A historical perspective is an excellent place for everyone to start. It is not the only tool, but it is a beginning. History is some help if one stands back and looks at things from the standpoint of fundamentals. But if we have misinformation, or are misled by fraud or lies, then history can be outweighed and we need to add other tools to the historical perspective.
Bubbles have appeared for millennia, actually.
1. A lot of speculation occurred in the Roman economy, which included money lending and some other aspects of capitalism.
2. One of the most famous manias and bubbles of all time was the tulip mania in Holland in the early 1630s. People believed that ordinary tulip bulbs, which collectors prized, had greter and greater value;. A virus randomly made bulbs of one strain change and become more valuable, introducing an unknown into the game with a gambling or speculative element. Bulbs went up in price as people simply bid them up, and one bulb could be a lot more valuable than an expensive town house. Naturally, there came a point when the market got a bit soft, and rumors went around that there were no more buyers, and so the market crashed.
Call this crazy, if you will, but it is a great lesson in how the combination of human emotions and misinformation can mislead and fool even sophisticated people, and create powerful forces.
3. There were manias surrounding the building of railroads and canals in both England and the United States, since amazing leaps in productivity and economic advantages flowed from these developments. The reality was there and lasted for a long time - twenty years in England actually - but people just got too emotional, and their emotions led them to believe that this economic expansion would last forever. Crashes were always the way these mania-driven phenomena ended. In the United Kingdom, the famous railway mania led to the British financial crisis of 1847. October 17, 1897, was know in London as the week of terror.
Interestingly, the canals and railroads in England created a genuine and huge economic expansion, which in turn created a great deal of wealth before the situation slipped into mania territory. Thus when stocks started to come down in price, the crowd, many of whom were very sophisticated, truly believed it was only a temporary pullback in an expansion that would go on indefinitely. Most of those who got rich on the reality of the expansion were so caught up in the mania that they could not distinguish reality from wishful thinking, so they eventually lost all or most of their wealth.
Thursday, 11 June 2009
Bubble lessons never go out of style
Bubble lessons never go out of style, and not only are going to help you with big bubbles, or individual stock bubbles, but will focus you on which information is real and what is perception in almost all of your investing. Learn the lessons well.
With bubbles, there is an element of mystery. To cope with that, start with the first step, knowledge, and combine that with your disiciplined buy and sell strategies, since in a bubble it is likely that the beliefs of the crowd cannot be supported by real knowledge.
A considerable number of people (but not all) in the investment community regarded a wide range of technology, communications, and internet stocks as having almost unlimited demand for their products and unlimited potential - all of which assumptions proved to be incorrect. Yet the entire crowd thought in this way about many Internet companies because of incorrect and incomplete information. Emotions temporarily filled that void. A disciplined buy and sell strategy helps you control your emotion.
The other big factor in irrational behaviour comes when the crowd is deliberately fooled, so some bubbles are either accompanied by or built upon fraud or swindles. In the 2000 Internet bubble, the atmosphere of greed it created did bring out the worst in a number of executives who engaged in what proved to be criminal behaviour, either outright stealing from their companies (as executives of Tyco International and Adelphia Communications did), or engaging in accounting and financial fraud (which is what Bernie Ebbers, WorldCom's chairman was convicted of in March 2005.)
There were 3 bubbles that burst in 2000, and they wer all related to one another.
With bubbles, there is an element of mystery. To cope with that, start with the first step, knowledge, and combine that with your disiciplined buy and sell strategies, since in a bubble it is likely that the beliefs of the crowd cannot be supported by real knowledge.
A considerable number of people (but not all) in the investment community regarded a wide range of technology, communications, and internet stocks as having almost unlimited demand for their products and unlimited potential - all of which assumptions proved to be incorrect. Yet the entire crowd thought in this way about many Internet companies because of incorrect and incomplete information. Emotions temporarily filled that void. A disciplined buy and sell strategy helps you control your emotion.
The other big factor in irrational behaviour comes when the crowd is deliberately fooled, so some bubbles are either accompanied by or built upon fraud or swindles. In the 2000 Internet bubble, the atmosphere of greed it created did bring out the worst in a number of executives who engaged in what proved to be criminal behaviour, either outright stealing from their companies (as executives of Tyco International and Adelphia Communications did), or engaging in accounting and financial fraud (which is what Bernie Ebbers, WorldCom's chairman was convicted of in March 2005.)
There were 3 bubbles that burst in 2000, and they wer all related to one another.
- The first was the most obvious: the stock market bubble, which had component bubbles in Internet, telecommunications, and various technology stocks. The excitement over those took almost all other stocks into overvaluation.
- The second was the bubble in capital spending by corporations in the great telecommunications build-out that was going to accommodate all the new traffic, create broadband access for most businesses and consumers, and handle all the new uses of the Internet. The same beliefs that caused stocks to soar were also driving this corporate capital spending, since the new information about the potential of all sorts of technologies appeared to offer great opportunities. Ultimately, the Internet has proved to be a transforming force (just as, say, the railroads, were in the nineteenth century in Europe) and is changing business and life for many people. Thus, not everything that created the mania was false, and this fact just compounded the confusion.
- The third bubble was the overall U.S. economy, which reached peak growth rates that wer more than twice the long-term average real growth. The other two bubbles caused that to happen, so when stocks came down, lower stock values and fear caused consumers and corporations to spend less. The biggest effect on the economy was the loss of the part of corporate spending that had been directed into telecommunications, since that was an incredibly large part of the overall picture.
Bubbles have one thing in common; they are going to burst
On March 6, 2000, Larry Summers and Alan Greenspan and many of the senior executives actually waxed poetic about the productivity gains, the technologies, the confluence of our capital markets and great new technological advances, and the fact that it meant great things for our future.
Four days after that March 6, 2000 gathering, on March 10, the bubble burst and the game was over. All had changed.
It all seemed very real at the time, and the senior people in government were getting their information from the sources that had proved the most valuable and trustworthy in the past for all of us: real economic data generated by consumers and corporations, as well as the very best information that the executives running those corporations could give them. We all had seen the same things, and we all had believed.
"Trying to understand is like straining through muddy water. Be still and allow the mud to settle." Lao-Tzu
---
The lessons from this bubble are important for 3 reasons.
Bubbles, like those from bubble gum or soap, come in all different sizes, but they all have one thing in common with each other, including the gum and the soap bubbles; they are going to burst. They are unsustainable because they are not built on enough real substance to support themselves. Thus, many bubbles develop from a mania. A mania is simply something that is more emotional than tangible or rational, so it can be thought of as irrationality.
The irrationality that leads to the inflating in price beyond what complete knowledge and good analysis would suggest can be the result of one thing or of two or more things in combination.
Four days after that March 6, 2000 gathering, on March 10, the bubble burst and the game was over. All had changed.
It all seemed very real at the time, and the senior people in government were getting their information from the sources that had proved the most valuable and trustworthy in the past for all of us: real economic data generated by consumers and corporations, as well as the very best information that the executives running those corporations could give them. We all had seen the same things, and we all had believed.
"Trying to understand is like straining through muddy water. Be still and allow the mud to settle." Lao-Tzu
---
The lessons from this bubble are important for 3 reasons.
- First, there is the unlikely possibility that we may encounter another stock market bubble in our investing lifetime. One per lifetime seems the 'rule', but we cannot rule out anything completely.
- Second, we do have small bubbles in the market (smaller than in 1929 and 2000) periodically. These include the one caused by a mania in blue chips (called the "Nifty Fifty") from the late 1960s into early 1973, a moderate technology stock bubble in 1983, and the overvaluation in the market before the 1987 stock market "crash."
- Third and most important, bubbles occur in INDIVIDUAL STOCKS fairly frequently.
- in real estate or housing,
- in financial instruments in foreign countries, and
- at times even in the Chinese economy,
Bubbles, like those from bubble gum or soap, come in all different sizes, but they all have one thing in common with each other, including the gum and the soap bubbles; they are going to burst. They are unsustainable because they are not built on enough real substance to support themselves. Thus, many bubbles develop from a mania. A mania is simply something that is more emotional than tangible or rational, so it can be thought of as irrationality.
The irrationality that leads to the inflating in price beyond what complete knowledge and good analysis would suggest can be the result of one thing or of two or more things in combination.
- The irrationality itself is not very easy to see at the beginning, since there would be no bubble if it were apparent.
- The causes start with beliefs that are exciting, but the crowd does not know what it does not know.
- Knowledge is incomplete or just wrong.
Bubble Trouble
Bubbles and bear markets are two separate and distinct things. Investors truly need to understand the differences. You need to understand which strategy to apply when, and not use a hammer when you need a screwdriver. Once you see the straightforward differences, you will know what to do.
One buys in a bear market and sells in a bubble. Those buying in bad markets made a lot of money. This approach avoids the pitfalls of market timing and uses knowledge of what you own or want to own to a maximum advantage.
A bubble results from a mania, meaning that either valuations or fundamentals are highly suspect or totally wrong, since emotions and perceptions have overwhelmed what is "real". It is better to run - meaning sell - if you recognize a bubble.
Some people wonder why the NASDAQ remained 3,000 points below its old year 2000 high for more than 5 years. They wonder why they had trouble making back their money that was lost in the year 2000 bubble. That is because they think of bubbles like bear markets and do not realize the incredible excesses of bubbles that have to be worked off. But the most important difference is the cause.
Bear markets are caused mainly by fundamental problems. The 5 main cause of a bear market are listed (see reference). It runs its course, and so does the poor market. Then things normalize. You buy into a bear market, since you get great prices on stocks; then stocks come back and you make more money.
Bubbles are not caused by fundamental events. It is investors themselves who create them. Investors come to believe some things that are not true or not rational and thus create a mania in a stock, in an industry, or in the overall market. If the mania goes on for a time, a bubble is created, and that builds until its inherent instability leads it to break.
One of the interesting differences between bubbles and bear markets is that in a bear market, there are plenty of bulls and bears. In a bubble, the few bears are drowned out by the loud and almost universal bullishness. This happened with the Internet, because a mania is normally caused by a belief in something that is supposed to be new and amazing, even though this cannot be proved.
It is natural to like momentum and money, but if investors have no disciplines and no sense of bubbles, then they are headed not for the big money, but for quite the opposite.
With bear markets, one wants to use buy and sell disciplines and buy when prices and fundamentals would dictate that.
There are market bubbles once in a great while, perhaps once in a life-time, but individual stock bubbles are more common. All bubbles have some similarities that concern how perceptions, emotions, and a lack of accurate information combine to set an investor trap.
One buys in a bear market and sells in a bubble. Those buying in bad markets made a lot of money. This approach avoids the pitfalls of market timing and uses knowledge of what you own or want to own to a maximum advantage.
A bubble results from a mania, meaning that either valuations or fundamentals are highly suspect or totally wrong, since emotions and perceptions have overwhelmed what is "real". It is better to run - meaning sell - if you recognize a bubble.
Some people wonder why the NASDAQ remained 3,000 points below its old year 2000 high for more than 5 years. They wonder why they had trouble making back their money that was lost in the year 2000 bubble. That is because they think of bubbles like bear markets and do not realize the incredible excesses of bubbles that have to be worked off. But the most important difference is the cause.
Bear markets are caused mainly by fundamental problems. The 5 main cause of a bear market are listed (see reference). It runs its course, and so does the poor market. Then things normalize. You buy into a bear market, since you get great prices on stocks; then stocks come back and you make more money.
Bubbles are not caused by fundamental events. It is investors themselves who create them. Investors come to believe some things that are not true or not rational and thus create a mania in a stock, in an industry, or in the overall market. If the mania goes on for a time, a bubble is created, and that builds until its inherent instability leads it to break.
One of the interesting differences between bubbles and bear markets is that in a bear market, there are plenty of bulls and bears. In a bubble, the few bears are drowned out by the loud and almost universal bullishness. This happened with the Internet, because a mania is normally caused by a belief in something that is supposed to be new and amazing, even though this cannot be proved.
It is natural to like momentum and money, but if investors have no disciplines and no sense of bubbles, then they are headed not for the big money, but for quite the opposite.
With bear markets, one wants to use buy and sell disciplines and buy when prices and fundamentals would dictate that.
There are market bubbles once in a great while, perhaps once in a life-time, but individual stock bubbles are more common. All bubbles have some similarities that concern how perceptions, emotions, and a lack of accurate information combine to set an investor trap.
The five possible factors that cause bear markets
While various people can legitimately pick factors that trigger bear markets, or those stock-market environments that result in declines that are long, very significant, or both, there are five factors which great investors center on. These elements of a bear market can be present individually to create falling prices, or they can appear in combination.
The five possible factors that cause bear markets are:
1. Persistent overvaluation.
2. High or rising interest rates or rising inflation that leads to them.
3. Weakness in company earnings. (By the time people know they are in a recession, normally weak earnings have been evident and if high interest rates cause economic weakness, then those rates have been present for a time.)
4. Oil shocks.
5. Wars (but not always).
The first three are, "the big three"; and those who ignored them suffered much greater losses than those who did not.
In each of the following instances: the terrible 1973-1974 market, the 1983 tech boom and bust, the 1987 stock-market crash and the 2000 Internet and technology bubble burst, there was a general disregard for valuations of individual stocks leading up to the collapses. Each collapse was related to this factor. They did not descend upon the markets out of nowhere.
Markets have a habit of discounting good and bad events in advance. This explains why a company's stock may make a big move before its earnings are made public, or why the market may hit the doldrums for three weeks prior to a rise in interest rates. The reason is anticipation. Savvy investors must take into account that reaction to future events may already be reflected in current prices.
The five possible factors that cause bear markets are:
1. Persistent overvaluation.
2. High or rising interest rates or rising inflation that leads to them.
3. Weakness in company earnings. (By the time people know they are in a recession, normally weak earnings have been evident and if high interest rates cause economic weakness, then those rates have been present for a time.)
4. Oil shocks.
5. Wars (but not always).
The first three are, "the big three"; and those who ignored them suffered much greater losses than those who did not.
In each of the following instances: the terrible 1973-1974 market, the 1983 tech boom and bust, the 1987 stock-market crash and the 2000 Internet and technology bubble burst, there was a general disregard for valuations of individual stocks leading up to the collapses. Each collapse was related to this factor. They did not descend upon the markets out of nowhere.
Markets have a habit of discounting good and bad events in advance. This explains why a company's stock may make a big move before its earnings are made public, or why the market may hit the doldrums for three weeks prior to a rise in interest rates. The reason is anticipation. Savvy investors must take into account that reaction to future events may already be reflected in current prices.
Markets can detach from fundamentals for long periods
Warren Buffett, say that the markets can detach from fundamentals for periods as long as a year or even longer. Therefore market timing is a form of gambling. It is easier to understand a stock you know well, and value that stock with reasonable accuracy, particularly if it is for a time horizon of a couple of years.
These days, minor market-moving news and events are more and more frequent and could have you trading (at a dizzying and counterproductive pace) into and out of some of the companies that you would want for long-term investing and wealth.
There are countless small but violent moves in the markets, let alone the many corrections and periodic bear markets that occur. Using knowledge and disciplines instead of being driven by raw emotion and using a 'timing approach' were the keys to investment success.
Over the years, volatility in market averages and individual stock prices has increased, not decreased, so that there have been many more sharp moves and many more reversals. Many factors are responsible. Some of the reasons are:
Interestingly enough, there are typically more 3 percent and 5 percent daily upward moves in stock market averages during bear markets than in bull markets. The basic nature of market moves, and the psychology that affects those moves, coupled with the complex financial variables, makes the process of trying to determine the short-term direction of markets a very tricky game of chance, and one that can be immensely costly.
These days, minor market-moving news and events are more and more frequent and could have you trading (at a dizzying and counterproductive pace) into and out of some of the companies that you would want for long-term investing and wealth.
There are countless small but violent moves in the markets, let alone the many corrections and periodic bear markets that occur. Using knowledge and disciplines instead of being driven by raw emotion and using a 'timing approach' were the keys to investment success.
Over the years, volatility in market averages and individual stock prices has increased, not decreased, so that there have been many more sharp moves and many more reversals. Many factors are responsible. Some of the reasons are:
- computerised stock trading,
- huge increases in the size of the largest institutional portfolios,
- the proliferation of aggressive hedge funds, and
- the complexity of the task of properly interpreting information that develops at a dizzying pace in our globalised markets.
Interestingly enough, there are typically more 3 percent and 5 percent daily upward moves in stock market averages during bear markets than in bull markets. The basic nature of market moves, and the psychology that affects those moves, coupled with the complex financial variables, makes the process of trying to determine the short-term direction of markets a very tricky game of chance, and one that can be immensely costly.
Predicting short-term market movements (Market Timing) will cost you money or opportunities
Any attempts to try to predict the direction of the stock market are called market timing. Academicians and professionals as a group agree that it cannot be done; in fact, it will cost you money or opportunities.
Fear, greed, and a basic human desire to think we can know or control our future all drive us to try to predict short-term market movements.
If you flip a coin ten times and it comes up heads ten times, that is random luck, not a 'system'. We know that over time it will be 50-50, heads and tails. Many who guess which way the market will move and guess correctly think they have a system and really can do it. Yet if you guess correctly and try to time the market a number of times in succession, it most likely that you will guess wrong at some point and more than wipe out your prior gains and be well behind (see the Long-Term Capital Management story). This is also evident from reading academic studies on the subject and from observing what has happened in the markets over the decades.
Therefore, avoid timing the market. How then to resist the temptations posed by events or rapid market moves?
First, and most important, is to have buy and sell disciplines, and right after that, a proper time horizon. Emotions are an important step, for as soon as you feel the pull of fear in a down market or a down stock, you know that you do not have enough knowledge to know what to do. Knowledge, disciplines, and your buy and sell disciplines can be called upon to resist emotion-driven timing.
Computers and sophisticated software programs for determining weather changes or changes in the direction of the stock market have been developed and refined over the last two decades. But computer software cannot properly account for all of the linked factors that influences weather changes or market changes.
Fear, greed, and a basic human desire to think we can know or control our future all drive us to try to predict short-term market movements.
If you flip a coin ten times and it comes up heads ten times, that is random luck, not a 'system'. We know that over time it will be 50-50, heads and tails. Many who guess which way the market will move and guess correctly think they have a system and really can do it. Yet if you guess correctly and try to time the market a number of times in succession, it most likely that you will guess wrong at some point and more than wipe out your prior gains and be well behind (see the Long-Term Capital Management story). This is also evident from reading academic studies on the subject and from observing what has happened in the markets over the decades.
Therefore, avoid timing the market. How then to resist the temptations posed by events or rapid market moves?
First, and most important, is to have buy and sell disciplines, and right after that, a proper time horizon. Emotions are an important step, for as soon as you feel the pull of fear in a down market or a down stock, you know that you do not have enough knowledge to know what to do. Knowledge, disciplines, and your buy and sell disciplines can be called upon to resist emotion-driven timing.
Computers and sophisticated software programs for determining weather changes or changes in the direction of the stock market have been developed and refined over the last two decades. But computer software cannot properly account for all of the linked factors that influences weather changes or market changes.
Buffett sticks to his investment principles.
Warren Buffett is one of the greatest investor of all time. What lifts him above his peers is a determination to stick to his investment principles. Buffett has steadfastly refused to jump on any bandwagon. Unlike so many other investors who are nursing burnt fingers, Buffett let the dot-com train roll on by. Famously, he refuses to invest in businesses that he doesn't understand - which includes most high-tech companies. Instead Buffett made a fortune for himself and his shareholders by investing in undervalued companies for the long-term. It's Buffett's willingness to buck the trend that makes him worthy of his 'Sage of Omaha" tag.
Wednesday, 10 June 2009
Coastal
Company Basics
Exchange Bursa Malaysia
Company Name Coastal Contracts
Stock Code 5071
Sectors
Paid Up Capital * MYR 70.56
Par Value - (as at 2008-12-31)
Market Cap * MYR 682.30 (based on value of 1.9300 per share)
Recent 52 wk low: Price 0.79 a share (Market cap MYR 279.3m)
Exchange Bursa Malaysia
Company Name Coastal Contracts
Stock Code 5071
Sectors
Paid Up Capital * MYR 70.56
Par Value - (as at 2008-12-31)
Market Cap * MYR 682.30 (based on value of 1.9300 per share)
Recent 52 wk low: Price 0.79 a share (Market cap MYR 279.3m)
Performance (as at 2008-12-31) *
Total Assets: MYR 862.32
Intangible Assets: MYR 5.88
Revenue: MYR 348.06
Earnings Before Interest and Taxes: MYR 98.10
EPS (Basic) Inc. Extraordinary Items: MYR 0.28
PE Inc. Extraordinary Items: 7.02
EPS (Basic) Exc. Extraordinary Items: MYR 0.28
PE Exc. Extraordinary Items: 7.02
Net Income: MYR 96.77
Dividends - Common/Ordinary: MYR 8.47
Dividends - Total: MYR 8.47
Goodwill: MYR 5.88
Minority Interest: -
Reserves: -
Return On Assets: 11.22%
Return On Equity: 31.42%
Shareholder's Equity: MYR 307.97
----
2008...2007...2006
Assets
862.32...546.42...292.72
Liabilities
554.35...331.76...143.22
ROA
11.22%...12.69%...11.69%
ROE
31.42%...32.29%...22.89%
EPS
0.28...0.20...0.10
PE
7.02...9.65...18.85
Net Income Margin (%)
27.80...23.76...21.48
Operating Margin (%)
-
EBITD Margin (%)
30.29...25.51...25.83
Income Statement
Revenue - Total
348.06...291.76...159.29
Gross Profit (Loss)
-
Operating Income After Depreciation
98.10...69.44...35.75
Net Income (Loss) - Consolidated
96.77...69.32...34.22
Total Assets: MYR 862.32
Intangible Assets: MYR 5.88
Revenue: MYR 348.06
Earnings Before Interest and Taxes: MYR 98.10
EPS (Basic) Inc. Extraordinary Items: MYR 0.28
PE Inc. Extraordinary Items: 7.02
EPS (Basic) Exc. Extraordinary Items: MYR 0.28
PE Exc. Extraordinary Items: 7.02
Net Income: MYR 96.77
Dividends - Common/Ordinary: MYR 8.47
Dividends - Total: MYR 8.47
Goodwill: MYR 5.88
Minority Interest: -
Reserves: -
Return On Assets: 11.22%
Return On Equity: 31.42%
Shareholder's Equity: MYR 307.97
----
2008...2007...2006
Assets
862.32...546.42...292.72
Liabilities
554.35...331.76...143.22
ROA
11.22%...12.69%...11.69%
ROE
31.42%...32.29%...22.89%
EPS
0.28...0.20...0.10
PE
7.02...9.65...18.85
Net Income Margin (%)
27.80...23.76...21.48
Operating Margin (%)
-
EBITD Margin (%)
30.29...25.51...25.83
Income Statement
Revenue - Total
348.06...291.76...159.29
Gross Profit (Loss)
-
Operating Income After Depreciation
98.10...69.44...35.75
Net Income (Loss) - Consolidated
96.77...69.32...34.22
----
Recent 52 wk low: Price 0.79 a share (Market cap MYR 279.3m)
You could have bought the whole company for 279.3 million and earned 98.10 million for the year 2008! (PE of 2.82, P/B of 0.9). Yes, there remains the concern over its book orders in 2010 or the short run. However, over the long run, Coastal should do alright when the O&G sector improves. Its business and fundamentals have been good and at that very low price 0f MYR 0.79 a share, was probably a good investment: there is safety of capital with a potential for a positive reasonable return.
What led to the steep drop from MYR 2.38 to MYR 0.79? The severe economic depression, the Lehman crash and the worries over the future earnings of Coastal had led to investors to sell down causing the steep fall in the price of this stock. On the other hand, what led to the recent steep rise in the price of this stock? The answer lies in understanding the fundamentals of the business of this company and the Mr. Market phenomenon espounded by Benjamin Graham.
----
Coastal share price continues to rise. It was sold down hugely during the last few months.
2008 was another record year for Coastal. It has achieved a 5 years compounded annual growth rate above 43%.
What of its prospects for the coming year? Here are some notes from its chairman in its annual report:
"We are determined to remain firm on fostering a strong balance sheet and sound credit rating."
"We will continue to, of which we did, augment our fleet by building and owning more sophisticated marine transportation vessels, including higher end OSV."
"We expect 10-15% reduction in global fuel exploration and production expenditure and hence the concomitant offshore services. In the short run, our performance will be backed by existing book order."
"....global oil moguls continue to move exploration into deeper sea ensured by higher demands for young and sophisticated OSV. Pressure are on ship owners to replace their fleet."
"Longer term, we believe the fundamentals for oil & gas services remain strong and the demand for OSV will gradually return."
"We expect 2009 to be another year of progress for the Group."
... sounds encouraging in this financial turmoil.
Padini
Business Summary
Padini Holdings Berhad, an investment holding company, engages in the distribution and retail of fashion wears and accessories in Malaysia and Hong Kong. It offers ladies shoes and accessories, ancillary products, children's garments, maternity wear, and accessories. The company distributes its products through approximately 170 freestanding stores and in-house outlets. It offers its products under the Padini, Padini Authentics, PDI, P&Co, Seed, and Miki brand names. The company was founded in 1971 as Hwayo Garments Manufacturers Company and changed its name to Home Stores Sdn Bhd in 1991. Further, it changed its name to Padini Holdings Sdn Bhd in 1992; and to Padini Holdings Berhad in 1995. The company is based in Shah Alam, Malaysia.
Company Basics
Exchange Bursa Malaysia
Company Name Padini Holdings Bhd
Stock Code 7052
Sectors Consumer Discretionary
Paid Up Capital * MYR 65.59
Par Value - (as at 2008-06-30)
Market Cap * MYR 327.64 (based on value of 2.4900 per share)
Performance (as at 2008-06-30) *
Total Assets: MYR 264.31
Intangible Assets: MYR 0.12
Revenue: MYR 383.31
Earnings Before Interest and Taxes: MYR 58.43
EPS (Basic) Inc. Extraordinary Items: MYR 0.32
PE Inc. Extraordinary Items: 7.85
EPS (Basic) Exc. Extraordinary Items: MYR 0.32
PE Exc. Extraordinary Items: 7.85
Net Income: MYR 41.72
Dividends - Common/Ordinary: -
Dividends - Total: -
Goodwill: -
Minority Interest: -
Reserves: -
Return On Assets: 15.78%
Return On Equity: 24.61%
Shareholder's Equity: MYR 169.48
----
Historical 5 Yr PE 6.2 to 10.5
Historical 10 Yr PE 8.0 to 14.8
Present PE based on 2.49 = 7.85
Earnings Yield = 12.7%
DY = (0.134/2.49)= 5.4%
ROTC
= 41.72/ (OE 206.737 + STL 37.607 + LTL 2.525)
= 16.9%
Between the end of 1999 and the end of 2008:
total earnings were $1.28 a share,
total dividends were $0.463 a share and
retained earnings were $ 0.817 per share to add to its equity base.
the company's per share earnings increased from $0.025 a share to $0.317, the difference was $0.292 a share.
return on retained capital/earnings RORC was 0.292/0.817 = 35.7%
Tuesday, 9 June 2009
How can you turn innovation into profitable growth?
How can you turn innovation into profitable growth?
There are 5 components to innovation:
Before discussing each, there are four factors to note.
1. All the factors are interrelated, although most people don't stop to realize that. You need to know all pieces tie together, because a breakdown in one can affect what happens thereafter. If you can improve the nurturing and launching of ideas, for example, you can improve their flow.
2. This is an observable process. You can observe and diagnose how well your organization deals with each component. You can rank your firm's ability to handle each function on a scale of one to ten. And you will also be able to observe how well your company, or business unit, handles the overall flow within each of these 5 components. The selection process should be transparent. Everyone should know the criteria that will decide whether the concept will be funded.
3. You can't pursue every idea, and not all ideas are created equal. After you have surfaced as many ideas as possible, pick the best ones to fund. Kill off the rest. There are criterias you use to make that decision.
4. Finally, these are 5 distinct steps to getting an idea into the marketplace. Each requires a unique set of skills.
There are 5 components to innovation:
- ideation
- selection
- nurturing,
- launch, and,
- killing failures early.
Before discussing each, there are four factors to note.
1. All the factors are interrelated, although most people don't stop to realize that. You need to know all pieces tie together, because a breakdown in one can affect what happens thereafter. If you can improve the nurturing and launching of ideas, for example, you can improve their flow.
2. This is an observable process. You can observe and diagnose how well your organization deals with each component. You can rank your firm's ability to handle each function on a scale of one to ten. And you will also be able to observe how well your company, or business unit, handles the overall flow within each of these 5 components. The selection process should be transparent. Everyone should know the criteria that will decide whether the concept will be funded.
3. You can't pursue every idea, and not all ideas are created equal. After you have surfaced as many ideas as possible, pick the best ones to fund. Kill off the rest. There are criterias you use to make that decision.
4. Finally, these are 5 distinct steps to getting an idea into the marketplace. Each requires a unique set of skills.
All revenue growth starts with an idea.
All revenue growth starts with an idea. The idea could be for a new product or a new service. Or it can be an addition to a product or a service that already exists. Or it can be an idea that begins as almost idle speculation - "I wonder what would happen if...."
Employees, from the rawest recruits to crusty veterans of the business, have ideas, and many of them have the potential to help the enterprise. The leadership challenge is to have a social process that helps draw them out. After all, those ideas don't do your company any good if people won't voice them.
The social engine can help, of course. The interactions among the various departments - marketing and R&D, for example, or customer services and sales - will spark more ideas worth pursuing.
Your organization doesn't need to wait for the proverbial light-bulb to go on in order to come up with new ideas. Innovation can be operationalized. You can develop a process that you can follow to surface ideas and then, develop as many growth ideas as possible.
Unlike cost-cutting, growing revenues requires innovation. Many people think only geniuses can innovate. And, indeed, genius is always welcom. However, innovation is a social process and everyone can participate. Once the process is firmly integrated into the way the company does business every day, you will find more and more geniuses coming out of the woodwork.
Silicon Valley is filled with geniuses. But if you look at the successful entrepreneurs who work there, you will discover a curious thing. The vast majority of them worked - often for a long time - at established firms before going off on their own. Part of the attraction, of course, in starting their own companies was the freedom and equity ownership that come along as part of the deal. But another reason for leaving had to do with the fact that their old companies just could not accommodate them and what they wanted to do. Had their former employers handled the social innovation process better, a certain percentage of those entrepreneurs would have stayed and probably contributed in a big way to the growth of their former company.
How can you turn innovation into profitable growth?
Employees, from the rawest recruits to crusty veterans of the business, have ideas, and many of them have the potential to help the enterprise. The leadership challenge is to have a social process that helps draw them out. After all, those ideas don't do your company any good if people won't voice them.
The social engine can help, of course. The interactions among the various departments - marketing and R&D, for example, or customer services and sales - will spark more ideas worth pursuing.
Your organization doesn't need to wait for the proverbial light-bulb to go on in order to come up with new ideas. Innovation can be operationalized. You can develop a process that you can follow to surface ideas and then, develop as many growth ideas as possible.
Unlike cost-cutting, growing revenues requires innovation. Many people think only geniuses can innovate. And, indeed, genius is always welcom. However, innovation is a social process and everyone can participate. Once the process is firmly integrated into the way the company does business every day, you will find more and more geniuses coming out of the woodwork.
Silicon Valley is filled with geniuses. But if you look at the successful entrepreneurs who work there, you will discover a curious thing. The vast majority of them worked - often for a long time - at established firms before going off on their own. Part of the attraction, of course, in starting their own companies was the freedom and equity ownership that come along as part of the deal. But another reason for leaving had to do with the fact that their old companies just could not accommodate them and what they wanted to do. Had their former employers handled the social innovation process better, a certain percentage of those entrepreneurs would have stayed and probably contributed in a big way to the growth of their former company.
How can you turn innovation into profitable growth?
Growth fuels the organization to even greater growth
The situations of Bill Carter and Susan illustrate both the business and personal consequences of being part of a business that is growing - or one that is not.
With growth, the organization expands and people can build a career and a future. Growth enables a business to get the best people and retain them. People who see personal growth opportunities have more energy, better morale, and enhanced self-confidence. Growing companies expand into new markets and market segments, new regions, and even new countries. Not only does all that create wonderful opportunities for talented people, but also the growth taps into all the latent psychological energy that is buried inside the employees, and the release of all that previously contained power fuels the organization to even greater growth.
The contrast to a company that isn't growing is stark. First, there is limited room for advancement. Susan could take a step down to join a growing company, convinced - rightly so, as it turned out - that she still would end up climbing further and faster up the corporate ladder at a firm tha was increasing the top line and not shrinking. Bill Carter has no such options. Susan is excited to go to work. By contrast, as Bill is learning, it's frustrating to be employed by a company that seems to be going downhill. There is no excitement as you walk through the halls. No emotional energy. Your entire workday is spent feeling as if you are moving underwater.
When there is no growth, a negative psychology permeates the organization. The best people spend a significant part of their time looking for a job, and they leave once they find one. Those that remain make macabre jokes about what form the next round of corporate cost-cutting will take and devote a large part of their days to infighting to make sure that theirs will not be the next head to roll when the cost cutting ax falls again, as it inevitably will.
If you are not in a growth situation, you are in a limiting situation.
With growth, the organization expands and people can build a career and a future. Growth enables a business to get the best people and retain them. People who see personal growth opportunities have more energy, better morale, and enhanced self-confidence. Growing companies expand into new markets and market segments, new regions, and even new countries. Not only does all that create wonderful opportunities for talented people, but also the growth taps into all the latent psychological energy that is buried inside the employees, and the release of all that previously contained power fuels the organization to even greater growth.
The contrast to a company that isn't growing is stark. First, there is limited room for advancement. Susan could take a step down to join a growing company, convinced - rightly so, as it turned out - that she still would end up climbing further and faster up the corporate ladder at a firm tha was increasing the top line and not shrinking. Bill Carter has no such options. Susan is excited to go to work. By contrast, as Bill is learning, it's frustrating to be employed by a company that seems to be going downhill. There is no excitement as you walk through the halls. No emotional energy. Your entire workday is spent feeling as if you are moving underwater.
When there is no growth, a negative psychology permeates the organization. The best people spend a significant part of their time looking for a job, and they leave once they find one. Those that remain make macabre jokes about what form the next round of corporate cost-cutting will take and devote a large part of their days to infighting to make sure that theirs will not be the next head to roll when the cost cutting ax falls again, as it inevitably will.
If you are not in a growth situation, you are in a limiting situation.
Are you part of a growth business?
Here are some questions that can help you diagnose whether or not you are part of a growth business. Are you ready to start Monday morning?
1. What percentage of time and emotional energy does the management team routinely devote to revenue growth?
2. Are there just exhortations and talk about growth, or are there actually a lot of meetings and brainstorming sessions about how growth is going to happen? How good is the follow-through?
3. Do managers talk about growth only in terms of home runs? Do there understand the importance of singles and doubles for long-term sustained organic growth?
4. How much of each management team member's time is devoted to making effective visits with customers? Do they do more than listen and, probe for information and then try to "connect the dots"?
5. Does the management team come in contact with the final user of your product?
6. Are people in the business clear about what the specific future sources of revenue growth will be? Do they know who is accountable?
7. Would you characterise your company or business unit's culture as cost-cutting or growth oriented? If the answer is one or the other, you need to start doing both. Do people in leadership positions have the skill, orientation, and determination to grow revenues?
8. Does the company practice revenue productivity, that is, does it think through whether there are ways to more effectively use current resources to generate higher revenues?
9. How well and how regularly does your sales force - and others in the organization - extract intelligence from customers and other players in the marketplace? How well is this information communicated and acted on by other parts of your organization, such as product development?
10. How good are the upstream marketing skills - that is, the ability to segment markets and identify consumer attributes - in your business?
11. Is the head of marketing in your business an upstream marketing expert?
12. How good is the relationship and information flow between upstream marketing and product development? Between upstream marketing and R&D?
13. Do you have an explicit growth budget in your organization's traditional budget document? How well is the growth budget connected with revenue growth beyond the current fiscal year? Are there funds allocated in the growth budget for medium- and long-term revenue growth?
14. How skilled are the people in your business in creating value propositions for each major customer segment of your business? How effective is your organization in using cross-selling to accelerate revenue growth?
15. How often and how effectively is information shared simultaneously among people who make decisions about resource trade-offs?
16. How good is the flow of ideas in your business?
17. How good is the process of selecting ideas that will be funded as growth projects?
18. How well defined are the steps of the nurturing process in getting revenue growth projects ready for launch? How effective is the process?
By answering these questions, you can confirm if your company is growing, not growing or is in decline.
1. What percentage of time and emotional energy does the management team routinely devote to revenue growth?
2. Are there just exhortations and talk about growth, or are there actually a lot of meetings and brainstorming sessions about how growth is going to happen? How good is the follow-through?
3. Do managers talk about growth only in terms of home runs? Do there understand the importance of singles and doubles for long-term sustained organic growth?
4. How much of each management team member's time is devoted to making effective visits with customers? Do they do more than listen and, probe for information and then try to "connect the dots"?
5. Does the management team come in contact with the final user of your product?
6. Are people in the business clear about what the specific future sources of revenue growth will be? Do they know who is accountable?
7. Would you characterise your company or business unit's culture as cost-cutting or growth oriented? If the answer is one or the other, you need to start doing both. Do people in leadership positions have the skill, orientation, and determination to grow revenues?
8. Does the company practice revenue productivity, that is, does it think through whether there are ways to more effectively use current resources to generate higher revenues?
9. How well and how regularly does your sales force - and others in the organization - extract intelligence from customers and other players in the marketplace? How well is this information communicated and acted on by other parts of your organization, such as product development?
10. How good are the upstream marketing skills - that is, the ability to segment markets and identify consumer attributes - in your business?
11. Is the head of marketing in your business an upstream marketing expert?
12. How good is the relationship and information flow between upstream marketing and product development? Between upstream marketing and R&D?
13. Do you have an explicit growth budget in your organization's traditional budget document? How well is the growth budget connected with revenue growth beyond the current fiscal year? Are there funds allocated in the growth budget for medium- and long-term revenue growth?
14. How skilled are the people in your business in creating value propositions for each major customer segment of your business? How effective is your organization in using cross-selling to accelerate revenue growth?
15. How often and how effectively is information shared simultaneously among people who make decisions about resource trade-offs?
16. How good is the flow of ideas in your business?
17. How good is the process of selecting ideas that will be funded as growth projects?
18. How well defined are the steps of the nurturing process in getting revenue growth projects ready for launch? How effective is the process?
By answering these questions, you can confirm if your company is growing, not growing or is in decline.
Start by compiling a list of simple things you could do Monday morning that would lead to "singles and doubles" - steady increases in sales.
Instead of bemoaning the fate of your company, draw upon your inner psychological reserves.
Be determined to lead and adopt a whole attitude and presence that would be 180 degrees from what it had been in recent weeks.
Profitable growth can be everyone's business.Profitable Growth
"In our unstable world of today, achieving sustainable and profitable revenue growth is not easy. How can you improve bottom line and energy, personal growth for the people involved, and creating value for your company?"
"Growth is a constantly achievable result for an organization that is properly focused and empowered. The CEO's job is to provide the organization with the vision and confidence to deliver it."
"CEOs require a fresh reconceptualization of what sustainable growth looks like in today's hyper-competitive world and a practical 'how to' program for achieving it."
"Every day is Monday morning for profitable growth. Monday morning starts today."
"In maximising long-term shareholder return, consistent earnings and dividend growth, as well as revenue growth, are mandated by investors. If earning growth is simply based on improving expense productivity, investors question and discount the sustainability of future earnings growth. Investors demand and reward profitable revenue growth. There are many competitive advantages that can be achieved with good growth."
"Reorient your thinking about growth to small day-to-day changes. Focusing on collaboration with customers is critical to growth. Also, important to have a practical implementation guide."
"Growth is achievable. It is in the consistency of day-to-day execution that you build the backbone of a great company. How much control you have over the growth of your business? "
"Profitable growth is now attainable for everyone who follows certain practical advice. Leaders of organization should make profitable, organic, and sustainable growth, become everyone's business. ..... a prerequisite to building shareholder value."
"The importance of execution is at the forefront of growth. Insight and knowledge of how to execute, based on management principles for profitable growth, is invaluable for the business community. "
"In an industry where 3 to 5 % growth is top quartile, we are always looking for creative ways to get the most from our existing assets, while also looking for the next big growth area. By identifying a number of internal and external obstacles to growth and then showing managers at all levels how to overcome these obstacles and create profitable growth in their businesses. The importance of hitting "singles and doubles", creating a continuous improvement mind-set throughout your organization, and maintaining a disciplined and accountable approach to growth. "
"A growth agenda is on the top of every CEO's mind. Using simple but on-the-mark tools for building a company-wide 'growth culture' are invaluable."
Ref: Profitable Growth is Everyone's Business by Ram Charan
"Growth is a constantly achievable result for an organization that is properly focused and empowered. The CEO's job is to provide the organization with the vision and confidence to deliver it."
"CEOs require a fresh reconceptualization of what sustainable growth looks like in today's hyper-competitive world and a practical 'how to' program for achieving it."
"Every day is Monday morning for profitable growth. Monday morning starts today."
"In maximising long-term shareholder return, consistent earnings and dividend growth, as well as revenue growth, are mandated by investors. If earning growth is simply based on improving expense productivity, investors question and discount the sustainability of future earnings growth. Investors demand and reward profitable revenue growth. There are many competitive advantages that can be achieved with good growth."
"Reorient your thinking about growth to small day-to-day changes. Focusing on collaboration with customers is critical to growth. Also, important to have a practical implementation guide."
"Growth is achievable. It is in the consistency of day-to-day execution that you build the backbone of a great company. How much control you have over the growth of your business? "
"Profitable growth is now attainable for everyone who follows certain practical advice. Leaders of organization should make profitable, organic, and sustainable growth, become everyone's business. ..... a prerequisite to building shareholder value."
"The importance of execution is at the forefront of growth. Insight and knowledge of how to execute, based on management principles for profitable growth, is invaluable for the business community. "
"In an industry where 3 to 5 % growth is top quartile, we are always looking for creative ways to get the most from our existing assets, while also looking for the next big growth area. By identifying a number of internal and external obstacles to growth and then showing managers at all levels how to overcome these obstacles and create profitable growth in their businesses. The importance of hitting "singles and doubles", creating a continuous improvement mind-set throughout your organization, and maintaining a disciplined and accountable approach to growth. "
"A growth agenda is on the top of every CEO's mind. Using simple but on-the-mark tools for building a company-wide 'growth culture' are invaluable."
Ref: Profitable Growth is Everyone's Business by Ram Charan
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