KLK - Return on Retained Earnings

Kuala Lumpur Kepong
Year		DPS		EPS		Retained EPS
2002		7.2		24.5		17.3
2003		9.6		33.7		24.1
2004		13.1		39.7		26.6
2005		15.5		36.1		20.6
2006		21.1		33.7		12.6
2007		26.8		57.7		30.9
2008		40.7		103		62.3
2009		53.8		60.6		6.8
2010		45		85.8		40.8
2011		60		127		67
Total		292.8		601.8		309
2002-2011
EPS increase (sen)				102.5
DPO				49%
Return on retained earnings				33%
(Figures are in sens)

Boustead - Return on Retained Earnings

Boustead
Year		DPS		EPS		Retained EPS
2002		3.2		11.1		7.9
2003		3.7		16.7		13
2004		8		22		14
2005		9.3		14.4		5.1
2006		9.3		7.8		-1.5
2007		10.9		49.1		38.2
2008		18		59.7		41.7
2009		18.2		26.7		8.5
2010		20.8		38.3		17.5
2011		35.9		34.2		-1.7
Total		137.3		280		142.7
2002-2011
EPS increase (sen)				23.1
DPO				49%
Return on retained earnings				16%
(Figures are in sens)

Petronas Gas

Petronas Gas
Year		DPS		EPS		Retained EPS
2003		30		33.2		3.2
2004		18.6		32.4		13.8
2005		30.8		41.6		10.8
2006		35.8		49.1		13.3
2007		38.3		63		24.7
2008		42.5		55.2		12.7
2009		48.7		48.7		0
2010		50		47		-3
2011		50		72		22
Total		344.7		442.2		97.5
2003-2011
EPS increase (sen)				38.8
DPO				78%
Return on retained earnings				40%
(Figures are in sens)

Poh Kong - Return on Retained Earnings

Poh Kong
Year		DPS		EPS		Retained EPS
2004		1		8.5		7.5
2005		1.2		2.9		1.7
2006		1.2		5.3		4.1
2007		1.3		4.5		3.2
2008		1.4		7		5.6
2009		1.4		6.9		5.5
2010		1.4		8		6.6
2011		1.4		10		8.6
Total		10.3		53.1		42.8
2003-2011
EPS increase (sen)				1.5
DPO				19%
Return on retained earnings				4%
(Figures are in sens)

Tongher - Return on Retained Earnings

Tong Herr
Year		DPS		EPS		Retained EPS
2002		5.3		9.8		4.5
2003		5.3		16.2		10.9
2004		14		35.4		21.4
2005		12.1		23.4		11.3
2006		13		43.7		30.7
2007		10.2		51		40.8
2008		13.9		14.4		0.5
2009		5		6.6		1.6
2010		5		14.4		9.4
2011		6		29		23
Total		89.8		243.9		154.1
2002-2011
EPS increase (sen)				19.2
DPO				37%
Return on retained earnings				12%
(All figures are in sens)

TSM Global - Return on Retained Earnings

TSM Global (formerly Juan Kuang)

(Figures are in sens)

Year		DPS		EPS		Retained EPS
2002		0		-1.3		-1.3
2003		0		-12.9		-12.9
2004		0		-4.7		-4.7
2005		0		14.6		14.6
2006		0		11.5		11.5
2007		0		10.9		10.9
2008		2.5		18.6		16.1
2009		2.5		20		17.5
2010		2.5		22.3		19.8
2011		5		24.9		19.9
Total		12.5		103.9		91.4
2002-2011
DPO				12%
EPS increase (sen)				26.2
Return on retained earnings				29%

Top Glove - Return on Retained Earnings

Top Glove

(Figures are in sens)

Year		DPS		EPS		Retained EPS
2002		0.6		3.5		2.9
2003		1.8		4.9		3.1
2004		2.4		7.6		5.2
2005		2.7		11		8.3
2006		3		14.6		11.6
2007		4.6		17.3		12.7
2008		5.5		18.7		13.2
2009		11		28.5		17.5
2010		16		42.4		26.4
2011		11		19.4		8.4
Total		58.6		167.9		109.3
2002-2011
DPO				35%
EPS increase (sen)				15.9
Return on retained earnings				15%

Maybank - Return on Retained Earnings

Maybank

(Figures are in sens)

Year		DPS		EPS		Retained EPS
2003		31.4		39.4		8
2004		30.6		47.7		17.1
2005		53.7		47.6		-6.1
2006		43.3		52.2		8.9
2007		41.3		57.8		16.5
2008		32.1		58.3		26.2
2009		6		33.5		27.5
2010		41.3		53.9		12.6
2011		45		59.5		14.5
Total		324.7		449.9		125.2
2003-2011
DPO				72%
EPS increase (sen)				20.1
Return on retained earnings				16%

LPI - Return on Retained Earnings

LPI

(Figures are in sens)

Year		DPS		EPS		Retained EPS
2002		9		14.4		5.4
2003		9		17.6		8.6
2004		10.8		25.8		15
2005		34.6		32.3		-2.3
2006		32.4		33.8		1.4
2007		48.2		38		-10.2
2008		48.8		45.1		-3.7
2009		40.5		54.5		14
2010		26.5		62.3		35.8
2011		70		70.13		0.13
Total		329.8		393.93		64.13
2002-2011
DPO				84%
EPS increase (sen)				55.7
Return on retained earnings				87%

Public Bank - Return on Retained Earnings

Public Bank

(Figures are in sens)

Year		DPS		EPS		Retained EPS
2002		9.5		25.5		16
2003		9.9		30		20.1
2004		42.8		36.2		-6.6
2005		48.3		40.7		-7.6
2006		37.9		47.8		9.9
2007		45.5		60.7		15.2
2008		56.7		69.5		12.8
2009		40.1		71.9		31.8
2010		37.2		87		49.8
2011		46.8		99.5		52.7
Total		374.7		568.8		194.1
2002-2011
DPO				66%
EPS increase (sen)				74.0
Return on retained earnings				38%

Padini - Return on Retained Earnings

Padini

(Figures are in sens)

Year		DPS		EPS		Retained EPS
2002		0.2		1		0.8
2003		0.5		1.6		1.1
2004		0.6		1		0.4
2005		1.1		2.6		1.5
2006		1.4		4.4		3
2007		2.2		4.8		2.6
2008		2.7		6.3		3.6
2009		2.7		7.5		4.8
2010		3		9.3		6.3
2011		4		11.5		7.5
Total		18.4		50		31.6
2002-2011
DPO				37%
EPS increase				10.50
Return on retained earnings				33%

Nestle - Return on Retained Earnings

Nestle

(Figures are in sens)

Year		DPS		EPS		Retained EPS
2002		98.5		63.2		-35.3
2003		70.2		81.5		11.3
2004		75.2		94		18.8
2005		80.2		114		33.8
2006		95		113		18
2007		100		124.5		24.5
2008		190		145.4		-44.6
2009		130		150		20
2010		150		166.9		16.9
2011		170		194.6		24.6
Total		1159.1		1247.1		88
2002-2011
DPO				0.93
EPS increase				131.40
Return on retained earnings				149%

Guinness - Return on Retained Earnings

Guinness

(Figures are in sens)

Year		DPS		EPS		Retained EPS
2002		27.4		24		-3.4
2003		28.1		25.8		-2.3
2004		30.4		32.6		2.2
2005		30.1		35.7		5.6
2006		30.2		42.4		12.2
2007		32.9		37.3		4.4
2008		36.4		41.7		5.3
2009		41		47		6
2010		45		50.5		5.5
2011		54		60		6
Total		355.5		397		41.5
2002-2011
DPO				0.90
EPS increase				36.00
Return on retained earnings				87%

Genting Malaysia - Return on Retained Earnings

Genting Malaysia (GENM)

(Figures are in sens)

Year		DPS		EPS		Retained EPS
2002		2.3		11		8.7
2003		2.5		9.2		6.7
2004		2.6		13.6		11
2005		3		15.4		12.4
2006		3.7		17		13.3
2007		4.2		19.2		15
2008		4.8		24		19.2
2009		5.3		23.4		18.1
2010		5.9		23.8		17.9
2011		6.2		25.22		19.02
Total		40.5		181.82		141.32
2002-2011
DPO				0.22
EPS increase				14.22
Return on retained earnings				10%

Petronas Dagangan - Return on Retained Earnings

Petronas Dagangan

(Figures are in sens)

Year		DPS		EPS		Retained EPS
2003		10.8		15		4.2
2004		7.2		19.2		12
2005		10.8		21.2		10.4
2006		14.4		50.9		36.5
2007		21.9		64.5		42.6
2008		33.5		66.6		33.1
2009		36		58.3		22.3
2010		63.8		75.8		12
2011		75		87.6		12.6
Total		273.4		459.1		185.7
From 2003-2011
DPO				0.60
EPS increase				72.60
Return on retained earnings				39%

The Magic of Dutch Lady: Measuring management's ability to profitably allocate earnings.

Depicted below are the 12 years financial statistics of Dutch Lady.

Dutch Lady

Date DPS EPS Retained EPS

1999 0 15.9 15.9

2000 4.5 21.7 17.2

2001 5.8 18.7 12.9

2002 5.8 23.7 17.9

2003 12.8 24.2 11.4

2004 56 26.6 -29.4

2005 63.2 42.4 -20.8

2006 63.2 67.3 4.1

2007 42.1 73.8 31.7

2008 65.6 66.6 1

2009 72.5 94.4 21.9

2010 72.5 119 46.5

Total 464 594.3 130.3

1999-2010
DPO				0.78
EPS increase				103.1
Return on retained earnings				79.1%

We can observe that for the last 12 years (year 1999 to year 2010), the management of Dutch Lady:

1.  has earned a total of 594.3 sen per share

2.  has distributed a total of 464 sen per share, giving a DPO ratio of 78.1%.

3.  has retained a total of 130.3 sen per share as retained earnings.

4.  has increased its EPS by 103.1 sen per share ( 119 - 15.9 = 103.1) from 1999 of 15.9 sen per share to 119 sen per share in 2010.

How do we as investors measure a company and its management's ability to profitably allocate (unrestricted) earnings?

We can do this by taking the per share earnings retained by a business for a certain period of time, then compare it to any increase in per share earnings that occurred during this same period.  

Thus, the management of Dutch Lady has used the retained EPS of 130.3 sen per share to grow its earnings by 103.1 sen per share from 1999 to 2010..  

Therefore, the management of Dutch Lady has earned a 79.1%( = 103.1 / 130.3) return in 2010, on the 130.3 sen a share that Dutch Lady retained from the year 1999 to 2010.

Even if we have no idea of the business of Dutch Lady, we can still safely conclude that Dutch Lady has done a great job of profitably allocating its retained earnings.

This test is not perfect.  One must be careful that the per share earnings figures used are not aberrations.  One has to make sure that the per share figures used are indicative of any real increase or decrease in earning power.  

The advantage to this test is that is gives you, the investor, a really fast method of determining whether or not a company and its management have the ability to allocate retained earnings in a fashion that increases the wealth of the company's shareholders.

Investing for the Long Run - An approach

Investment objectives.

1.  I am looking at a 10 year time horizon in this investment.

2.  My objective is to grow my initial capital 400% in 10 years, that is, doubling at the 5th year and quadrupling at the 10th year.

3.  The sum invested will be a big sum of meaningful amount (a fat pitch).

What stock to buy?

1.  Good quality growth stock, with durable competitive advantage and economic moat.

2.  Revenue and earnings growing at >15% per year, that are predictable and sustainable.

3.  ROE > 15% per year.

4.  FCF +++

5.  Good management with integrity

When to buy?

1.  When the stock price is compelling, that is, undervalued.

2.  A low buying price translates into higher returns on the invested amount.

Getting Rich with Dividends: 3 Tips to Improve Returns With Dividend Stocks

http://finance.yahoo.com/blogs/breakout/3-tips-improve-returns-dividend-stocks-172506087.html

Why the Market Is Irrational and What You Can Do About It

http://finance.yahoo.com/blogs/breakout/harvard-teach-investing-111707627.html

What Harvard Can Teach You About Investing

http://finance.yahoo.com/blogs/breakout/harvard-teach-investing-111707627.html

Knowing a Business Leads to Investing Success. Act Like an Owner

Investing is very similar. You must be able to:

1) value a business and
2) wait for the right price.

You should spend at least as much time reading annual reports as you do studying books on value investing. I’m not saying you don’t need to master the great books and writings on investing. On the contrary, this is essential too.

Nevertheless, as you master the framework and develop your own investing process, more and more of your time and energy shouldshift to studying businesses.

Do yourself a favour, invest in your financial education before you invest in the markets

"Risk comes from not knowing what you are doing." 

Risk can be alleviated with proper education and experience.  This is the same process that you must commit to undertake when you decide to invest in any market.  First and foremost, you must get yourself educated. 

It is strange that most parents would not think twice to pay high school fees to send their kids to university, when there is no real guarantee that they will succeed in life after getting their degree.  However, when it comes to paying for financial education, where there is a chance they can lose all of the kids' education funds, many people shy away because of the price.  Instead, they would rather risk their hard earned money in a market or instrument that they have little knowledge of, or worse, investing based on rumours or tips from various unverified sources.

Most people are attracted by the myth of quick, easy money from investing (or trading) but fail to understand that it takes a lot of hard work to be successful.  Everyone equates being a doctor or lawyer to earning lots of money.  But it is also common understanding that to be a doctor or a lawyer requires one to put in many years of education and practice before one can be successful.  Ask anyone about his or her current job and you would most likely get the same response that hard work is the norm.  How then can it be different for investing (and trading)?

"Risk comes from not knowing what you are doing" - a famous quote from Warren Buffett.  

It sounds simplistic, but it epitomises the real meaning of the work "Risk".

Any instrument, be it stocks or forex will be dangerous if you don't know what you are doing.  it is not the instrument but the level of the investor's understanding of the instrument and the market that determines his risk level.  So, do yourself a favour, invest in your financial education before you invest in the markets. 

Here is another quote from Mr. Buffett: "The most important investment you can make is in yourself.."

Highest Paid Directors

2012


2011

Risk versus Reward

Most investors believe that the more risk you take on, the greater the profit you can expect.

The Master Investor, on the contrary, does not believe that risk and reward are related.  By investing only when his expectancy of profit is positive, he assumes little or no risk at all.

Actuarial Investing. Benjamin Graham's investing was actuarially based.

When Warren Buffett started investing, his approach was very different from the one he follows today.  He adopted the method of his mentor, Benjamin Graham, whose system was actuarially based.

Graham's aim was to purchase undervalued common stocks of secondary companies "when they can be bought at two-thirds or less of their indicated value."

He determined value solely by analysing publicly available information, his primary source of information being company financial statements.

A company's book value was his basic measure of intrinsic value.  His ideal investment was a company that could be bought at a price significantly below its liquidation or break-up value.

But a stock may be cheap for a good reason.

• The industry may be in decline,
• the management may be incompetent, or 
• a competitor may be selling a superior product that's taking away all the company's customers - to cite just a few possibilities.  

You're unlikely to find this kind of information in a company's annual report.

By just analysing the numbers Graham could not know why the stock was cheap. 

• So some of his purchases went bankrupt: 
• some hardly moved from his purchase price; and 
• some recovered to their intrinsic value and beyond. 

Graham rarely knew in advance which stock would fall into which category.  

So how could he make money?  He made sure he bought dozens of such stocks, so the profits on the stocks that went up far outweighed the losses on the others.

This is the actuarial approach to risk management.  In the same way that an insurance company is willing to write fire insurance for all member of a particular class of risks, so Graham was willing to buy all members of a particular class of stock.

An insurance company doesn't know, specifically, whose house is going to burn down, but it can be pretty certain how often it's going to have to pay for fire damage.  In the same way, Graham didn't know WHICH of his stocks would go up.  But he knew that, on average, a predictable percentage of the stocks he bought would go up.

An insurance company can only make money by selling insurance at the right price.  Similarly, Graham had to buy at the right price; if he paid too much he would lose, not make money.

The actuarial approach certainly lacks the romantic flavour of the stereotypical Master Investor who somehow magically, only buys stocks that are going to go up.  Yet it is probably used by more successful investors than any other method.  For success, it depends on identifying a narrow class of investments that, taken together, have a positive average profit expectancy.

Buffet started out this way, and still follows this approach when he engages in arbitrage transactions.  it also contributes to Soro's success: and is the basis of most commodity trading systems.

AVERAGE PROFIT EXPECTANCY is the investor's equivalent of the insurer's actuarial tables.  Hundreds of successful investment and trading systems are built on the identification of a class of events which, when repeatedly purchased over time, have a POSITIVE AVERAGE EXPECTANCY OF PROFIT.


Ref:  The Winning Investment Habits of Warren Buffett and George Soros by Mark Tier

Risk is Manageable: Manage Risk Actuarially

Risk avoidance strategy:  Manage Risk Actuarially

This way is to act, in effect, like an insurance company.

An insurance company will write a life insurance policy without having any idea WHEN it will have to pay out.  It might be tomorrow; it might be 100 years from now.  It doesn't matter (to the insurance company).

The insurance company controls risk by writing a large number of policies so that it can predict, with a high degree of certainty, the AVERAGE amount of money it will have to pay out each year.

Dealing with averages, not individual events, it will set its premium from the AVERAGE EXPECTANCY of the event.  So the premium on your life insurance policy is based on the average life expectancy of a person of your sex and medical condition at the age you were when you took out the policy.  The insurance company is making no judgement about YOUR life expectancy.

The person who calculates insurance premiums and risks is called an actuary; thus calling this method of risk control "managing risk actuarially."

This approach is based on averages of what's called "risk expectancy."

The Master Investor using this way of managing risk is actually looking at the AVERAGE PROFIT EXPECTANCY.

Risk is Manageable: Actively Managing Risk

Risk avoidance strategy:  Actively Managing Risk

This is primarily a trader's approach - and a key to Soros's success.

Managing risk is very different from reducing risk.  If you have reduced risk sufficiently, you can go home and go to sleep.  Or take a long vacation.

Actively managing risk requires full-focused attention to constantly monitor the market (sometimes minute-by-minute); and the ability to act instantly with total dispassion when it's time to change course (when a mistake is recognised, or when a current strategy is running its course).

Soro's ability to handle risk was "imprinted" on him during the Nazi occupation of Budapest, when the daily risk he faced was death.

His father, being a Master Survivor, taught him the three rules of risk which still guide him today:
1.  It's okay to take risks.
2.  When taking a risk, never bet the ranch.
3.  Always be prepared to beat a hasty retreat.

Risk is Manageable: Reduce Risk

Risk avoidance strategy:  Reduce Risk

This is the core of Warren Buffett's entire approach to investing.

Buffett invests only in what he understands, where he has conscious and unconscious competence.

But he goes further:  his method of avoiding risk is built into his investment criteria.  He will only invest when he can buy at a price significantly below his estimate of the business's value (the intrinsic value). He calls this his "Margin of Safety."

Following this approach, almost all the work is done BEFORE an investment is made.  (As Buffett puts it:  "You make your profit when you buy.")  

This process of selection results in what Buffett calls "high probability events":  investments that approach (if not exceed) Treasury bills in their certainty of return.

Risk is Manageable: Don't Invest

Risk-avoidance strategy:  Don't Invest

This strategy is always an option.  Put all your money in Treasury bills - the "risk-free" investment - and forget about it.

It is practised by every successful investor when they can't find an investment that meet their criteria, they don't invest at all.

Even this simple rule is violated by far too many professional fund managers.  For example, in a bear market they'll shift their portfolio into "safe" stocks such as utilities, or bonds ... on the theory they'll go down less than the average stock.  After all, you can't appear on Wall Street Week and tell the waiting audience that you just don't know what to do at the moment.

Risk is Manageable: Risk-Avoidance Strategies

Master Investors use one of the four-risk avoidance strategies:
1.  Don't invest.
2.  Reduce risk (the key to Warren Buffett's approach).
3.  Actively manage risk (the strategy George Soros uses so astonishingly well).
4.  Manage risk actuarially.

There is a fifth risk-avoidance that is highly recommended by the majority of investment advisors:  diversification.  But to Master Investors, diversification is for the birds.

No successful investor restricts himself to just one of these four risk-avoidance strategies.  Some - like Soros - use them all.

High Probability Events

No matter what his personal style, the Master Investor's method is designed to find one thing only:  what Buffett calls "high probability events."  He invests in nothing else.

When you invest in a "high probability event," you are almost certain to make money.  The risk of loss is tiny - and sometimes non-existent.

When capital preservation is built into your system, these are the only kinds of investments you will make.  That's the Master Investor's secret.

He KNOWS it is possible to make very big profits with little to even no risk of loss.

The Power of Mental Habit

A habit is a learned response that has become automatic through repetition.  Once ingrained, the metnal processes by which a habit operates are primarily subconscious.

Four elements are needed to sustain a mental habit:
1.  A belief that drives your behaviour.
2.  A mental strategy - a series of internal conscious and subconscious processes.
3.  A sustaining emotion.
4.  Associated skills.