects of a business in your own investing decisions? Share your philosophy in the comments section below.
http://www.fool.com/investing/value/2010/01/11/cheap-is-no-longer-good-enough.aspx
Focus on future growth of the company
When we are looking at stock prices, we are not focussing on this quarter's earnings but on the company's future growth.
Watch for Events Suggesting It Is Time for Selling
Watch for Events Suggesting It Is Time for Selling
Many events can have a negative effect on the value of your winning stock. Thus, you should carefully consider them and whenever they occur you should embark on selling. Such events may include:
◦Too much attention from the media
Too much attention on the part of the media may lead to artificially inflated prices of the stock since many investors show interest. After the hype passes the price may start to fall and result in the loss of profits.
◦Slowed growth of the stock.
If you possess a growth stock, it is good to consider its selling after it has reached the point at which its growth speed has started to decrease. This is required because the market shows negative attitude toward growth stocks that are unable to sustain their growth.
◦Better investment opportunities
It may turn out that there are other stocks that provide better returns. The latter may present a lower level of risk as well. Thus, it is recommended that you consider the selling of your stock and purchasing one of these.
◦Decreased or Eliminated Dividends
At one point or another, the company issuing the stock may start to decrease the dividends it pays to shareholders. If they are also completely eliminated, then this may indicate that the company is undergoing some change or problem. This represents a good reason for selling the stock and avoiding losing your profits.
Many financial experts advise the selling of part of the stock. The rest is left to grow further. In this way you get part of your profits and let the rest generate further returns.
Many events can have a negative effect on the value of your winning stock. Thus, you should carefully consider them and whenever they occur you should embark on selling. Such events may include:
◦Too much attention from the media
Too much attention on the part of the media may lead to artificially inflated prices of the stock since many investors show interest. After the hype passes the price may start to fall and result in the loss of profits.
◦Slowed growth of the stock.
If you possess a growth stock, it is good to consider its selling after it has reached the point at which its growth speed has started to decrease. This is required because the market shows negative attitude toward growth stocks that are unable to sustain their growth.
◦Better investment opportunities
It may turn out that there are other stocks that provide better returns. The latter may present a lower level of risk as well. Thus, it is recommended that you consider the selling of your stock and purchasing one of these.
◦Decreased or Eliminated Dividends
At one point or another, the company issuing the stock may start to decrease the dividends it pays to shareholders. If they are also completely eliminated, then this may indicate that the company is undergoing some change or problem. This represents a good reason for selling the stock and avoiding losing your profits.
Many financial experts advise the selling of part of the stock. The rest is left to grow further. In this way you get part of your profits and let the rest generate further returns.
Know When to Sell
Don't sell just because the price has gone up or down, but give it some serious thought if one of the following things has happened.
- Did you make a mistake buying it in the first place?
- Have the fundamentals deteriorated?
- Has the stock risen too far above its intrinsic value?
- Is there something better you can do with the money, that is, you can find better opportunities?
- Do you have too much money in one stock, taking up too much space in your portfolio?
Monday, 11 January 2010
Stock market: is it time to take profits?
Stock market: is it time to take profits?
The FTSE100 is at a 16-month high leaving many people wondering whether they should take some profits and redirect their money elsewhere.
Published: 10:13PM GMT 10 Jan 2010
Stock markets across the globe have carried on where they left off in 2009 and continue to climb. The FTSE 100 index, for instance, reached a 16‑month high on Tuesday when it broke through the 5,500 level.
Since Britain's blue-chip index fell to a low of 3,512 in March last year, investors have seen a 60pc return on many of their investments. In some cases they will have seen even greater gains if they had invested in overseas funds.
The question now for many people is whether they should take some profits and redirect their money elsewhere. While stock market bulls say that shares will carry on rising, there are fears that the economy could falter again once the Bank of England puts the brakes on quantitative easing and interest rates start to climb.
The Institute of Directors (IoD) said business leaders were pessimistic about prospects for the British economy and warned that "a double-dip, or even a triple-tumble scenario" was a significant risk.
Graeme Leach, the IoD's chief economist, said: "We are very doubtful of a sharp bounce back in 2010. We don't believe sustainable growth will occur. Yes, there could be an occasional spurt of activity, but the next two years look pretty glum."
It is no surprise then that many investment professionals are taking profits and redirecting the gains into other investments.
Oliver Burns, a private client investment manager at Jupiter, is taking profits from some of last year's winners and rotating into higher yielding, larger-cap, defensive stocks.
He said: "We remain positive on the market while interest rates stay low and there are signs of economic recovery, but we believe it has overrun in the short term. In terms of sectors, we are reducing our exposure to corporate bonds, but remain positive on the long-term prospects for emerging markets.
"In our view, stock-picking funds will add significant value over the next year and so we are considering managers such as Derek Stuart, who runs Artemis Special Situations, and Ben Whitmore of Jupiter UK Special Situations, as well as higher yielding funds such as Schroder Income and Artemis Income."
Jonathan Jackson, an equity analyst at Killik & Co, the stockbroker, said: "We would certainly look at taking profits on certain shares that have done well, such as M&S, and reinvest elsewhere in the stock market."
Gary Potter, an investment manager at Thames River, the multi-manager specialist, is in the camp that thinks economic growth is going to struggle and suggests some of the recent rises in commodity stocks are due a pause.
"We have always encouraged people to take profits where they have done well and look to areas that have good outlooks but where share prices have been left behind. For example, mid and smaller-cap stocks have underperformed in this large-cap rally and may offer investors a better home."
But Adrian Shandley, the managing director of Premier Wealth Management, is not convinced that now is the time for investors to exit the stock market altogether. He believes that shares are still undervalued, despite their rise over the past nine months.
"Britain definitely has serious problems, but that doesn't mean the stock market will do badly," he said. "And it often rises after general elections, as they get uncertainty out of the way. Before then, I'd expect markets to be fairly flat."
However, he does believe that investors might want to rejig their portfolios because the recent market rises are likely to mean that they will have greater exposure to certain areas than they need. This could make their portfolios more risky than investors would like.
Broadly, you need to sell enough from sectors that have outperformed to bring your asset allocations back to their original percentages, he said.
For example, you might have split your money at the outset as follows: 30pc UK equities, 30pc bonds, 30pc international equities and bonds, 10pc property. The strong performance of the overseas markets would have boosted their proportion of the portfolio above 30pc, so you need to sell some of your holdings to return the percentage to 30pc.
Mr Shandley added: "Even if you decide not to reduce your exposure to shares, it's a virtual certainty that you should rebalance your portfolio. If emerging markets have stormed away and you remain fully invested in them, a crash will wipe out all your gains. Rebalancing would protect some of those gains."
T Bailey, the investment manager, is in the throes of reducing its exposure to the UK and giving its portfolios a more global feel.
But it is cautious about emerging markets in the short term and is therefore looking to invest in funds in the mature overseas markets such as America (its favoured funds are Axa Framlington American Growth, Neptune US Opportunities and Vanguard US Opportunities).
Philippa Gee of T Bailey said: "We recently reduced the allocation to Japan slightly in favour of the US, using the Legal & General US Index Trust. We also moved a small allocation from the Asia Pacific ex Japan sector to the UK. This went into the iShares FTSE 100 exchange-traded fund (ETF)."
Stephen Ford, an investment manager at Brewin Dolphin, the stockbroker, also said he was becoming more cautious on emerging markets in the short term, given the run they have had. "We have noted that emerging markets are now trading at a 15pc premium to developed markets and therefore a period of consolidation is probable.
"We expect 2010 to be a year for investors to take less equity risk than they carried in 2009 and that conditions will become more volatile. That said, equities should still outperform bonds over the next 12 months."
Whether now is a good time to take profits depends on when you originally invested your money, Mr Shandley pointed out. If, for example, you invested just before the banking crisis you are unlikely to have any profits to take. If you invested last spring or five years ago, on the other hand, then you will have profits to take.
Andrew Merricks of Skerritt Consultants, the Brighton-based independent financial adviser, said investors should think twice about taking profits on investments that produce a decent income, such as corporate and high-yield bonds, because such yields continue to offer a good alternative to the returns on cash and gilts.
Several experts believe that emerging markets – though still a decent long-term play – are favourites for a correction.
Mark Harris of Henderson said: "A number of higher-risk areas such as emerging markets have done extremely well from the lows in March 2009. It is worth taking profits from emerging markets and cyclical sectors such as mining, despite their long-term attractions.
"While we do not believe that the recovery will be derailed, asset pricing conditions are likely to change. For investors who are mindful of shorter-term moves in asset markets, it is worth considering switching some money away from the leading markets and sectors into the laggards."
http://www.telegraph.co.uk/finance/personalfinance/investing/6963591/Stock-market-is-it-time-to-take-profits.html
The FTSE100 is at a 16-month high leaving many people wondering whether they should take some profits and redirect their money elsewhere.
Published: 10:13PM GMT 10 Jan 2010
Stock markets across the globe have carried on where they left off in 2009 and continue to climb. The FTSE 100 index, for instance, reached a 16‑month high on Tuesday when it broke through the 5,500 level.
Since Britain's blue-chip index fell to a low of 3,512 in March last year, investors have seen a 60pc return on many of their investments. In some cases they will have seen even greater gains if they had invested in overseas funds.
The question now for many people is whether they should take some profits and redirect their money elsewhere. While stock market bulls say that shares will carry on rising, there are fears that the economy could falter again once the Bank of England puts the brakes on quantitative easing and interest rates start to climb.
The Institute of Directors (IoD) said business leaders were pessimistic about prospects for the British economy and warned that "a double-dip, or even a triple-tumble scenario" was a significant risk.
Graeme Leach, the IoD's chief economist, said: "We are very doubtful of a sharp bounce back in 2010. We don't believe sustainable growth will occur. Yes, there could be an occasional spurt of activity, but the next two years look pretty glum."
It is no surprise then that many investment professionals are taking profits and redirecting the gains into other investments.
Oliver Burns, a private client investment manager at Jupiter, is taking profits from some of last year's winners and rotating into higher yielding, larger-cap, defensive stocks.
He said: "We remain positive on the market while interest rates stay low and there are signs of economic recovery, but we believe it has overrun in the short term. In terms of sectors, we are reducing our exposure to corporate bonds, but remain positive on the long-term prospects for emerging markets.
"In our view, stock-picking funds will add significant value over the next year and so we are considering managers such as Derek Stuart, who runs Artemis Special Situations, and Ben Whitmore of Jupiter UK Special Situations, as well as higher yielding funds such as Schroder Income and Artemis Income."
Jonathan Jackson, an equity analyst at Killik & Co, the stockbroker, said: "We would certainly look at taking profits on certain shares that have done well, such as M&S, and reinvest elsewhere in the stock market."
Gary Potter, an investment manager at Thames River, the multi-manager specialist, is in the camp that thinks economic growth is going to struggle and suggests some of the recent rises in commodity stocks are due a pause.
"We have always encouraged people to take profits where they have done well and look to areas that have good outlooks but where share prices have been left behind. For example, mid and smaller-cap stocks have underperformed in this large-cap rally and may offer investors a better home."
But Adrian Shandley, the managing director of Premier Wealth Management, is not convinced that now is the time for investors to exit the stock market altogether. He believes that shares are still undervalued, despite their rise over the past nine months.
"Britain definitely has serious problems, but that doesn't mean the stock market will do badly," he said. "And it often rises after general elections, as they get uncertainty out of the way. Before then, I'd expect markets to be fairly flat."
However, he does believe that investors might want to rejig their portfolios because the recent market rises are likely to mean that they will have greater exposure to certain areas than they need. This could make their portfolios more risky than investors would like.
Broadly, you need to sell enough from sectors that have outperformed to bring your asset allocations back to their original percentages, he said.
For example, you might have split your money at the outset as follows: 30pc UK equities, 30pc bonds, 30pc international equities and bonds, 10pc property. The strong performance of the overseas markets would have boosted their proportion of the portfolio above 30pc, so you need to sell some of your holdings to return the percentage to 30pc.
Mr Shandley added: "Even if you decide not to reduce your exposure to shares, it's a virtual certainty that you should rebalance your portfolio. If emerging markets have stormed away and you remain fully invested in them, a crash will wipe out all your gains. Rebalancing would protect some of those gains."
T Bailey, the investment manager, is in the throes of reducing its exposure to the UK and giving its portfolios a more global feel.
But it is cautious about emerging markets in the short term and is therefore looking to invest in funds in the mature overseas markets such as America (its favoured funds are Axa Framlington American Growth, Neptune US Opportunities and Vanguard US Opportunities).
Philippa Gee of T Bailey said: "We recently reduced the allocation to Japan slightly in favour of the US, using the Legal & General US Index Trust. We also moved a small allocation from the Asia Pacific ex Japan sector to the UK. This went into the iShares FTSE 100 exchange-traded fund (ETF)."
Stephen Ford, an investment manager at Brewin Dolphin, the stockbroker, also said he was becoming more cautious on emerging markets in the short term, given the run they have had. "We have noted that emerging markets are now trading at a 15pc premium to developed markets and therefore a period of consolidation is probable.
"We expect 2010 to be a year for investors to take less equity risk than they carried in 2009 and that conditions will become more volatile. That said, equities should still outperform bonds over the next 12 months."
Whether now is a good time to take profits depends on when you originally invested your money, Mr Shandley pointed out. If, for example, you invested just before the banking crisis you are unlikely to have any profits to take. If you invested last spring or five years ago, on the other hand, then you will have profits to take.
Andrew Merricks of Skerritt Consultants, the Brighton-based independent financial adviser, said investors should think twice about taking profits on investments that produce a decent income, such as corporate and high-yield bonds, because such yields continue to offer a good alternative to the returns on cash and gilts.
Several experts believe that emerging markets – though still a decent long-term play – are favourites for a correction.
Mark Harris of Henderson said: "A number of higher-risk areas such as emerging markets have done extremely well from the lows in March 2009. It is worth taking profits from emerging markets and cyclical sectors such as mining, despite their long-term attractions.
"While we do not believe that the recovery will be derailed, asset pricing conditions are likely to change. For investors who are mindful of shorter-term moves in asset markets, it is worth considering switching some money away from the leading markets and sectors into the laggards."
http://www.telegraph.co.uk/finance/personalfinance/investing/6963591/Stock-market-is-it-time-to-take-profits.html
Investors turn their backs on stock market
Investors turn their backs on stock market
The number of people planning to invest in the stock market has halved during the past six months, despite the recent market rally, research has shown. - they did not have enough spare cash, cited by 59pc,
- while 30pc said they were putting any money they did have into savings accounts rather than investments.
- But 18pc of those questioned said they thought the stock market was currently too volatile,
- while 9pc said it would fall back from its current level.
Glove makers surge in early trade
Glove makers surge in early trade
Written by Joseph Chin
Monday, 11 January 2010 09:33
KUALA LUMPUR: Shares of glove markers rose in early trade on Monday, Jan 11, bucking the weaker market sentiment, with Latexx, Hartalega and Rubberex, following a positive outlook for the sector and spurred by Latexx's latest venture.
At 9.26am, the FBM KLCI fell 1.45 points to 1,291.53. Turnover was 131.13 million shares valued at RM103.91 million.
Hartalega added 15 sen to RM6.87, Latexx 14 sen to RM3.61 and Rubberex-WA 12 sen to RM1.92.
Interest in Latexx was also spurred by its Amsterdam-based Budev BV to set up a joint-venture company to market and distribute protein-free gloves.
Budev owns the intellectual property rights related to a TECHNOLOGY [] to reduce proteins causing latex allergy.
http://www.theedgemalaysia.com/business-news/157168-glove-makers-surge-in-early-trade.html
Latexx up on protein-free glove venture
Tags: Budev | Latexx Partners | protein-free gloves
Written by Joseph Chin
Monday, 11 January 2010 09:23
KUALA LUMPUR: LATEXX PARTNERS BHD [] securities rallied in early trade on Monday, Jan 11 after it proposed to team up with Amsterdam-based Budev BV to set up a joint-venture company to market and distribute protein-free gloves.
At 9.11am, its warrants, Latexx-WA rose 18 sen to RM3.10 with 305,400 units done while the shares added 16 sen to RM3.63 with 997,700 shares done.
The FBM KLCI shed 0.94 point to 1,2919.04. Turnover was 80.87 million shares valued at RM57.52 million.
It is teaming up with Amsterdam-based Budev BV to set up a joint-venture company to market and distribute protein-free gloves. Budev owns the intellectual property rights related to a TECHNOLOGY [] to reduce proteins causing latex allergy.
The JV company, Total Glove Co Sdn Bhd will have a paid-up of RM9,998 or 9,998 shares of RM1 each. Latexx and Budev will subscribe for 4,999 shares each in the JV company.
Latexx said the JV would treat natural rubber latex examination and surgical gloves using its technology.
The JV company will market and distribute these gloves, which will have "non-detectable level of proteins and allergens" to prevent users from having an allergic reaction. Budev will grant an exclusive licence to the JV company for the use of the technology.
Latexx said the proposed JV would enable it to venture into a new era of technology to treat natural rubber latex examination and surgical gloves with extremely reduced levels of proteins and allergens to non-detectable level to prevent users from having an allergic reaction.
http://www.theedgemalaysia.com/business-news/157167-latexx-up-on-protein-free-glove-venture.html
Written by Joseph Chin
Monday, 11 January 2010 09:33
KUALA LUMPUR: Shares of glove markers rose in early trade on Monday, Jan 11, bucking the weaker market sentiment, with Latexx, Hartalega and Rubberex, following a positive outlook for the sector and spurred by Latexx's latest venture.
At 9.26am, the FBM KLCI fell 1.45 points to 1,291.53. Turnover was 131.13 million shares valued at RM103.91 million.
Hartalega added 15 sen to RM6.87, Latexx 14 sen to RM3.61 and Rubberex-WA 12 sen to RM1.92.
Interest in Latexx was also spurred by its Amsterdam-based Budev BV to set up a joint-venture company to market and distribute protein-free gloves.
Budev owns the intellectual property rights related to a TECHNOLOGY [] to reduce proteins causing latex allergy.
http://www.theedgemalaysia.com/business-news/157168-glove-makers-surge-in-early-trade.html
Latexx up on protein-free glove venture
Tags: Budev | Latexx Partners | protein-free gloves
Written by Joseph Chin
Monday, 11 January 2010 09:23
KUALA LUMPUR: LATEXX PARTNERS BHD [] securities rallied in early trade on Monday, Jan 11 after it proposed to team up with Amsterdam-based Budev BV to set up a joint-venture company to market and distribute protein-free gloves.
At 9.11am, its warrants, Latexx-WA rose 18 sen to RM3.10 with 305,400 units done while the shares added 16 sen to RM3.63 with 997,700 shares done.
The FBM KLCI shed 0.94 point to 1,2919.04. Turnover was 80.87 million shares valued at RM57.52 million.
It is teaming up with Amsterdam-based Budev BV to set up a joint-venture company to market and distribute protein-free gloves. Budev owns the intellectual property rights related to a TECHNOLOGY [] to reduce proteins causing latex allergy.
The JV company, Total Glove Co Sdn Bhd will have a paid-up of RM9,998 or 9,998 shares of RM1 each. Latexx and Budev will subscribe for 4,999 shares each in the JV company.
Latexx said the JV would treat natural rubber latex examination and surgical gloves using its technology.
The JV company will market and distribute these gloves, which will have "non-detectable level of proteins and allergens" to prevent users from having an allergic reaction. Budev will grant an exclusive licence to the JV company for the use of the technology.
Latexx said the proposed JV would enable it to venture into a new era of technology to treat natural rubber latex examination and surgical gloves with extremely reduced levels of proteins and allergens to non-detectable level to prevent users from having an allergic reaction.
http://www.theedgemalaysia.com/business-news/157167-latexx-up-on-protein-free-glove-venture.html
Half of listed companies experience fraud, says KPMG
Half of listed companies experience fraud, says KPMG
Written by Melody Song
Monday, 11 January 2010 11:12
KUALA LUMPUR: Nearly half of all the listed companies in Malaysia or 49% and also the country's top 1,000 corporations have experienced at least one instance of fraud, according to the KPMG Fraud Survey Report 2009.
The results of the survey, released on Monday, Jan 11, showed that 47% of respondents who experienced fraud within their organisations disclosed that total losses suffered during the survey period amounted to RM63.95 million while the remaining number were unsure of the amount.
Some 42% of those surveyed who reported fraud were from companies that dealt with
Motivations for fraud included
The most common types of fraud were
http://www.theedgemalaysia.com/business-news/157186-half-of-listed-companies-experience-fraud-says-kpmg.html
Written by Melody Song
Monday, 11 January 2010 11:12
- manufacturing,
- CONSTRUCTION [] and
- engineering or consumer products.
- greed/lifestyle (62%) and
- personal financial pressure (39%).
The most common types of fraud were
- theft of cash (39%),
- theft of inventory (31%),
- fraudulent expense claims (26%) and
- kickbacks (25%).
Money leaves the country on an unprecedented scale
Malaysia's Disastrous Capital Flight
SPECIAL REPORTS
Monday, 11 January 2010
Money leaves the country on an unprecedented scale
Often with the exodus of money goes an exodus of talent as highly skilled persons disadvantaged by race or, as in the case of some Malays, disgusted by local corruption or primitive religious authorities, take themselves and their capital to Australia, Canada, India, China, etc.
Asia Sentinel
Churches are not the only thing to have been going up in flames in Malaysia. Take a look at the nation's foreign exchange reserves. They fell by close to 25 percent during 2009 according to investment bank UBS even though the country continued to run a huge surplus on the current account of its balance of payments. Says UBS: "Question: which Asian country had the biggest FX losses in 2009?" The answer is Malaysia and by a very large margin; we estimate that official reserves fell by well more than one quarter on a valuation-adjusted basis". It describes the situation as "bizarre" and contrasts Malaysia with other countries with large current account surpluses – Thailand, China, Taiwan, Singapore, and Hong Kong – which have seen their reserves increase – as should be expected.
In short there has been an exodus of money from Malaysia on a scale which surpasses that which occurred during the Asian crisis. Nor is this just a mirage. The decline is also reflected in a sudden decline in base money supply – even while, thanks to Bank Negara, broader M2 has continued to grow modestly.
Who is responsible for this massive outflow? And where has it gone? The questions cannot be answered from the data and probably will not be by a government that knows its own state-controlled enterprises, headed by Petronas, may probably be responsible for part of it. The more certain reason however is the outflow of local private capital has been taking place on an unprecedented scale in response to political instability, massive official corruption and discrimination against non-Malays.
This capital bloodletting has as yet attracted little attention because Malaysia's foreign debt levels had declined dramatically since the Asian crisis and its reserves reached very healthy levels. So the outflow has not disturbed the financial markets, and Bank Negara has easily been able to keep interest rates low and the currency strong.
But unlike 1998, when the exodus of hot foreign money was a major contributor to the crisis, foreigners cannot be blamed. There is little speculative interest in the ringgit and the Malaysian bourse has rather fallen off the map as far as foreign institutional money is concerned. The BRICs, India, China, Russia, Brazil have taken the merging market lead once dominated by Southeast Asia.
Nor is there much evidence that the Middle East money which was supposed to be flowing into Muslim Malaysia, into holiday apartments or Johor's massive Iskandar development zone, has been much in evidence. Malaysia's one recent success, the development of its sukuk (Islamic bond) market may have caused more capital outflow than inflow. At any rate any overall net inflow of foreign capital whether into bonds, equities, factories or real estate has been dwarfed by the exodus of Malaysian money.
The latter is reflected in the weakness of private sector investment, which now trails public investment. Indeed it explains why the economy remains weak despite very healthy prices for most of Malaysia's commodity exports. The nation has been running a current account surplus of more than 10 percent of gross domestic product for the past decade and hit about 17 percent of GDP in the year just ended. Initially this surplus was needed to pay down debt accumulated during the mid-1990s Mahathir boom years and to rebuild foreign exchange reserves to healthy levels.
But subsequently it became simply a consequence of the weakness of private investment. Domestic investors were discouraged by the corrupt and warped system and foreigners moved to China and elsewhere. GDP growth has become ever reliant on government stimulus – again racially biased in its allocation -- financed by a persistently large budget deficit.
Meanwhile, publicly controlled capital has been rushing overseas. Petronas has been spending its billions in profits around the world as it attempts to become a major global player – at the expense of Malaysian citizenry in general and the oil and gas producing states in particular. Other government-controlled entities such as Malayan Banking Bhd have been bidding top dollar for foreign assets – such as Bank Internasional Indonesia.
Often with the exodus of money goes an exodus of talent as highly skilled persons disadvantaged by race or, as in the case of some Malays, disgusted by local corruption or primitive religious authorities, take themselves and their capital to Australia, Canada, India, China, etc.
The 2009 reserves loss may have had some specific cause which will not be repeated. But it has merely served to underline a dismal trend which has been in evidence for the best part of a decade. Malaysia has so far been saved from itself by the commodity price gains of the past five years – with even the late 2008 collapse now largely reversed. Oil and palm oil may be off their peaks but both are now double their prices of five years ago.
It is better not to imagine what will happen to Malaysia if prices collapse to 2004 levels and stay there. Better now to address the real reasons behind capital outflow and lack of private investment.
http://www.malaysia-today.net/index.php?option=com_content&view=article&id=29559:malaysias-disastrous-capital-flight&catid=21:special-reports&Itemid=100135
SPECIAL REPORTS
Monday, 11 January 2010
Money leaves the country on an unprecedented scale
Often with the exodus of money goes an exodus of talent as highly skilled persons disadvantaged by race or, as in the case of some Malays, disgusted by local corruption or primitive religious authorities, take themselves and their capital to Australia, Canada, India, China, etc.
Asia Sentinel
Churches are not the only thing to have been going up in flames in Malaysia. Take a look at the nation's foreign exchange reserves. They fell by close to 25 percent during 2009 according to investment bank UBS even though the country continued to run a huge surplus on the current account of its balance of payments. Says UBS: "Question: which Asian country had the biggest FX losses in 2009?" The answer is Malaysia and by a very large margin; we estimate that official reserves fell by well more than one quarter on a valuation-adjusted basis". It describes the situation as "bizarre" and contrasts Malaysia with other countries with large current account surpluses – Thailand, China, Taiwan, Singapore, and Hong Kong – which have seen their reserves increase – as should be expected.
In short there has been an exodus of money from Malaysia on a scale which surpasses that which occurred during the Asian crisis. Nor is this just a mirage. The decline is also reflected in a sudden decline in base money supply – even while, thanks to Bank Negara, broader M2 has continued to grow modestly.
Who is responsible for this massive outflow? And where has it gone? The questions cannot be answered from the data and probably will not be by a government that knows its own state-controlled enterprises, headed by Petronas, may probably be responsible for part of it. The more certain reason however is the outflow of local private capital has been taking place on an unprecedented scale in response to political instability, massive official corruption and discrimination against non-Malays.
This capital bloodletting has as yet attracted little attention because Malaysia's foreign debt levels had declined dramatically since the Asian crisis and its reserves reached very healthy levels. So the outflow has not disturbed the financial markets, and Bank Negara has easily been able to keep interest rates low and the currency strong.
But unlike 1998, when the exodus of hot foreign money was a major contributor to the crisis, foreigners cannot be blamed. There is little speculative interest in the ringgit and the Malaysian bourse has rather fallen off the map as far as foreign institutional money is concerned. The BRICs, India, China, Russia, Brazil have taken the merging market lead once dominated by Southeast Asia.
Nor is there much evidence that the Middle East money which was supposed to be flowing into Muslim Malaysia, into holiday apartments or Johor's massive Iskandar development zone, has been much in evidence. Malaysia's one recent success, the development of its sukuk (Islamic bond) market may have caused more capital outflow than inflow. At any rate any overall net inflow of foreign capital whether into bonds, equities, factories or real estate has been dwarfed by the exodus of Malaysian money.
The latter is reflected in the weakness of private sector investment, which now trails public investment. Indeed it explains why the economy remains weak despite very healthy prices for most of Malaysia's commodity exports. The nation has been running a current account surplus of more than 10 percent of gross domestic product for the past decade and hit about 17 percent of GDP in the year just ended. Initially this surplus was needed to pay down debt accumulated during the mid-1990s Mahathir boom years and to rebuild foreign exchange reserves to healthy levels.
But subsequently it became simply a consequence of the weakness of private investment. Domestic investors were discouraged by the corrupt and warped system and foreigners moved to China and elsewhere. GDP growth has become ever reliant on government stimulus – again racially biased in its allocation -- financed by a persistently large budget deficit.
Meanwhile, publicly controlled capital has been rushing overseas. Petronas has been spending its billions in profits around the world as it attempts to become a major global player – at the expense of Malaysian citizenry in general and the oil and gas producing states in particular. Other government-controlled entities such as Malayan Banking Bhd have been bidding top dollar for foreign assets – such as Bank Internasional Indonesia.
Often with the exodus of money goes an exodus of talent as highly skilled persons disadvantaged by race or, as in the case of some Malays, disgusted by local corruption or primitive religious authorities, take themselves and their capital to Australia, Canada, India, China, etc.
The 2009 reserves loss may have had some specific cause which will not be repeated. But it has merely served to underline a dismal trend which has been in evidence for the best part of a decade. Malaysia has so far been saved from itself by the commodity price gains of the past five years – with even the late 2008 collapse now largely reversed. Oil and palm oil may be off their peaks but both are now double their prices of five years ago.
It is better not to imagine what will happen to Malaysia if prices collapse to 2004 levels and stay there. Better now to address the real reasons behind capital outflow and lack of private investment.
http://www.malaysia-today.net/index.php?option=com_content&view=article&id=29559:malaysias-disastrous-capital-flight&catid=21:special-reports&Itemid=100135
What's next in Malaysia's Allah row?
What's next in Malaysia's Allah row?
Tue Jan 5, 2010
ARE RELIGIOUS TENSIONS IN MALAYSIA AN INVESTMENT RISK?
Not directly. Religious disputes are a risk mostly in their potential to increase ethnic tensions, with the biggest fear being a repeat of ethnic clashes that took place in 1969.
Some investors are concerned over the increasing Islamisation of Malaysia as a potential market risk.
During a meeting with investors in New York last year Najib, was asked about the government's stand over the caning sentence meted out to a Muslim woman for drinking beer under rarely-enforced Islamic criminal laws.
An escalation of religious tensions in Malaysia could weaken Najib's ability to push through economic reforms aimed at boosting foreign investment.
IS THERE A RISK OF ETHNIC CLASHES?
The risk is very small. The bloody 1969 clashes left a deep scar on the national psyche.
Any signs of trouble would see the government use the Internal Security Act that allows detention without trial.
While there are likely to be protests organised by fringe groups, there is no real risk of attacks on churches or other places of worship.
(Editing by Alex Richardson)
http://in.reuters.com/article/worldNews/idINIndia-45153020100105?pageNumber=4&virtualBrandChannel=0
Sadly, despite the journalist's prediction, some attacks on churches occurred a week after.
Tue Jan 5, 2010
ARE RELIGIOUS TENSIONS IN MALAYSIA AN INVESTMENT RISK?
Not directly. Religious disputes are a risk mostly in their potential to increase ethnic tensions, with the biggest fear being a repeat of ethnic clashes that took place in 1969.
Some investors are concerned over the increasing Islamisation of Malaysia as a potential market risk.
During a meeting with investors in New York last year Najib, was asked about the government's stand over the caning sentence meted out to a Muslim woman for drinking beer under rarely-enforced Islamic criminal laws.
An escalation of religious tensions in Malaysia could weaken Najib's ability to push through economic reforms aimed at boosting foreign investment.
IS THERE A RISK OF ETHNIC CLASHES?
The risk is very small. The bloody 1969 clashes left a deep scar on the national psyche.
Any signs of trouble would see the government use the Internal Security Act that allows detention without trial.
While there are likely to be protests organised by fringe groups, there is no real risk of attacks on churches or other places of worship.
(Editing by Alex Richardson)
http://in.reuters.com/article/worldNews/idINIndia-45153020100105?pageNumber=4&virtualBrandChannel=0
Sadly, despite the journalist's prediction, some attacks on churches occurred a week after.
Beijing is trying to prevent the property bubble from bursting.
China vows to keep ‘hot money’ out of property market
Beijing is trying to prevent the property bubble from bursting. — Reuters pic
BEIJING, Jan 10 — China vowed today not to let foreign speculative investment affect the property market, the latest expression of official concern that real-estate prices are racing ahead too fast.
The directive from the State Council, China’s cabinet, will serve as a guideline for local authorities and ministries, including the People’s Bank of China and the China Banking Regulatory Commission, to work out detailed policies.
“Relevant departments must enhance monitoring of loans and cross-border investment to prevent illegal inflows of capital into the property market and to avoid the impact of overseas hot money on China’s real-estate market,” the cabinet said.
It said the central bank and banking regulator should step up oversight and “window guidance” of mortgage lending.
About one-sixth of China’s nearly 10 trillion yuan (RM5 trillion) in new loans last year flowed into the property sector.
Concerned that a property bubble could stir social and economic instability, Beijing has vowed to combat overly fast price increases, although its moves to date, such as restricting sales tax exemptions, have been relatively mild.
The cabinet urged local authorities, especially in cities where housing prices are rising sharply, to increase the supply of affordable housing.
It reiterated that it would curb house buying for “investment and speculation purposes” and keep the minimum down payment for purchases of second homes at 40 per cent.
China’s central bank said this week that it would pay particularly close attention to the property market in 2010 while managing inflationary expectations. — Reuters
Beijing is trying to prevent the property bubble from bursting. — Reuters pic
BEIJING, Jan 10 — China vowed today not to let foreign speculative investment affect the property market, the latest expression of official concern that real-estate prices are racing ahead too fast.
The directive from the State Council, China’s cabinet, will serve as a guideline for local authorities and ministries, including the People’s Bank of China and the China Banking Regulatory Commission, to work out detailed policies.
“Relevant departments must enhance monitoring of loans and cross-border investment to prevent illegal inflows of capital into the property market and to avoid the impact of overseas hot money on China’s real-estate market,” the cabinet said.
It said the central bank and banking regulator should step up oversight and “window guidance” of mortgage lending.
About one-sixth of China’s nearly 10 trillion yuan (RM5 trillion) in new loans last year flowed into the property sector.
Concerned that a property bubble could stir social and economic instability, Beijing has vowed to combat overly fast price increases, although its moves to date, such as restricting sales tax exemptions, have been relatively mild.
The cabinet urged local authorities, especially in cities where housing prices are rising sharply, to increase the supply of affordable housing.
It reiterated that it would curb house buying for “investment and speculation purposes” and keep the minimum down payment for purchases of second homes at 40 per cent.
China’s central bank said this week that it would pay particularly close attention to the property market in 2010 while managing inflationary expectations. — Reuters
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