How to Profit From the Great Greek Bankruptcy of 2012

Don't play a starring role in this big, fat Greek tragedy

So how can investors position themselves to profit from all this, if events play out according to plan? First and foremost: with patience. The Athens Stock Exchange Index has fallen far already -- down about 63% over the past year. But Russia's RTS took a pounding prior to its default, too, and that didn't save it from sliding further post-default.

The low P/E ratios on stocks like National Bank of Greece (NYSE: NBG  ) or Coca-Cola Hellenic Bottling (NYSE: CCH  ) may tempt investors today, but have no doubt: They could get even cheaper in the event of an official exit from the euro. A "Grexit" could likewise spark selling of foreign-listed but Athens-based shipping companies such as DryShips(Nasdaq: DRYS  ) , Diana Shipping (NYSE: DSX  ) , and Excel Maritime (NYSE: EXM  ) .

Long story short, there will be a time to profit from the great Greek bankruptcy of 2012. But that time is... not yet.

http://www.fool.com/investing/general/2012/06/06/how-to-profit-from-the-great-greek-bankruptcy-of-.aspx?source=ihpdspmra0000002&lidx=3

National Bank of Greece (NYSE: NBG  )

 Coca-Cola Hellenic Bottling (NYSE: CCH  ) 

 DryShips(Nasdaq: DRYS  )

 Diana Shipping (NYSE: DSX  )

Excel Maritime (NYSE: EXM  ) .

Stocks Near 52-Week Lows Worth Buying

Just as we examine companies each week that may be rising past their fair value, we can also find companies potentially trading at bargain prices. While many investors would rather have nothing to do with companies tipping the scales at 52-week lows, I think it makes a lot of sense to determine whether the market has overreacted to the downside, just as we often do when the market reacts to the upside.

Here's a look at a fallen angel trading near the 52-week lows that could be worth buying.

It's all about being greedy when others are fearful. 

Coca-Cola Hellenic (NYSE: CCH  ) , the second-largest bottling company in the world and the exclusive bottler of Coca-Cola (NYSE: KO  ) products in the region, exclusivelydistributes sparkling beverages, juices, and energy drinks in 28 countries. Because of weakness in the region and heavy investments into the company over the coming years, results haven't been fantastic, as is evidenced by the 2% drop in unit volume and its cash outflow of 32 million euros in the latest quarter.

However, investors need to keep in mind that barriers to entry remain extremely high in bottling. The Coca-Cola brand name when combined with Coke's marketing budget give Coca-Cola Hellenic incredibly strong pricing power. It's also worth noting that energy drinks and Coke Zero products showed strong year-on-year growth. At less than 10 times forward earnings, Coca-Cola Hellenic has a good mix of value and a strong brand name at its current price.

• Add Coca-Cola Hellenic to My Watchlist.
• Add Keynote Systems to My Watchlist.
• Add HudBay Minerals to My Watchlist.

http://www.fool.com/investing/general/2012/05/29/3-stocks-near-52-week-lows-worth-buying.aspx?source=itxsitmot0000001&lidx=6 

A Great Metaphor - The Stock Market can be likened to the Sea.

The stock market is indeed similar to the ocean because, just as a cork floating upon its surface is, the price of a stock is affected by many different influences at once.  And each of those forces can either add to or subtract from the effects of the others.

The broadest influence is, of course, the tide that ebbs and flows regularly and in some places rises 50 feet or more above its low point.

Upon the tide are the broad, rolling waves caused by the various disturbances at the sea bottom.  Then there are the large waves caused by storms and major changes in the atmosphere, and there are the various ripples and patterns caused by the whim of the local breeze that blows this way and that over a few square yards of the surface.

That cork is buoyed by a combination of all of these influences, some rising and some falling, all at the same time.   If you were to try to predict where that cork would be in relation to sea level in the next moment, you'd have a tough time of it.  You can't predict what a storm or even an underground earthquake will do to the cork at any given moment.  And if you add to that the effects of the winds and the little breezes, it's hopeless!

However, you would be able to forecast, in general, where your cork would be over the course of the day, instead of at a particular moment.  This is because the tides are influenced by the position of the moon, by gravity, and by a variety of other factors that are all scientifically predictable - so predictable, in fact, that almanacs are published that forecast the tides for years ahead, right to the minute.

The stock market is also governed by a diverse set of influences.  And just as the sea is, it is predictable over the long term but not over the short term.

What should you do if you find that the price or P/E is significantly above or below the historically fair price or fair P/E mark?

"It is better to buy a wonderful company at fair price than a fair company at wonderful price."

In general, if you can buy a quality stock today for a historically fair price or fair P/E, you should probably do so, provided the reward and risk are attractive.

However, what should you do if you find that the price or P/E is significantly above or below the historically fair price or fair P/E mark?

A low price or low P/E is probably your biggest concern, because it suggests that people who are buying the stock today might know something negative about the company that you don't know.

Think about it.  Why would investors pay less for the stock than it has typically sold for?

• Is there something in the news that you haven't heard about?  
• Has an analyst - or have a number of analysts - announced a reduced expectation of future earnings based upon something they know that you don't know?  
• Have you missed something in your quality analysis - or (shame on you!) recklessly jumped over that barbed-wire fence, failing to evaluate quality deliberately enough before moving on to look at the value considerations? 

(E.g. Transmile, KNM).

If the price or P/E is too low - move on to another company and forget about looking at the risk and reward.  You may miss a few good stocks, but you won't have to lose any sleep worrying about being wrong.



If the price or P/E ratio is too high, this tells you two things.

1. The first is that other investors appear to agree with you about the quality issues, because they are paying a healthy price for the stock.  
2. The second is that it may be too healthy a price.  

• You may want to put off buying it until the price becomes more reasonable.  
• Or, it may be worth the premium if the risk and reward are satisfactory.

(E.g. _____________)

Just know that, if you buy a stock whose price or P/E is too far above the fair price or fair P/E, when it later comes back down - which it usually will - the decrease in P/E can reduce your gain considerably.  Your chances of having a superior portfolio are far better if you select stocks for which you don't have to make any allowances.  


As you gain more experience, you'll find that you can make some intelligent exceptions in cases of high or low price or P/E, but for now, the advice for those who are just starting out, don't.

The European debt crisis explained: The debt levels around the globe are unprecedented in peacetime.

The European debt crisis explained: The debt levels around the globe are unprecedented in peacetime.

The odds of restructurings and/or defaults are higher than most believe. When does debt become unsustainable? The video shows the debt levels of numerous countries have reached "problem" levels. Since the bill coming due in the form of maturing bonds is so large, policymakers in Europe have no easy way out.

"Solutions" may include printing money to create inflation or debt restructurings/defaults; or a combination of the two. 

Chris Ciovacco of Ciovacco Capital Management compares healthy markets to the current state of affairs.
Which investments tend to perform well during deflation/defaults/restructurings?
Which investments tend to perform well during periods of inflation/money printing by central banks?
What is a back-door bazooka?

 A breakdown of the European debt situation, starting with Greece and consuming the entire continent.

Understanding Valuation Principles

The basics of valuation are:

1.  The Time Value of Money:  This states that $1 received today has a different value from $1 received a year ago or $1 received a year from now.

2.  Present Value:  This is the concept that money spent tomorrow must be worth less today because of the time value of money.  It is calculated by using the formula

PV = CF  /  (1+r)^n

where

PV = present value
CF = cash flow for the period
r = discount rate
n = period


Methods of valuation are:

1. Replacement method
This method tends to be the simplest to explain but the most time-consuming to produce.

This method would measure all the costs involved in creating an exact duplicate company.  Those costs might include:
Land
Buildings
Machinery
Equipment
Working capital.

2.  Capitalization of Earnings
This is one of the more common and relatively straightforward methods of valuation.This method uses a risk rate to assess the value needed to generate the same amount of income as the business being valued.

A company is expected to generate exactly $10,000 each year in income indefinitely.  Assuming that the buyer can earn a guaranteed rate of interest of 5% elsewhere, an investment of $200,000 would earn $10,000 in interest each year.  Therefore, the company has a value of $200,000.

Unfortunately, such risk-free situations rarely exist.  Thus, with increased risk, a higher capitalization rate would have to be assessed to estimate fair value.  These rates vary, and some might argue that they are entirely arbitrary.  The result will prove highly sensitive to this rate.  As a result, many believe the capitalization of earnings method is problematic.


3.  Discounted Cash Flow Valuation
This is one of the most commonly used methods.

The entire process can be condensed into four steps:
1.  Calculate projections for future cash flows.
2.  Calculate the cost of capital, or the discount rate.
3.  Calculate the present value for each year's cash flow.
4.  Finally, take total of those present value cash flows.

Completing these four steps provides a very close estimate of the valuation for the company.  The sum of these discounted cash flows is the company's valuation ... well, almost.

However, the company doesn't simply dissolves at the end of the DCF study period.  The company continues to operate long after those projections end, meaning there is residual value that has to be considered.

To account for what happens after the projections end, the concept of terminal value is employed.  Terminal value is a concept used to calculate the value of an asset that continues after the projections end, or into perpetuity.

The method of choice involves using the present value of a perpetuity.  A perpetuity is an instrument that makes payments year after year without end.  You can use the formula to calculate a perpetuity that assumes growth or a simpler formula to calculate one without growth.  The two formulas are given here:

Perpetuity without growth = CF / r
Perpetuity with growth = CF / (r - g)

where

CF = cash flow
r = discount rate
g = growth rate


For example:

• Given the 5 year cash flow projections.  
• Find the present value of these 5 year cash flows.
• The next step is to get a year 6 cash flow estimate.  Having this cash flow estimate, assume it stays constant each year after that or it grows at a low rate.  
• Then calculate the present value of that perpetuity.  The present value of this perpetuity is treated as the value at the beginning of year 6.  
• Then calculate the present value of that perpetuity in today's dollars by discounting it back 5 years by using the present value formula.  
• Add the present value of perpetuity to the total discounted cash flows for the first five years. 
• That results in the company valuation and at this point, the analysis of this company has concluded.  

A simple 10-Year Valuation Model
A step by step DCF model for calculating the equity value of a company (Source: Morningstar, Inc.)


Step 1:  Forecast free cash flow (FCF) for the next 10 years.

Step 2:  Discount these FCFs to reflect the present value.

Step 3:  Calculate the perpetuity value, using the FCF of the 10th year, and discount it to the present.

• Perpetuity Value = FCF(10th Year)  x  (1 + g)  /  (R - g)
• Discounted Perpetuity Value = Perpetuity Value / (1 + R) ^ 10

Step 4:  Calculate total equity value by adding the discounted perpetuity value to the sum of the 10 discounted cash flows (calculated in step 2)

• Total Equity Value = Discounted Perpetuity Value + 10 Discounted Cash Flows

Step 5:  Calculate per share value by dividing total equity value by shares outstanding:

• Per Share Value = Total Equity Value  / Shares Outstanding

4.  Comparable Multiple Valuation

The final method of valuation is the most commonly used and probably the easiest to use as well.

It is based on benchmarking one company against an industry-average multiple such as the P/E (price-to-earning) ratio.  This could also be applied to other variations on this multiple, such as P/EBIT or P/EBITDA.

Generally speaking, if a company's P/E ratio is greater than the industry average, it is fair to say that the company is overvalued.  If the company's P/E ratio is less than the industry average, it is fair to say that the company is undervalued.  However, be caution, no rules are without exception.    Many companies are seemingly undervalued, but for good reason.  For example, a company might be a party in a pending lawsuit, and the market has undervalued the company because it is unclear what the ruling will be.

The comparable multiple method of valuation forms at least a starting point for making some basic assumptions about a company's value.  

Tesco's Sales Slide Again

By Cliff D'Arcy, The Motley Fool

Posted 8:30AM 06/11/12

LONDON -- So far, 2012 has been an annus horribilis for Tesco  (ISE: TSCO.L) , the U.K.'s largest supermarket chain.

Thanks to weak consumer confidence, falling disposable incomes and feeble wage growth, British consumers keep tightening their belts. As a result, Tesco has seen its U.K. market share drop to levels not seen since 2005.

Sales still slippingLast Wednesday, after Tesco shares dipped below the 3 pound mark, I suggested that they looked increasingly desirable to value investors and dividend fans. This morning, the Goliath of retailing released a trading update, giving me another chance to review its recovery.

In the first quarter of its 2013 fiscal year, covering the 91 days to May 26, U.K. like-for-like sales were down 1.5%, excluding VAT and petrol sales. This was hardly an improvement on the 1.6% drop recorded in the previous quarter, so Tesco's turnaround plan is struggling to gain traction. Also, revenue fell by 3.7% at Tesco Bank, which recently moved 2.8 million credit card accounts to its in-house systems.

However, thanks to international sales rising by 0.5%, overall LFL sales were down a mere 0.7%. Tesco's star performer overseas was the Fresh & Easy chain in the U.S. (up 3.6%), while Slovakia (up 3.4%), Poland (up 3.3%), and Thailand (up 2.5%) also did well. Then again, U.S. sales growth has slumped sharply from the 12.3% rise in LFL sales seen in the fourth quarter of fiscal 2012. Still, Tesco saw improved market shares in 11 of its 12 international markets.

Turning against Tesco?Philip Clarke, Tesco's chief executive, said of these results:

Tesco has performed robustly in the first quarter, despite subdued consumer confidence in all our markets. We are rapidly implementing our six-point UK plan and I'm particularly proud of the relaunch of our Everyday Value range and the fact we have now put extra staff into 700 of our stores-in 500 of them within the last three weeks alone. Our customers are seeing the evidence of the changes we're making and they're telling us they like what they see.

Personally, I'm not sure that Clarke has his ear firmly pinned to the ground.

Whenever I've written or talked about Tesco this year, I've received overwhelmingly negative feedback on Tesco's customer service, product quality, and store layouts -- and many of these critics are now ex-customers. While this is purely anecdotal feedback, it does seem to represent a growing anti-Tesco groundswell of opinion. Nevertheless, at the top level, Tesco continues to generate skipfuls of cash, and its pre-tax profit hit an all-time high of 3.8 billion pounds in FY 2012. What's more, overall group sales are ahead 2.2% this year, thanks to store openings and expansion.

In addition, Tesco claims to be outperforming the wider U.K. market. The latest data shows that U.K. market growth declined from 3.7% in Q4 to 2.4% in Q1, down 1.3%. However, Tesco's own sales growth reduced from 2.3% to 2%, down only 0.3%. Hence, in this relative respect, it is beating its rivals, but this offers little comfort to shareholders.

Cheap shares on the shelfAs part of Tesco's six-pronged "Build a Better Tesco" strategy, the FTSE 100 giant has recruited, trained and put to work 4,300 additional new workers. A further 145,000 employees have been given specialist training relevant to their departments. More than 100 stores have been "refreshed," and 7 million Clubcard customers have been sent additional, more personalized mailings. Additionally, Tesco has made improvements to 350 of its Tesco Standard products, notably ready meals, while adding 500 brand-new products. Also, the Tesco Direct range now includes more than 100,000 nonfood products.

Although it wasn't included in these results, Tesco enjoyed a welcome boost from the Queen's Diamond Jubilee, notching up record weekly sales exceeding 1 billion pounds.

Tesco made no changes to market expectations for its full-year outlook, and as I write its shares trade at 301.2 pence, valuing the megagrocer at more than 24 billion pounds. As this price, its shares trade on a forward price-to-earnings ratio of 8.7 and offer a prospective dividend yield of 5%, covered a generous 2.3 times.

Despite Tesco's continued weakness in the U.K., it remains a cash-generating juggernaut. Therefore, I still firmly believe that its shares offer deep value at their current levels.

Do you know the reasons why investment genius Warren Buffett -- the world's third-richest man, with a $44 billion fortune -- has been piling into the U.K. supermarket this year? To find out, simply download your free copy of our latest report, "One UK Share That Warren Buffett Loves."

http://www.dailyfinance.com/2012/06/11/tescos-sales-slide-again/

Is Tesco in value territory yet?

Tesco: verdict on the first quarter

By John Hughman , 11 June 2012

A selection of views from analysts covering Tesco’s hotly anticipated Q1 trading statement suggests the jury remains very much out on the grocer’s recovery.

Although Tesco said that it was making good progress on its turnaround plan despite a tough consumer backdrop, UK like-for-like sales nevertheless fell by 1.5 per cent in the quarter.

Of course, it would have been unrealistic to expect chief executive Philip Clarke’s six-point plan to “Build a Better Tesco” to have yielded immediate results. But the update also brought worrying signs that overseas growth was grinding to a halt – international like-for-like sales climbed just 0.5 per cent, as the effects of the Eurozone crisis and a slowing Chinese economy continued to be felt. Further questions over how quickly the US business, Fresh & Easy, can make a profit were also asked as like-for-like growth there slowed from 12.3 per cent in the fourth quarter to 3.6 per cent.

One thing’s for sure, and that is that there will be no instant return to form for Tesco. As analyst Philip Dorgan at broker Panmure Gordon notes, “turning Tesco UK around is all about doing 1,000 things 1% better”. For an organisation of Tesco's size, that's a lot of work, and in the meantime we still think there are better investment opportunities elsewhere. Hold at 301p.

Read more here:  

http://www.investorschronicle.co.uk/2012/06/11/comment/chronic-investor-blog/tesco-verdict-on-the-first-quarter-kaSxL7nzuigocFcI6Ym8VO/article.html

Is Tesco in value territory yet?

By John Hughman , 16 January 2012

After several lacklustre updates at the end of 2011 - and more recent figures from industry research group Nielsen which showed that Tesco had lost ground to rivals over Christmas - no one expected the retail giant's January trading statement to be particularly good. But not many expected it to be as grim as it was, a bona fide profit warning that saw the shares slump to their largest daily fall in living memory.

Such falls are almost unheard of among blue-chip shares, especially ones that are still on course to make £3.5bn of pre-tax profits in the year ahead. More worrying was the fact that after an initial heavy drop Tesco shares continued to slide throughout the day as investors digested the news, and then fell another 2 per cent on Friday and 1.5 per cent on Monday as even the glimmest slither of reassurance from analysts from management of analysts failed to materialise. The fear, it seems, is that something is very wrong, and Tesco's admission that it would have to invest heavily to right its course was hardly reassurance that there was no need to panic.

Not that retail investors seem overly concerned, with many citing the mantra that when everyone is fearful is the time to get greedy. Comments on our site suggest that many saw the fall as a fabulous BP-like buying opportunity not to be missed - and trading stats from Barclays Stockbrokers support that anecdotal evidence. “Despite the drop in value, sentiment from traders towards Tesco was almost overwhelmingly positive, with the vast majority of Barclays Stockbrokers clients taking the opportunity to purchase the stock at a price that was perceived to be good value. Of the deals placed in Tesco yesterday by Barclays Stockbrokers clients, an unprecedented 96% were buys," said Paul Inkster, Co-Head of Product at Barclays Stockbrokers, noting that Tesco had been its top traded share on the busiest trading day of the year so far.

Read more here:

http://www.investorschronicle.co.uk/2012/01/16/comment/chronic-investor-blog/is-tesco-in-value-territory-yet-S1Yjlq2cSLq4AnqMtxLGWN/article.html;jsessionid=B52F420842438734EEDE687BA42B7FD1.mps-apr-01-8109

The important investment question is how you can estimate true value.

"In the final analysis the stock market is not a voting mechanism but a weighing mechanism."
Benjamin Graham, Security Analysis

Valuation metrics have not changed.

• Eventually, every stock can only be worth the present value of the cash flow it is able to earn for the benefit of investors.  
• In the final analysis, true value will win out.  
• The important investment question is how you can estimate true value.

Markets can be highly efficient even if they make errors.

• Stock valuations depend upon estimations of the earning power of companies many years into the future. Such forecasts are invariably incorrect. 
• Moreover, investment risk is never clearly perceived, so the appropriate rate at which the future should be discounted is never certain. 

Thus, market prices must always be wrong to some extent.

• But at any particular time, it is not obvious to anyone whether they hold only "undervalued" stocks and avoid "overvalued" ones.  
• The fact that the best and the brightest on Wall Street cannot consistently distinguish correct valuations from incorrect ones shows how hard it is to beat the market. 

A stock price must past 2 tests to be considered reasonable.

The most important task in buying a stock is to determine that the company is a good company, in which to own stock for the long term. 

However, no matter how good the company, if the price of its stock is too high, it's not going to be a good investment.

A stock price must pass two tests to be considered reasonable:

1.  The hypothetical total return

The hypothetical total return from the investment must be adequate - enough to contribute to a portfolio average of around 15 percent - sufficient to double its value every 5 years.

2.  The potential risk 

The potential gain should be at least 3 times the potential loss.




























To complete these tests, you have to learn how to do the following:

• Estimate future sales and earnings growth
• Estimate future earnings
• Analyse past PEs (check the present PE relative to its usual average PE)
• Estimate future PEs.
• Forecast the potential high and low prices
• Calculate the potential return.
• Calculate the potential risk.
• Calculate a fair price.

The real world of investing

There are 10,000 publicly traded companies in the US markets.  There are 1,000 publicly traded companies in the KLSE.  With so many companies out there to pick from, only a small minority will be suitable as LONG-TERM INVESTMENTS.

This means the great majority of companies you investigate will be unsuitable.  You should take some pains to screen for companies that meet your requirements.

If you don't realize this up front, and accept discouragement as a normal part of the process, you may tire of discarding company after company and give up.  Worse yet, you may relax your requirements and accept companies that don't come up to snuff. Either way, you'll lose.  

Remember:  You need to own only about 10 to 20 good stocks - that's all!  And there are plenty of companies to choose from to populate your portfolio.  So be patient and disciplined.  

Assemble a list of companies based on your quality criteria.  You will usually find that even if performance on your quality criteria has persisted - and this is usually the case for most - you'll find the price for many of these stocks unattractive.  When you first assemble this list, make no effort to assess the price, just the quality.

Some of these companies have been around a long time and are familiar to you: others are not so well known.  All have been publicly traded for at least 5 years on the major exchanges and all have revenues of more than $100 million.

The moral of the story here is that you should keep the faith.  There are plenty of fish in the sea for you, even though the sea is enormous and there are many more losers than winners.

Evaluating Company Quality

To buy a good stock, you only need to know if the company is a good-quality company and if the price you have to pay for its stock is reasonable.

A good-quality company is one whose growth, upon which you rely to increase the value of your investment, is strong and stable, and one in which management's efficeincy will enable it to continue that satisfactory growth. 

The first assessment of a company's quality is the analysis of its sales and earnings growth.

As a company passes through its life cycle, its success and its potential as an investment can be sized up at a glance.

Companies that are good candidates are easy to spot.

More important, companies that are not good candidates are even easier to spot.

As you become more experienced, you'll be able to gain more insight into what is in store for a company and why.

The Reasons You Should Invest in Quality Growth Companies for the Long Term. Illustrated examples.

The reasons you should review your philosophy and strategy in stock investing:

1.  You can create wealth only by adding value to resources or by providing a service of value.
2.  Only investments in active businesses are capable of adding value.
3.  Owning a business, though very rewarding, is expensive and risky; butowning shares in a variety of successful businesses eliminates most of the risk while retaining most of the reward.
4.  Buying the stock of quality growth companies and holding it for the long term provides substantial, predictable returns. 
5.  Short term trading (BFS/STS) is unpredictable and stacks the odds against you, because it relies upon winning at some loser's expense and because there's no assurance that you won't be the loser.
6.  The benefits of long-term investing include carefree portfolio maintenance, the potential to double your money every five years, the deferment of taxes, and the fact that there are rarely any losers. 



Let's review the simple mathematics that makes this method work:

1.  Assume that 15 times earnings is a fair multiple for a good company and that the company earned a dollar per share last year.
2.  You will therefore pay $15 for the stock.
3.  In five years, the earnings will have grown to $2 per share.
4.  At 15 times earnings, the price will then be $30.

The value of your investment will have doubled - in five years!


Hopefully you're satisfied with the logic behind this investing approach and can see its advantages.  

Let's dispel any doubts you might have about whether you can be successful.



The best way to minimize the risk is to invest in good quality companies for the long-term, expecting not to make a killing but to earn as much as good quality companies are capable of earning for their shareholders.

Here are some examples of KLSE listed companies that have grown their earnings over the last 5 years.  Their earnings (green lines on the chart) have doubled or almost doubled over this period.  Therefore, assuming you have paid the fair PE for these stocks, your capital appreciation on the stock price would likewise have shown the corresponding gains.  Investing can be as simple as this:  invest into good quality growth companies at fair or bargain prices, and holding them forever, unless their business fundamentals deteriorated permanently.

Lastest EPS of PetDag was 91 sen.

Guan Chong has shown rapid growth over the last year.  

Do not expect this growth rate to be sustained at the same level.

It doesn't have the same level of quality as the other companies above.


How many of these stocks do you need in your portfolio?
Over-diversification will lead to attenuation of your potential gains in your portfolio.

The Reasons You Should Invest in Quality Growth Companies for the Long Term

The reasons you should review your philosophy and strategy in stock investing:

1.  You can create wealth only by adding value to resources or by providing a service of value.
2.  Only investments in active businesses are capable of adding value.
3.  Owning a business, though very rewarding, is expensive and risky; but owning shares in a variety of successful businesses eliminates most of the risk while retaining most of the reward.
4.  Buying the stock of quality growth companies and holding it for the long term provides substantial, predictable returns.
5.  Short term trading (BFS/STS) is unpredictable and stacks the odds against you, because it relies upon winning at some loser's expense and because there's no assurance that you won't be the loser.
6.  The benefits of long-term investing include carefree portfolio maintenance, the potential to double your money every five years, the deferment of taxes, and the fact that there are rarely any losers.



Let's review the simple mathematics that makes this method work:

1.  Assume that 15 times earnings is a fair multiple for a good company and that the company earned a dollar per share last year.
2.  You will therefore pay $15 for the stock.
3.  In five years, the earnings will have grown to $2 per share.
4.  At 15 times earnings, the price will then be $30.

The value of your investment will have doubled - in five years!


Hopefully you're satisfied with the logic behind this investing approach and can see its advantages.  

Let's dispel any doubts you might have about whether you can be successful.



The best way to minimize the risk is to invest in good quality companies for the long-term, expecting not to make a killing but to earn as much as good quality companies are capable of earning for their shareholders.

Focus on Investing in Growth Companies for the Long Term

Since the early 1940s, when World War II brought the Depression to an end, there has never been a long-term catastrophe in the stock market.  Even in the worst of times, good companies continue to earn, and many stocks buck the trend.  To be sure, some of the weaker companies with poor management fold, but the well-managed, strong companies quickly scoop up their market share and life goes on.

Focus on investing in growth companies for the long term and , if the time arises when you need to take cash out of your account, sell off portions of your losers - the ones whose sales and profit growth is sluggish, not necessarily the ones whose prices are down.

This will assure you that when the market comes back up, which it surely will, you'll have a portfolio of winners.  Have faith that the companies you own a piece of will perform well in the long term and so, therefore, will your investments.  (And gloat as you continue to rack up 15-percent years while your contemporaries are pulling down 6 percent and paying the taxes on it every month.)

Spain is in 'total emergency’, the EU in total denial

After a Spanish exit from the euro, there would be nothing left to exit from.

Greece in turmoil: but its significance has shrinked in comparison to the possibility of a spectacular crash in Spain, the fourth largest economy in the EU Photo: AFP/GETTY

By Janet Daley

9:00PM BST 02 Jun 2012

775 Comments

I’ve never actually heard the term “total emergency” before, at least not in the context of global economics. It sounds like the title of a disaster movie. When it is uttered in sober tones by the elder statesman of an advanced democracy to describe his country’s financial condition, the effect is rather startling.

The man who delivered this apocalyptic judgment, former Spanish prime minister Felipe González, being a socialist, might be expected to detest austerity programmes that require cuts to government spending. But there seemed to be few disinterested observers of Spain’s economy prepared to quibble with his assessment.

Forget Grexit. Greece’s teeny, tiny economy is a footnote now. As is Ireland’s decision – which seemed more like a sigh of resignation than a plebiscite – to engage in however much self-flagellation the EU gods insist on, for however long it takes. What might have seemed dramatic a week or so ago has now shrivelled in importance by comparison to the realistic possibility of a spectacular crash in the fourth largest economy in the EU. Spexit (and Spanic) are lodged in the lexicon, and have become part of the psychological reality that moves markets. The equivalent of more than £55 billion was withdrawn and transported out of Spain last month – and that was before the country’s largest bank was nationalised. No one seems to be kidding himself that the collapse of the Spanish economy could be somehow weathered and overcome, as the default of Greece might be.

Read more here:

http://www.telegraph.co.uk/finance/financialcrisis/9307106/Spain-is-in-total-emergency-the-EU-in-total-denial.html

Boustead's 421,460 shares crossed 15% below Friday close

KUALA LUMPUR: Boustead Holdings Bhd's 421,460 shares were transacted in an off-market deal on Monday at RM4.35.

Stock market data showed at RM4.35, this was 15% or 77 sen below last Friday's closing price of RM5.12

At 3.41pm, its share price was down nine sen to RM5.03 in regular trade.

Boustead's paid-up is 1.034 billion shares.

The week that Europe stopped pretending

The euro has essentially broken down as a viable economic and political undertaking. The latest rush of events reeks of impending denouement.

The debt markets are pricing in for a global deflationary bust. Europe will have to restore shattered trust in the worst possible circumstances Photo: Reuters

By Ambrose Evans-Pritchard

8:00PM BST 03 Jun 2012

534 Comments

Switzerland is threatening capital controls to repel bank flight from Euroland. The Swiss two-year note has fallen to -0.32pc, not that it seems to make any difference.

Denmark’s central bank said it was battening down the hatches for a "splintering" of EMU. It has cut interest rates twice in a matter or days and pledged to do whatever it takes to stop euros flooding into the country. Contingency plans are on the lips of officials in every capital in Europe, and beyond.

On a single day, the European Commission said monetary union was in danger of "disintegration" and the European Central Bank said it was "unsustainable" as constructed. Their plaintive cries may have fallen on deaf ears in Berlin, but they were heard all too clearly by investors across the world.

Joschka Fischer, Germany’s former vice-Chancellor, said EU leaders have two weeks left to save the project.

"Europe continues to try to quench the fire with gasoline – German-enforced austerity. In a mere three years, the eurozone’s financial crisis has become an existential crisis for Europe."

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"Let’s not delude ourselves: If the euro falls apart, so will the European Union, triggering a global economic crisis on a scale that most people alive today have never experienced," he said.

Mr Fischer has the matter backwards. The euro itself is the chief cause of the existential crisis he discerns. Yet he is right that three precious year have been squandered, and that Europe‘s policy mix has been atrociously misguided. The pace of fiscal tightening has been too extreme, made much worse by the ECB’s monetary tightening last year. This inflicted a double-barrelled shock on Southern Europe. The whole region was forced back into slump before it had reached "escape velocity".

The window of opportunity offered by US recovery is slamming shut again. America’s dire jobs data for May - and the downward revision for April - confirm the fears of cycle specialists that the US economy has slipped below stall speed. America risks tanking back into recession as the "fiscal cliff" approaches late this year, unless the Fed comes to the rescue again soon.

Brazil wilted in the first quarter. India grew at the slowest pace in nine years. China’s HSBC manufacturing index fell further into contraction in May, with new orders dropping sharply and inventories rising.

We face the grim possibility that all key engines of the global system will sputter together, this time with interest rates already near zero in the West and average public debt in the OECD club already at a record 106pc of GDP.

"The world’s largest emerging economies are no longer in a position to carry the global economy through tough times, as they did during the 'recovery' years of 2009-2011," said China expert Andy Xie.

The warnings from the bond markets could hardly be clearer. German 10-year Bund yields closed at 1.17pc. The two-year notes turned negative. British Gilts closed at 1.53pc, the lowest in 300 years. US Treasuries fell to 1.45pc, lower than at any time during the Great Depression.

The debt markets are pricing in for a global deflationary bust. Europe will have to restore shattered trust in the worst possible circumstances.

If deposit flight from Spain was €66bn in March before the Greek election tore away the pretence that Europe had solved anything, one dreads to think what it will be in April and May when the data come out.

Alberto Gallo from RBS says Spain will need an EU rescue package of €370bn to €450bn to bail out its crippled property lenders and limp through to 2014, pushing public debt to 110pc of GDP.

This would be the biggest loan package in history by a huge margin. Whether the EU bail-out fund could raise the money on the global markets at viable cost is an open question.

Spanish premier Mariano Rajoy vowed in any case last week that there would no such rescue. It is not a vow he can break quickly or easily, whatever dissidents in his party may want.

Mr Rajoy is gambling that Germany will blink first, letting the ECB intervene in the bond markets to cap Spanish yields.

Europe’s officials seem to think Spain can be pushed into a bail-out - as Ireland and Portugal were pushed - but it is far from clear that Mr Rajoy will accept the long agony of debt-deflation, or take lessons from Brussels.

Heretical thoughts are gaining traction. El Confidencial suggested that Spain should engage in "blackmail" against the EU ("chantaje" in Spanish). "Rajoy has a card up his sleeve: leaving the euro. It is not the best option, and fundamentally it is not what most people want. But the time has come to make Brussels a poisonous proposal: "we have already done everything we possibly can, and if you won’t help us, we will leave," it said.

Mr Rajoy has not yet reached such a desperate point, yet his language over the weekend has an ambiguous feel. "We must ensure that the euro remains the currency of our countries," he told Catalan business leaders.

A group of leading professors wrote a joint appeal in Expansion, exhorting the Spanish nation to muffle their ears and resist the "siren song" of those arguing - and gaining ground - that liberation lies at hand with an "Argentine" dash for the peseta and economic sovereignty. It has come to this.

Italy is scarcely more predictable. Ex-premier Silvio Berlusconi offered us his cunningly pitched "mad idea" on Friday. If the ECB refuses to act as a lender of last resort, Italy should take matters into its own hands. "We should use our own mint to print euros," he said. It is a thinly veiled threat.

"People are in shock. Confidence has collapsed. We have never had such a dark future," he said. Indeed, the jobless rate for youth has jumped from 27pc to 35pc in a year. Terrorism has returned. Anarchists knee-capped the head of Ansaldo Nucleare last month. Italy’s tax office chief was nearly blinded by a letter bomb.

"If Europe refuses to listen to our demands, we should say 'bye, bye’ and leave the euro. Or tell the Germans to leave the euro if they are not happy," he said.

Mr Berlusconi is no longer prime minister. But he still controls the biggest bloc of seats in the Italian parliament and can bring the technocrat government of Mario Monti to its knees at any time.

His point is entirely valid in any case. The ECB’s failure to ensure financial stability - the primary task of any central bank - is shockingly irresponsible. It is this that has driven his country into a liquidity crisis. What did Italy do wrong to justify a surge in bond spreads to a record 464 basis points last week? It is close to primary budget surplus, and has been for five years.

Germany can break the logjam at any time by agreeing to fiscal union, debt-pooling and full mobilization of the ECB, with all that this implies for its democracy. The answer from Chancellor Angela Merkel over the weekend was "under no circumstances". In that case, prepare for the consequences.


http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/9309669/The-week-that-Europe-stopped-pretending.html

Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.

If I can’t convince you that a market downturn is no reason to panic, maybe the world’s greatest investor can. In his 1997 letter to Berkshire Hathaway shareholders, Warren Buffett wrote:

A short quiz: If you plan to eat hamburgers throughout your life and are not a cattle producer, should you wish for higher or lower prices for beef? Likewise, if you are going to buy a car from time to time but are not an auto manufacturer, should you prefer higher or lower car prices? These questions, of course, answer themselves.

But now for the final exam: If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period? Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. In effect, they rejoice because prices have risen for the “hamburgers” they will soon be buying. This reaction makes no sense. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.
The next time the stock market takes a tumble, remember Buffett’s advice. And then go out and buy yourself some hamburgers!