Tuesday, 14 July 2009

Glove Sector

Stock Data: Recent Stock Performance:

Current Price (7/10/2009): 3.92
(Figures in Malaysian Ringgits) 1 Week 4.3% 13 Weeks 2.6%
4 Weeks 21.7% 52 Weeks 86.7%

Kossan Rubber Industries Berhad Key Data:
Ticker: KOSSAN Country: MALAYSIA
Exchanges: KUL Major Industry: Chemicals
Sub Industry: Rubber & Tire Mfrs.
2008 Sales 897,194,335
(Year Ending Jan 2009). Employees: 665
Currency: Malaysian Ringgits Market Cap: 626,674,720
Fiscal Yr Ends: December Shares Outstanding: 159,866,000
Share Type: Ordinary Closely Held Shares: 83,457,672

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Stock Data: Recent Stock Performance:

Current Price (7/10/2009): 1.96
(Figures in Malaysian Ringgits) 1 Week 19.5% 13 Weeks 15.3%
4 Weeks 83.2% 52 Weeks 53.1%

Supermax Corporation Berhad Key Data:
Ticker: SUPERMX Country: MALAYSIA
Exchanges: KUL Major Industry: Chemicals
Sub Industry: Synthetic Fibers
2008 Sales 811,823,877
(Year Ending Jan 2009). Employees: 1,033
Currency: Malaysian Ringgits Market Cap: 519,929,200
Fiscal Yr Ends: December Shares Outstanding: 265,270,000
Share Type: Ordinary Closely Held Shares: 172,281,734

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Stock Data: Recent Stock Performance:

Current Price (7/10/2009): 4.50
(Figures in Malaysian Ringgits) 1 Week 10.8% 13 Weeks 23.0%
4 Weeks 65.4% 52 Weeks 216.9%

Hartalega Holdings Bhd Key Data:
Ticker: 5168 Country: MALAYSIA
Exchanges: KUL Major Industry: Apparel & Textiles
Sub Industry: Apparel Manufacturers
2009 Sales 443,204,000
(Year Ending Jan 2010). Employees: N/A
Currency: Malaysian Ringgits Market Cap: 1,090,404,000
Fiscal Yr Ends: March Shares Outstanding: 242,312,000
Share Type: Ordinary Closely Held Shares: N/A

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Stock Data: Recent Stock Performance:

Current Price (7/10/2009): 1.31
(Figures in Malaysian Ringgits) 1 Week 12.9% 13 Weeks 0.8%
4 Weeks 114.8% 52 Weeks 367.9%

Latexx Partners Berhad Key Data:
Ticker: LATEXX Country: MALAYSIA
Exchanges: KUL Major Industry: Miscellaneous
Sub Industry: Miscellaneous Companies
2008 Sales 223,255,443
(Year Ending Jan 2009). Employees: 1,210
Currency: Malaysian Ringgits Market Cap: 255,053,611
Fiscal Yr Ends: December Shares Outstanding: 194,697,413
Share Type: Ordinary Closely Held Shares: 113,422,478

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Stock Data: Recent Stock Performance:

Current Price (7/10/2009): 1.15
(Figures in Malaysian Ringgits) 1 Week 4.5% 13 Weeks -5.7%
4 Weeks 32.9% 52 Weeks 12.7%

Adventa Berhad Key Data:
Ticker: ADVENTA Country: MALAYSIA
Exchanges: KUL Major Industry: Drugs, Cosmetics & Health Care
Sub Industry: Medical, Surgical & Dental Suppliers
2008 Sales 247,930,470
(Year Ending Jan 2009). Employees: 1,273
Currency: Malaysian Ringgits Market Cap: 160,372,100
Fiscal Yr Ends: October Shares Outstanding: 139,454,000
Share Type: Closely Held Shares: N/A

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Stock Data: Recent Stock Performance:

Current Price (7/10/2009): .37
(Figures in Malaysian Ringgits) 1 Week 12.1% 13 Weeks 27.6%
4 Weeks 76.2% 52 Weeks 5.7%

Integrated Rubber Corporation Berhad Key Data:
Ticker: IRCB Country: MALAYSIA
Exchanges: KUL Major Industry: Metal Producers & Products Manufacturers
Sub Industry: Miscellaneous Metal Producers
2009 Sales 136,418,429
(Year Ending Jan 2010). Employees: 828
Currency: Malaysian Ringgits Market Cap: 87,619,700
Fiscal Yr Ends: January Shares Outstanding: 236,810,000
Share Type: Common Closely Held Shares: 127,681,046

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Stock Data: Recent Stock Performance:

Current Price (7/10/2009): 7.25
(Figures in Malaysian Ringgits) 1 Week 15.1% 13 Weeks 16.9%
4 Weeks 35.5% 52 Weeks 77.7%

Top Glove Corporation Berhad Key Data:
Ticker: TOPGLOV Country: MALAYSIA
Exchanges: KUL Major Industry: Apparel & Textiles
Sub Industry: Apparel Manufacturers
2008 Sales 1,377,931,000
(Year Ending Jan 2009). Employees: 6,573
Currency: Malaysian Ringgits Market Cap: 2,191,435,750
Fiscal Yr Ends: August Shares Outstanding: 302,267,000
Share Type: Ordinary Closely Held Shares: 224,502,987


http://spreadsheets.google.com/pub?key=tcTC-lG49Sy-qaoyZgKKjEQ&output=html

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Sunday, 12 July 2009

Stock/Bond Mix and Rate of Return


Consider this: An investment portfolio that is 60% bonds and 40% stocks would be considered quite conservative and fairly stable by most financial planners. Looking at all the ten-consecutive-year periods since 1926, we find that the median (half the cases were higher and half the cases were lower) annual rate of return is 7.5%. In money terms, that means that if you invested $100,000, you would have about $206,000 at the end of ten years.

Historically, during the periods 1926 to 2005, your $100,000 could have turned out to be as little as $144,000 or as much as $395,000.
Through the wizardry of statistics we can estimate that 83% of the time, a portfolio of 60% bonds and 40% stocks would return at least 4.8%. (You may remember from some class in your distant past, that this assumes a normal distribution at one standard deviation below the median. Not perfect statistics, but about as good as there are.)

Here again, there is not much else to go on other than the historic record. The following gives you something you might want to use as a predicted rate of return when planning.

Stock / Bond Mix
75% Bonds - 25% Stocks
60% Bonds - 40% Stocks
50% Bonds - 50% Stocks
40% Bonds - 60% Stocks
25% Bonds - 75% Stocks
10% Bonds - 90% Stocks
Median Fifteen-Year Return
5.9%
7.8%
9.1%
10.2%
11.8%
12.4%
Return you can expect to be exceeded most of the time
3.3%
5.3%
6.5%
7.5%
8.7%
8.7%

Look carefully at the expected rate of return for the 90% stock portfolio, the last line in the table. The return that you can expect is the same as the 75% stock portfolio (8.7%). This is because portfolios which are high in stocks also exhibit high variability. The maximum you might get is higher, but the variability also pulls down the minimum return that you might expect.


http://learn.uci.edu/oo/getDemoPage.php?course=AR0102092&lesson=6&topic=3&page=9

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The more important issue is saving, then investing.


While there is a great deal of hype and interest in investing, the more important issue is saving. Without systematic and increasing savings, investing programs will get you nowhere. Spending less than you are making is the key tactic.
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Saturday, 11 July 2009

Simple Message: Buy Low, Sell High


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Fundamentals of Personal Financial Planning
























While there is a great deal of hype and interest in investing, the more important issue is saving. Without systematic and increasing savings, investing programs will get you nowhere. Spending less than you are making is the key tactic.







University of California, Irvine
University Extension
List of Calculators for Fundamentals of Personal Financial Planning, Module 1
Click to access each calculator, or use the numbered tabs below.




















University of California, Irvine
Fundamentals of Personal Financial Planning
Module 1: Goals – Preparing to Plan
List of Documents to Gather Before Preparing Your Net Worth & Cash Flow Statements
 Most Recent Payroll Stub
 Income Tax Returns
 Personal Employment Benefit Statements
 Company Benefit Plan Booklets
o Group Pension Plans
o Group Life Insurance
o Group Disability Insurance
o Medical, Dental, Vision Insurance
 Insurance & Annuity Contracts
o Life Insurance
o Health Insurance
o Hospital & Major Medical
o Disability Insurance
o Automobile Insurance
o Property and Casualty
 Statements of Bank Accounts, Stocks, Bonds or Other Investments
 Mortgage Statements
o Primary Mortgage Statement
o Second Mortgage Statement
o Home – Equity Line of Credit Statement
o Fair Market Value
 Other Real Property Information
o Mortgage Statement
o Rental Info,
o Fair Market Value
 Wills/Trusts
o Business Arrangements
o Partnership Agreement
o Buy/Sell Agreements
o Deferred Compensation
o Stock Option/Bonus Plan



Consider this: An investment portfolio that is 60% bonds and 40% stocks would be considered quite conservative and fairly stable by most financial planners. Looking at all the ten-consecutive-year periods since 1926, we find that the median (half the cases were higher and half the cases were lower) annual rate of return is 7.5%. In money terms, that means that if you invested $100,000, you would have about $206,000 at the end of ten years.

Historically, during the periods 1926 to 2005, your $100,000 could have turned out to be as little as $144,000 or as much as $395,000. Through the wizardry of statistics we can estimate that 83% of the time, a portfolio of 60% bonds and 40% stocks would return at least 4.8%. (You may remember from some class in your distant past, that this assumes a normal distribution at one standard deviation below the median. Not perfect statistics, but about as good as there are.)
Here again, there is not much else to go on other than the historic record. The following gives you something you might want to use as a predicted rate of return when planning.
Stock / Bond Mix
75% Bonds - 25% Stocks
60% Bonds - 40% Stocks
50% Bonds - 50% Stocks
40% Bonds - 60% Stocks
25% Bonds - 75% Stocks
10% Bonds - 90% Stocks
Median Fifteen-Year Return
5.9%
7.8%
9.1%
10.2%
11.8%
12.4%
Return you can expect to be exceeded most of the time
3.3%
5.3%
6.5%
7.5%
8.7%
8.7%

Look carefully at the expected rate of return for the 90% stock portfolio, the last line in the table. The return that you can expect is the same as the 75% stock portfolio (8.7%). This is because portfolios which are high in stocks also exhibit high variability. The maximum you might get is higher, but the variability also pulls down the minimum return that you might expect.





We have provided a worksheet for you to fill out to create a basic net worth statement.

















http://learn.uci.edu/oo/getDemoPage.php?course=AR0102092&lesson=10&topic=9&page=1
Arranging your affairs in ways that reduce taxes is a way of increasing your disposable income. Unfortunately, it takes a lot of time and thought.
Five D’s of tax planning[Roll your cursor over each of the D’s to read more]

Deduction: Make sure that all deductions are taken, all records are kept to support the deductions and the payments are timed to cause the deductions to have the most effect.
Diversion: Take steps to make investments from which the returns will escape taxation or be taxed at a reduced rate.
Deferral: Taking steps to defer taxes until future years.
Deflection: Take steps to transfer income to someone in a lower tax bracket.
Diminution: Diminution is a catch all category of specific ideas or concepts that can reduce taxes.



http://learn.uci.edu/oo/getDemoPage.php?course=AR0102092&lesson=12&topic=2&page=2
Dealing with the risk
There are generally four choices in dealing with risk. Roll over each choice to read more.

»Avoid the Risk
» Ameliorate the risk
» Retain the Risk
» Transfer or Share the Risk





Investment does not always guarantee return. You can suffer investment losses as well.

Ameliorating the Risk In the individual sense, you can ameliorate risk by thoroughly understanding the investments you are making, and by buying only high quality investments.



In the aggregate sense, you can ameliorate risk by creating a well-diversified portfolio. While this might be seen as sharing the risk, you can choose to consider it as a way to ameliorate risk. This is because a well-diversified portfolio creates a “smoother ride” with less chance of placing you in an undesirable position when the funds are needed. This is a philosophical position that could be attacked by active investors. They would say you are sharing the risk because you are giving up the opportunity for higher return in exchange for a smoother ride. All investors have to decide for themselves what level of active investment they believe is correct.


Present value of an investment is the discounted value of all its future cash flows that you derive from it.





Collecting the data for life insurance needs analysis is similar to collecting for a retirement analysis. If a retirement needs analysis has already been completed, it is a good place to start. You need to consider:
Those costs you feel should not change by the loss of a spouse:
Quite probably the cost of housing
Costs of elementary and secondary school
Personal needs of the surviving spouse and children
Costs you feel are likely to increase because of the loss of a spouse:
One time costs associated with death
Child care
Education or training for the surviving spouse
Insurance costs due to loss of employer coverage
Costs you feel are likely to decrease because of loss of a spouse:
General family living costs
Medical and dental costs
Property and casualty insurance (fewer people to insure)
Costs you feel are likely to be eliminated because of loss of a spouse:
Life insurance
Disability insurance
Second automobile
Deceased spouse’s hobbies
Modification of goals because of loss of a spouse:
Change of education goals
Change of retirement goals
Change of legacy goals








http://learn.uci.edu/oo/getDemoPage.php?course=AR0102092&lesson=21&topic=2&page=3
Implicit Statement
My children will be able to attain the level of education that is most appropriate to them.

Explicit Statements
A. It is a fundamental responsibility of parenthood to provide a child with the maximum education the child can achieve. I want to do everything that I can to help my children achieve that.
B. I want to provide my children with access to at least a basic post-secondary education.
C. Getting a college education is a cooperative effort between me and my child. While I will gladly pay some of the costs, my children will need to bear some themselves.
D. College is the first real adult decision that my children will have to make. My idea is to be able to hand them $_________ and let them make their own decisions.
E. College is important but so is retirement. I do not want to sacrifice my retirement for my children’s college education. However, I am prepared to make some sacrifices in my current lifestyle.
F. College is important, but so is retirement and my current lifestyle. I do not want to sacrifice either for my children’s education. If there is extra money, then I would consider saving for their education.
G. Let’s see how things evolve. As best we can, we will pay for it out of cash flow at the time.













Analyzing these explicit statements about college savings goals, we see that the first four (A-D) are statements about how much is needed for college and the next two (E-F) are about how much you can afford now. (The last explicit statement, of course, does not address savings goals at all, so we won’t analyze it here.)
How much is needed for college later?
How much can I afford now?
A. It is a fundamental responsibility of parenthood to provide a child with the maximum education the child can achieve. I want to do everything that I can to help my children achieve that.
B. I want to provide my children with access to at least a basic post-secondary education.
C. Getting a college education is a cooperative effort between me and my child. While I will gladly pay some of the costs, my children will need to bear some themselves.
D. College is the first real adult decision that my children will have to make. My idea is to be able to hand them $___ and let them make their own decisions.
E. College is important but so is retirement. I do not want to sacrifice my retirement for my children’s college education. However, I am prepared to make some sacrifices in my current lifestyle.
F. College is important, but so is retirement and my current lifestyle. I do not want to sacrifice either for my children’s education. If there is extra money, then I would consider saving for their education.
Clearly these two points of view require a different style of analysis.
1. The first group requires you to analyze the school(s) or school type that you might consider, create a target amount, and then analyze the amount you should save to meet that goal.
2. The second group requires you to analyze how much you think you might have and then compare it to what might be needed. Then, determine if you feel this amount is sufficient.










http://learn.uci.edu/oo/getDemoPage.php?course=AR0102092&lesson=21&topic=3&page=2
Saving for college and paying for college may seem like two different topics and in many ways they are. However, in one important way, they are linked. The amount that you have saved often impacts the amount of financial aid that your child may be eligible to receive. This is particularly important because it is among the ways that your child can support their “share” of the cost.
There are many programs that may be available to your child. They fall into three categories:
Scholarships
Grants
Loans
All of them are considered financial aid, and applying for any of them involves an analysis of the child’s ability to pay for college. Three important factors in this analysis are your child’s savings, your savings, and your current income. The ways that colleges look at these factors differs between colleges and changes over time; therefore, we can only address this with generalizations. We will only consider the savings methods. We will not consider potential loan sources. Let’s look at types of accounts next.







Estate Planning

There are five primary ways in which you can make your desires known. They are all legal documents, and while some are simple enough not to need the assistance of a lawyer, using a lawyer helps assure you that your desires will be met. Used together they can provide a sufficient estate plan for even moderately substantial estates (a few million dollars).

By contract
Will
Last Medical Directive (sometimes called a Living Will)
Power of Attorney
Trust
Each of these has a slightly different context and is directed at a slightly different audience.






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Earnings Yield and Earnings Growth (5)

http://spreadsheets.google.com/pub?key=tB2t3SJMRVNLsb4C8kawnlA&output=html

Company XYZA1
From 1995 to 2009:

EPS grew from 9.82 to 20 , (CAGR of 4.86% )
DPS (net of tax) grew from 2.65 to 5.2 , (CAGR of 4.6% )
DPO ratio (net DPS) averaged 24.33% , in 2009 was 26%
EY increased (decreased) from 3.47% to 9.3% , averaged 5.97% per year invested, and averaged 8.2% per 5 years invested.
DY increased (decreased) from 0.94% to 2.42% , AVERAGED 1.49% per year invested, and averaged 1.86% per 5 years invested.
Share price rose (fell) from 2.83 to 2.15 , (CAGR of -1.82% )
Total annual return averaged -0.32% (Cap. Appr of -1.82% + DY of 1.49% )


Comments:

Those who bought this stock at the high prices of 1995, 1996, and 1997 and held till today, would find that this share is today below these high prices, abeit in a bear market.

Though this is a company running a monopoly business, paying too much for a good stock can mean a negative return for the investment.

Therefore, it is always important to buy a good company when its price is obviously low, e.g. during the time when the market is obviously low, or when its price is temporarily down not related to any deterioration in its fundamentals.

On the other hand, those who bought this stock at the low prices of 1997 and 1998, would have reasonable returns from this stock. This would have been a situation when the investor might wish he or she had averaged down on this stock during those times.


Let us also examine the returns from this stock from the year 1999.

http://spreadsheets.google.com/pub?key=t5B6EOYlRpP6CMU7pMQbDiA&output=html

Company XYZA1(1999-2009)
From 1999 to 2009:

EPS grew from 9 to 20 , (CAGR of 12.02% )
DPS (net of tax) grew from 2.5 to 5.2 , (CAGR of 8.48% )
DPO ratio (net DPS) averaged 23.28% , in 2009 was 26%
EY increased (decreased) from 5.86% to 9.3% , averaged 6.31% per year invested, and averaged 10.49% per 5 years invested.
DY increased (decreased) from 1.19% to 2.42% , AVERAGED 1.5% per year invested, and averaged 2.26% per 5 years invested.
Share price rose (fell) from 1.535 to 2.15 , (CAGR of 3.43% )
Total annual return averaged 4.93% (Cap. Appr of 3.43% + DY of 1.5% )
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BELIEVING A BULL MARKET

BELIEVING A BULL MARKET


When markets are rapidly rising, value investing invariably falls out of favor with the investing public. In an upward racing market, value stocks appear dull and stodgy as the more speculative issues rush toward new market highs. But come the correction, it all looks different. Stable value stocks seem like trusted friends.

Most bull markets have well-defined characteristics. These include:

  • Price levels are historically high.
  • Price to earnings ratios are high.
  • Dividend yields are low compared with bond yields (or compared with a stock’s particular dividend yield pattern).
  • Margin buying becomes excessive as investors are driven to borrow to buy more of the high-priced stocks that look attractive to them.
  • There is a swarm of new stock offerings, especially initial public offerings (IPOs) of questionable quality. This bull market is what investment bankers and stock promoters call the “window of opportunity.” Because IPOs so often occur when Wall Street is primed to pay top dollar, seasoned investors joke that IPO stands for “it’s probably overpriced.”

Just a reminder not to be too carried away by the rising market.

THE PAUSE AT THE TOP OF THE ROLLER COASTER

There is only one strategy that works for value investors when the market is high – patience. The investor can do one of two things, both of which require steady nerves.

· Sell all stocks in a portfolio, take profits, and wait for the market to decline. At that time, many good values will present themselves. This may sound easy, but it pains many investors to sell a stock when its price is still rising.

· Stick with those stocks in a portfolio that have long-term potential. Sell only those that are clearly overvalued, and once more wait for the market to decline. At this time, value stocks may be appreciating at slow pace compared with the frisky growth stocks, but not always.

But come the correction, be it sudden or slow, the well-chosen value stocks have a better chance of holding their price.

A nice quotation: We believe in taking advantage of temporary market downturns to position our portfolios for the long term.

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Earnings Yield and Earnings Growth (4)

http://spreadsheets.google.com/pub?key=tmw-xvsqNnjlMQGQrL2RXtg&output=html

Company XYZ9growth
From 2001 to 2009:

EPS grew from 6.2 to 44.5 , (CAGR of 27.94% )
DPS (net of tax) grew from 1.6 to 12 , (CAGR of 28.64% )
DPO ratio (net DPS) averaged 26.41% , in 2009 was 26.97%
EY increased (decreased) from 14.09% to 10.55% , averaged 8.18% per year invested, and averaged 44.63% per 5 years invested.
DY increased (decreased) from 3.64% to 2.84% , AVERAGED 2.13% per year invested, and averaged 11.14% per 5 years invested.
Share price rose (fell) from 0.44 to 4.22 , (CAGR of 32.66% )
Total annual return averaged 34.79% (Cap. Appr of 32.66% + DY of 2.13% )


http://spreadsheets.google.com/pub?key=tmjm_LUI2F6vHg5jI1PXFwA&output=html

Company XYZ-A0
From 1995 to 2009:

EPS grew from 4.3 to 40.5 , (CAGR of 16.13% )
DPS (net of tax) grew from 0.5 to 7 , (CAGR of 19.24% )
DPO ratio (net DPS) averaged 16.58% , in 2009 was 17.28%
EY increased (decreased) from 3.54% to 13.48% , averaged 8.74% per year invested, and averaged 24.39% per 5 years invested.
DY increased (decreased) from 0.41% to 2.33% , AVERAGED 1.33% per year invested, and averaged 4.3% per 5 years invested.
Share price rose (fell) from 1.215 to 3.005 , (CAGR of 6.22% )
Total annual return averaged 7.55% (Cap. Appr of 6.22% + DY of 1.33% )


http://spreadsheets.google.com/pub?key=t8PIM_gvYk8VkNNfNFz4k2g&output=html

Company NBG1
From 1999 to 2009:

EPS grew (shrank) from 7.8 to -15 , (CAGR of -209.37% )
DPS (net of tax) grew (shrank) from 2.9 to 0 , (CAGR of -100% )
DPO ratio (net DPS) averaged 94.1% , in 2009 was 0%
EY increased (decreased) from 5.29% to -57.69% , averaged -2.37% per year invested, and averaged -0.79% per 5 years invested.
DY increased (decreased) from 2.33% to 0% , AVERAGED 1.98% per year invested, and averaged 1.88% per 5 years invested.
Share price rose (fell) from 1.475 to 0.26 , (CAGR of -15.93% )
Total annual return averaged -13.96% (Cap. Appr of -15.93% + DY of 1.98% )
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Friday, 10 July 2009

Earnings Yield and Earnings Growth (3)

http://spreadsheets.google.com/pub?key=tM4dijzIZ-GSYae8UUHtrZw&output=html


Company XYZ6
From 1995 to 2009:
EPS grew from 125 to 275, (CAGR of 5.4% )
DPS (net of tax) grew from 84 to 266 , (CAGR of 7.99% )
DPO ratio (net DPS) averaged 99.14% , in 2009 was 96.73%
EY increased (decreased) from 5.07% to 6.18% , averaged 5.89% per year invested, and averaged 7.83% per 5 years invested.
DY increased (decreased) from 3.4% to 5.98% , AVERAGED 5.89% per year invested, and averaged 7.71% per 5 years invested.
Share price rose (fell) from 24.675 to 44.5 , (CAGR of 4.01% )
Total annual return averaged 9.9%



http://spreadsheets.google.com/pub?key=tmJjNThDyJg030tAuW1JZcA&output=html

Company XYZ7
From 1999 to 2009:
EPS grew from 10.9 to 58.5 , (CAGR of 11.85% )
DPS (net of tax) grew from 2 to 30 , (CAGR of 19.79% )
DPO ratio (net DPS) averaged 44.37% , in 2009 was 51.28%
EY increased (decreased) from 7.99% to 14.74% , averaged 7.56% per year invested, and averaged 31.43% per 5 years invested.
DY increased (decreased) from 1.47% to 7.56% , AVERAGED 3.8% per year invested, and averaged 15.67% per 5 years invested.
Share price rose (fell) from 1.365 to 3.97 , (CAGR of 7.38% )
Total annual return averaged 11.17%


http://spreadsheets.google.com/pub?key=tr5Cw9liTlNFIgUDOZBjXuw&output=html

Company XYZ8CYC
From 1999 to 2009:
EPS grew from 12.4 to 2.5 , (CAGR of -16.67% )
DPS (net of tax) grew from 5.3 to 5 , (CAGR of -0.65% )
DPO ratio (net DPS) averaged 66.01% , in 2009 was 200%
EY increased (decreased) from 9.58% to 1.28% , averaged 10.45% per year invested, and averaged 25.4% per 5 years invested.
DY increased (decreased) from 3.41% to 2.56% , AVERAGED 4.77% per year invested, and averaged 9.24% per 5 years invested.
Share price rose (fell) from 1.295 to 1.955 , (CAGR of 4.2% )
Total annual return averaged 8.98% (Cap. Appr of 4.2% + DY of 4.77% )
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Earnings Yield and Earnings Growth (2)

http://spreadsheets.google.com/pub?key=tpKxEtz8jHe2E0aYMwaMSng&output=html

Company XYZ3
From 1995 to 2009:
EPS grew from 15.6 to 72 , (CAGR of 10.73% )
DPS (net of tax) grew from 3.2 to 40.7 , (CAGR of 18.48% )
DPO ratio (net DPS) averaged 57.03% , in 2009 was 56.53%
EY increased (decreased) from 7.39% to 9.01% , averaged 6.86% per year invested, and averaged 14.58% per 5 years invested.
DY increased (decreased) from 1.52% to 5.09% , AVERAGED 3.46% per year invested, and averaged 9.38% per 5 years invested.
Share price rose from 2.11 to 7.995 , (CAGR of 9.29% )
Total annual return averaged 12.75%



http://spreadsheets.google.com/pub?key=tk868XD3Y3vG7gvY54K8sGw&output=html

Company XYZ4
From 1995 to 2009:
EPS grew from 27.6 to 44 , (CAGR of 3.16% )
DPS (net of tax) grew from 16.1 to 35 , (CAGR of 5.31% )
DPO ratio (net DPS) averaged 95.24% , in 2009 was 79.55%
EY increased (decreased) from 7.41% to 8.19% , averaged 7.49% per year invested, and averaged 8.82% per 5 years invested.
DY increased (decreased) from 4.32% to 6.51% , AVERAGED 6.81% per year invested, and averaged 8.08% per 5 years invested.
Share price rose from 3.725 to 5.375 , (CAGR of 2.47% )
Total annual return averaged 9.28%



http://spreadsheets.google.com/pub?key=tmak2CPwe7UCWr6h5ZEFcww&output=html

Company XYZ5
From 1995 to 2009:
EPS grew from 7.8 to 41 , (CAGR of 11.7% )
DPS (net of tax) grew from 2.2 to 25 , (CAGR of 17.59% )
DPO ratio (net DPS) averaged 32.08% , in 2009 was 60.98%
EY increased (decreased) from 5.38% to 7.68% , averaged 7.96% per year invested, and averaged 15.97% per 5 years invested.
DY increased (decreased) from 1.52% to 4.68% , AVERAGED 2.5% per year invested, and averaged 5.88% per 5 years invested.
Share price rose from 1.45 to 5.34 , (CAGR of 9.08% )
Total annual return averaged 11.58%
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Earnings Yield and Earnings Growth (1)

http://spreadsheets.google.com/pub?key=thvY0NrrijC4gY11mjZd3PQ&output=html

Company XYZ
From 1995 to 2009:
EPS grew from 12.8 to 58.2, (CAGR of 10.62%).
DPS (net of tax) grew from 5.3 to 33.8, (CAGR of 13.15%).
DPO ratio (net DPS) averaged 39.22%, the latest in 2009 was 58.08%.
EY increased (decreased) from 4.79% to 7.53%, averaged 9.59% per year invested, and averaged 15.67% per 5 years invested.
DY increased (decreased) from 1.99% to 4.38%, AVERAGED 3.42% per year invested, and averaged 6.47% per 5 years invested.
Share price rose from 2.67 to 7.725, (CAGR of 7.34%).
Total annual return averaged 10.76%.



http://spreadsheets.google.com/pub?key=tTbLLUoeX_bs_guMAtRvqdQ&output=html

Company XYZ1
From 1995 to 2009:
EPS grew from 69 to 150 , (CAGR of 5.31% )
DPS (net of tax) grew from 53.2 to 200 , (CAGR of 9.23% )
DPO ratio (net DPS) averaged 106.18% , the latest in 2009 was 133.33%
EY increased (decreased) from 3.95% to 5.29% , averaged 4.29% per year invested, and averaged 5.61% per 5 years invested.
DY increased (decreased) from 3.05% to 7.05% , AVERAGED 4.35% per year invested, and averaged 5.63% per 5 years invested.
Share price rose from 17.45 to 28.375 , (CAGR of 3.29% ).
Total annual return averaged 7.65%.



http://spreadsheets.google.com/pub?key=t7ILk0yniC6soSLCP8gsksg&output=html

Company XYZ2
From 1995 to 2009:
EPS grew from 23.1 to 70 , (CAGR of 7.67% )
DPS (net of tax) grew from 8.1 to 42.1 , (CAGR of 11.61% )
DPO ratio (net DPS) averaged 78.57% , the latest in 2009 was 60.14%
EY increased (decreased) from 6.2% to 7.47% , averaged 5.59% per year invested, and averaged 11.6% per 5 years invested.
DY increased (decreased) from 2.17% to 4.49% , AVERAGED 4.03% per year invested, and averaged 10.87% per 5 years invested.
Share price rose from 3.725 to 9.375 , (CAGR of 6.35% )
Total annual return averaged 10.38%
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Thursday, 9 July 2009

Earnings Growth, Earnings Yield and PEG

PEG relates, or normalizes, the PE to the growth rate.

  • With PEG, apparently high PE ratios are supported by forward growth.
  • PEG thus becomes a better tool to compare stocks with different PEs and different underlying growth assumptions.

By itself, it's hard to tell whether a PE is good or bad.

A stock with a PE of 30 may be a better deal than another stock with a PE of 15. Why? Because of growth.

  • A stock of a no-growth company with a PE of 15 will never achieve an earnings yield beyond 7.5% (1/15).
  • Meanwhile, the company with a PE of 30, with a growth rate of 20%, eventually achieves an earnings yield greater than 20%.

Enter the practice of normalizing PE by the growth rate.


  • To do that, we divide all PEs by the company's growth rate to create a ratio known as (Price/earnings)/growth, or PEG for short.
  • G is the growth rate, expressed as a whole number (that is, the percentage times 100).
  • So, a company with a PE of 30 and a growth rate of 20% has a PEG of 1.5.

This gives a standard for comparison.

  • Company A with a PE of 18 and a growth rate of 12% has the same PEG as Company B with a PE of 30 and a growth rate of 20%.
  • Are the two PEs the same? 30 versus 18?
  • Clearly not - until the underlying growth fundamentals are identified, apply PEG, and find out they are indeed priced equally.

The table below shows the relationship between future earnings yield, PE, and PEG. Watch what happens to PEG and future earnings yields as growth assumptions rise.

http://spreadsheets.google.com/ccc?key=toPlORpn7n23_xeRq2vYALQ

Low PEG ratios (less than 2) correspond to high future earnings yields.

You can see:

PEG = 2 scenario corresponds to a future earnings yield of 13%.
PEG = 1.30 correlates to 20%, and,
PEG = 1 correlates to a future earnings yield of 31% on today's investment price.

On the other hand, if:

PEG = 4, the implied future earnings yield is only 8.1%.

So, what is a "good" PEG ratio?

It all depends on the implied future rate of return you're looking for, which depends on

  • (1) investment objectives,
  • (2) risk tolerance, and
  • (3) current risk-free (bond) interest rates.

A PEG of 2.7 or less: implies a future earnings yield of 10% or more.

A PEG of 2.7 or more: implies a future earnings yield of 10% or less. This is probably less return at more risk than most investors desire.

As a guide:

A PEG of 1 or less: this is great (but hard to find)

A PEG between 1 and 2: this is good.

A PEG between 2 and 3: this is marginal.

A PEG over 3: should probably be avoided.

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Earnings Yield

A greater revelation occurs when the PE ratio is turned upside down. The inverse ratio, known as earnings yield, tells the annual percentage rate of return implied by the PE. It is simply 1/(PE).
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How to be a long term investor?

Those with a long term portfolio giving positive returns to date are probably reacting to the market differently to those without a long term portfolio. These should be distinguished from those also having a long term portfolio with negative returns to date.

Unlike the former, the latter holds many stocks with "paper" losses. Holding onto these stocks, especially those with poor fundamentals, and with no potential for "recovery" for many years, probably make little or no sense at all.

On the other hand, those lucky investors in the former group have portfolios holding gainers. The gains are probably significant due to the effect of compounding. Moreover, this is a buffer that these investors enjoy, giving them the ability and the courage to ride the volatilities in the market.
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The "cake test" checklist when considering companies as investments

The "cake test"

Some of you may be familiar with the technique of sticking a toothpick into a cake to determine whether it's done. Try it a few times in different parts of the cake to verify your conclusion.

Especially for time-constrained investors, the "cake test" approach makes sense to review financial statements. Poke here, poke there, read some of the notes, get a favour for financial reporting quality. If you're Warren Buffett, ready to commit $2 billion to a company, you may want to take a closer look. But for most of us, the following will help.

A checklist

The following are a few places to test when considering companies as investments.

Earnings consistent with cash flow
These two things won't be equal but should march side by side. If earnings consistently grow faster than cash flow, that's a bad sign.

Growing current assets other than cash
Watch for increasing inventories or account receivable, particularly in proportion to sales.

Straight-line depreciation and amortizatizion, long time periods
Asset recovery may be delayed through deferring depreciation and amortizaton in order to boost earnings. Understand what practice the company uses, and whether it’s consistent with others in the industry – and common sense.

Understand asset impairments
Note which assets are “impaired” or on the block for possible write-downs, and understand why.

LIFO versus FIFO
LIFO is a more conservative approach to measuring cost of goods sold and inventory levels, as most of the recent (and more expensive) stock is assumed to be consumed first. Note that this may not be true in every industry.

Reserves against bad debts change dramatically
Watch for bad debt and other reserves as a sign of deterioration in current asset quality.

Accounting policy change
Note 1 should be simple and straightforward. Look at revenue and cost recognition. Complex, unexplained changes may spell trouble.

10-K report is longer than 100 pages
Something complex is going on. Opportunity knocks for accounting fiction and other things that are hard to understand.

Persistent, poorly explained write-offs
If the write-offs are large or repetitive, try to understand why.

Big gap between pro forma and GAAP
Understand why and what the company is trying to tell you by reporting both.

Understand where the revenues come from – if the company tells you
What are the major revenue “segments”? Does the company have a few big customers? Who are they? Are their business fundamentals sound? Does the company have channel partners? What are their selling arrangements with those partners? Do they provide financing? What are the other incentives? Are services broken out separately?

Stay with those who explain best.
Better corporate financial statements explain changes in their business and changes in their accounting policies. It’s worth reading their explanations carefully. Remember, companies that explain things better are probably better investments.
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