JTI

FY 09 EPS (Sen) 38.0 PER 12.1(x) Div Yield 4.8(%) ROE 21.2 (%)

EPS GR: last 5 years 7%, last 10 years -0.6%
Historical PE range: last 5 years 11.0 to 13.1, last 10 years 13.1 to 17.0
Historical DY range: last 5 years 8.2% to 6.8%, last 10 years 7.6% to 5.9%


JTI is in a defensive industry. Come rain or shine, its earnings will not be much affected. However, it is in an industry that is regulated negatively by the government. The government is curbing this industry, through various measures. It is anticipated that the growth of this industry will be challenging in the future years. Every year, one will have to worry each time the budget is announced. An unknown is the degree of confidence you have in your personal assessment of how fast JTI can grow its earningsg in this tightly regulated industry.


At the present price, based on historical comparative valuation, it is not exactly a bargain. Therefore, I would probably give this a miss and look elsewhere for undervalued stocks.

(I am only offering my personal view. You should make your own decision always.)

Buffett's view on the best book about investing ever written

Those following the postings recently would have completed 2 important chapters of The Intelligent Investor by Benjamin Graham.

Having read this book a few times, it is amazing how much gems are in this book which are still very relevant.

Let us see what Warren E. Buffett wrote in the Preface to the Fourth Edition of this book.

He wrote:

I read the first edition of this book early in 1950, when I was nineteen. I thought then that it was by far the best book about investing ever written. I still think it is.

To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information. What's needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework. This book precisely and clearly prescribes the proper framework. You must supply the emotional discipline.

If you follow the behavioural and business principles that Graham advocates - and if you pay special attention to the invaluable advice in Chapters 8 and 20 - you will not get a poor result from your investments. (That represents more of a accomplishment than you might think.) Whether you achieve outstanding results will depend on the effort and intellect you apply to your investments, as well as on the amplitudes of stock-market folly that prevail during your investing career. The sillier the market's behaviour, the greater the opportunity for the business-like investor. Follow Graham and you will profit from folly rather than participate in it.

To me, Ben Graham was far more than an author or a teacher. More than any other man except my father, he influenced my life. Shortly after Ben's death in 1976, I wrote the following short remembrance about him the Financial Analysts Journal. As you read the book, I believe you'll perceive some of the qualities I mentioned in the tribute.

...


Ref: Intelligent Investor by Benjamin Graham

Everybody can be rich

The One Lucky Break or The One Supremely Shrewd Decision

What can we learn from the two partners who spent a good part of their lives handling their own and other people's funds on Wall Street?

These two partners Graham coyly referred to were Jerome Newman and Benjamin Graham himself.

• Some hard experience taught them it was better to be safe and careful rather than to try to make all the money in the world.
• They established a rather unique approach to security operations,which combined good profit possibilities with sound values.
• They avoided anything that appeared overpriced and were rather too quick to dispose of issues that had advanced to levels they deemed no longer attractive.
• Their portfolio was always well diversified, with more than a hundred different issues represented.
• In this way they did quite well through many years of ups and downs in the general market; they averaged about 20% per annum on the several millions of capital they had accepted for management, and their clients were pleased with the results.

In 1948, an opportunity was offered to the partners' fund to purchase a half-interest in a growing enterprise. For some reason the industry did not have Wall Street appeal at the time and the deal had been turned down by quite a few important houses. But the pair was impressed by the company's possibilities; what was decisive for them was that the price was moderate in relation to current earnings and asset value. The partners went ahead with the acquisition, amounting in dollars to about one-fifth of their fund. They became closely identified with the new business interest, GEICO, which prospered.

• In fact it did so well that the price of its shares advanced to two hundred times or more the price paid for the half-interest.
• The advance far outstripped the actual growth in profits, and almost from the start the quotation appeared much too high in terms of the partners' own investment standards.
• But since they regarded the company as a sort of "family business," they continued to maintain a substantial ownership of the shares despite the spectacular price rise.
• A large number of participants in their funds did the same, and they became millionaires through their holding in this one enterprise, plus later-organized affiliates.

Ironically enough, the aggregate of profits accruing from this single investment decision far exceeded the sum of all the others realized through 20 years of wide-ranging operations in the partners' specialized fields, involving much investigation, endless pondering, and countless individual decisions.

Are there morals to this story of value to the intelligent investor?

• An obvious one is that there are several different ways to make and keep money in Wall Street.
• Another, not so obvious, is that one lucky break, or one supremely shrewd decision - (can we tell them apart?) - may count for more than a lifetime of journeyman efforts.
• But behind the luck, or the crucial decision, there must usually exist a background of preparation and disciplined capacity.
• One needs to be sufficiently established and recognized so that these opportunities will knock at his particular door.
• One must have the means, the judgment, and the courage to take advantage of them.

Of course, we cannot promise a like spectacular experience to all intelligent investors who remain both prudent and alert through the years. We are not going to end with J.J. Raskob's slogan that we made fun of at the beginning: "Everybody can be rich."

• But interesting possibilities abound on the financial scene, and the intelligent and enterprising investor should be able to find both enjoyment and profit in this three-ring circus.
• Excitement is guaranteed.

Ref: Intelligent Investor by Benjamin Graham

Commentary:

Successful investing is about managing risk, not avoiding it.

At first glance, when you realize that Graham put 25% of his fund into a single stock, you might think he was gambling rashly with his investors' money. But then, when you discover that Graham had painstakingly established that he could liquidate GEICO for at least what he paid for it, it becomes clear that Graham was taking very little financial risk. But he needed enormous courage to take the psychological risk of such a big bet on so unknown a stock.

(Graham's anecdote is also a powerful reminder that those of us who are not as brilliant as he was must always diversify to protect against the risk of putting too much money into a single investment. When Graham himself admits that GEICO was a "lucky break," that's a signal that most of us cannot count on being able to find such a great opportunity. To keep investing from decaying into gambling, you must diversify.)

"Investors don't like uncertainty."

But investors have never liked uncertainty - and yet it is the most fundamental and enduring condition of the investing world. It always has been, and it always will be.

At heart, "uncertainty" and "investing" are synonyms.

In the real world, no one has ever been given the ability to see that any particular time is the best time to buy stocks.

Without a saving faith in the future, no one would ever invest at all. To be an investor, you must be a believer in a better tomorrow.

Your probability of being right and your consequences of being wrong: Understanding Pascal's Wager

Before you invest, you must ensure:

• that you have realistically assessed your probability of being right and
• how you will react to the consequences of being wrong.

The investment philosopher Peter Bernstein has another way of summing this up. He reaches back to Blaise Pascal, the great French mathematician and theologian (1623-1662), who created a thought experiment in which an agnostic must gamble on whether or not God exists.

• The ante this person must put up for the wager is his conduct in this life; the ultimate payoff in the gamble is the fate of his soul in the afterlife.
• In this wager, Pascal asserts, "reason cannot decide" the probability of God's existence.
• Either God exists or He does not - and only faith, no reason, can answer that question.
• But while the probabilities in Pascal's wager are a toss-up, the consequences are perfectly clear and utterly certain.

As Bernstein explains:

Suppose you act as though God is and you lead a life of virtue and abstinence, when in fact ther is no god. You will have passed up some goodies in life, but there will be rewards as well. Now suppose you act as though God is not and spend a life of sin, selfishness, and lust when in fact God is. You may have had fun and thrills during the relatively brief duration of your lifetime, but when the day of judgment rolls around you are in big trouble.



Concludes Bernstein: "In making decisions under conditions of uncertainty, the consequences must dominate the probabilities. We never know the future."



Thus, as Graham has reminded you in every chapter of his book, the intelligent investor must focus not just on getting the analysis right. You must also ensure against loss if your analysis turns out to be wrong - as even the best analyses will be at least some of the time.

• The probability of making at least one mistake at some point in your investing lifetime is virtually 100%, and those odds are entirely out of your control.
• However, you do have control over the consequences of being wrong.
• Many "investors" put essentially all of their money into dot-com stocks in 1999; an online survey of 1,338 Americans by Money Magazine in 1999 found that nearly one-tenth of them had at least 85% of their money in Internet stocks.
• By ignoring Graham's call for a margin of safety, these people took the wrong side of Pascal's wager.
• Certain that they knew the probabilities of being right, they did nothing to protect themselves against the consequences of being wrong.

Simply by keeping your holdings permanently diversified and refusing to fling money at Mr. Market's latest, craziest fashions, you can ensure that the consequences of your mistakes will never be catastrophic.

No matter what Mr. Market throws at you, you will always be able to say, with a quiet confidence, "This, too, shall pass away."



Ref: cc Intelligent Investor by Benjamin Graham

The risk is not in our stocks, but in ourselves

Risk exists in another dimension: inside you. If you overestimate how well you really understand an investment, or overstate your ability to ride out a temporary plunge in prices, it doesn't matter what you own or how the market does. Ultimately, financial risk resides not in what kinds of investments you have, but in what kind of investor you are. If you want to know what risk really is , go to the nearest bathroom and step up to the mirror. That's risk, gazing back at you from the glass.

What should you watch for?

The Nobel-prize-winning psychologist Daniel Kahneman explains two factors that characterize good decisions:

• "well-calibrated confidence" (do I understand this investment as well as I think I do?)


• "correctly-anticipated regret" (how will I react if my analysis turns out to be wrong?).

To find out whether your confidence is well-calibrated, look in the mirrow and ask yourself: "What is the likelihood that my analysis is right?"


Think carefully through these questions:

• How much experience do I have? What is my track recrod with similar decisions in the past?


• What is the typical track record of other people who have tried this in the past?


• If I am buying, someone else is selling. How likely is it that I know something that this other person (or company) does not know?


• If I am selling, someone else is buying. How likely is it that I know something that this other person (or company) does not know?


• Have I calculated how much this investment needs to go up for me to break even after my taxes and costs of trading?

Next, look in the mirror to find out whether you are the kind of person who correctly anticipates your regret. Start by asking:

"Do I fully understand the consequences if my analysis turns out to be wrong?"



Answer that question by considering these points:

• If I am right, I could make a lot of money. But what if I'm wrong? Based on the historical performance of similar investments, how much could I lose?


• Do I have other investments that will tide me over if this decision turns out to be wrong? Do I already hold stocks, bonds, or funds with a proven record of going up when the kind of investment I'm considering goes down? Am I putting too much of my capital at risk with this new investment?


• When I tell myself, "You have a high tolerance for risk," how do I know? Have I ever lost a lot of money on an investment? How did it feel? Did I buy more, or did I bail out?


• Am I relying on my willpower alone to prevent me from panicking at the wrong time? Or have I controlled my own behaviour in advance by diversifying, signing an investment contract, and dollar-cost averaging?

You should always remember, in the words of the psychologist Paul Slovic, that "risk is brewed from an equal dose of two ingredients - probabilities and consequences."


Before you invest, you must ensure that you have realistically assessed your probability of being right and how you will react to the consequences of being wrong.





Ref: cc Intelligent Investor by Benjamin Graham

Why not 100% stocks?

Benjamin Graham advises you never to have more than 75% of your total assets in stocks.

But is putting all your money into the stock market inadvisable for everyone?

For a tiny minority of investors, a 100%-stock portfolio may make sense.

You are one of them if you:

• have set aside enough cash to support your family for at least one year
  
  
• will be investing steadily for at least 20 years to come
  
  
• survived the bear market that began in 2000
  
  
• did not sell stocks during the bear market that began in 2000
  
  
• bought more stocks during the bear market that began in 2000
  
  
• have read Chapter 8 of The Intelligent Investor and implemented a formal plan to control your own investing behaviour.

Unless you can honestly pass all these tests, you have no business putting all your money in stocks.

Anyone who panicked in the last bear market is going to panic in the next one - and will regret having no cushion of cash and bonds.

Ref: cc Intelligent Investor by Benjamin Graham

Speculative frenzy grips China

Speculative frenzy grips China
SHANGHAI, Aug 1 – Just a week ago, Candy Xie, 24, was all ready to make a quick buck on China’s roaring stock market.

The waitress had poured her entire savings of 7,000 yuan (S$1,480) into the shares of two companies that had just gone public.

She said she was a firm believer in the folk mantra xin gu bu bai, or “new stocks never fail”, which appears to have beguiled China’s legion of opportunistic retail investors recently.

“Everyone says they are buying new shares so I’m sure I’ll make money speculating on them,” she said on Monday when one of her punts, Sichuan Expressway Company, made a sizzling debut on the Shanghai bourse.

That day alone, the stock shot up by more than four times from its initial public offering (IPO) price of 3.6 yuan. Feverish trading was suspended twice.

The company’s share price fell back to earth the next day.

Although Xie made a small profit after selling off her Sichuan Expressway shares on Thursday, she admits she is now less sure of making money by punting on the roller-coaster Shanghai stock market.

She is but one of the millions of investors putting their hopes in China’s resurgent stock market. It has shot up by some 90 per cent this year, based on the benchmark Shanghai Composite Index, and recently overtook Japan as the world’s second largest behind the United States.

More than a million Chinese have opened new trading accounts in the two weeks leading up to July 24 – an 18-month high – after Beijing lifted a 10-month ban on new listings in June.

They are betting on a bull run driven partly by funds suspected to have leaked from loans meant for China’s 4 trillion yuan stimulus package.

Most of them are looking to capitalise on a fresh crop of IPOs featuring start-ups and tech firms that will be floated on the upcoming ChiNext exchange in Shenzhen, said Zhejiang University commerce professor Li Jiming.

Of these new investors, a large number appear to be “relatively young newbies with low incomes”, said a manager surnamed Li at a brokerage in Beijing’s Dongcheng district.

A large number of these stock market neophytes are from the “post-1980” generation of Chinese aged 29 and younger, according to a report on Xiamen news portal xmfish.com.

It cited a Wang Wei, 18, who opened an account on Monday at the encouragement of his colleagues. He was quoted as saying: “I don’t have much savings, I’ll just invest 10,000 yuan or so first. The market is rising every day, so the pickings should be not bad.”

Even those who had been burnt last year, when the stock market bubble burst amid concerns of overvalued stocks, are venturing back into the market.

Pharmacist Feng Xia, 33, said she did not dare to touch any stocks for a year after the crash. But in May, when the stock market started to gain momentum again, she could not resist the temptation and invested 2,000 yuan into a metal company’s stock at the recommendation of a friend. She made 700 yuan.

Said another returnee, gym trainer Liu Gang, 25: “I lost a lot of money during the last crash. But this time, I have a gut feeling the boom will last for a few months, so I’m going to going to invest all my savings in stocks.”

Alarmingly, about 52 per cent of small investors who snapped up the Sichuan Expressway stock on its debut said they suffered paper losses – to the tune of 30 million yuan, Beijing Youth Daily reported on Thursday.

On Wednesday, a massive sell-off had set in with the Shanghai Exchange plunging 5 per cent on concerns that shares were overpriced and banks may cap their lending targets.

The market posted a strong recovery over the next two days. This followed an affirmation by China’s central bank to follow a “moderately loose” monetary policy to support the nation’s economic recovery, which suggested that it will not rein in lending in the near future.

Banks have unleashed a staggering 7.4 trillion yuan in new loans in the first six months of this year, as part of the government’s stimulus measures.

But about 20 per cent of the loans has reportedly gone into the stock market.

Analysts said that one big red flag of a bubble forming in China’s stock market was the huge turnover on the debut day of trade for China Construction Engineering Corp on Wednesday.

The builder of the “Water Cube” Olympic aquatics centre said its IPO was more than 35 times oversubscribed.

Even those lucky enough to be allotted shares – like Sheng Tao, 45, who applied for about 70,000 shares but got only 2,000 – was in no mood to hold on to the stock as speculative fever escalated.

When asked why he wanted to sell his shares as quickly as possible, the vice-manager of a textile company in Beijing declared: “Now is the time for speculation. I just want to make money and get out quickly.”

Beijing is already starting to pay attention to the retail investors’ frenzy.

State broadcaster China Central Television and People’s Daily, a Communist Party newspaper, have warned about the perils of speculation this week. The country’s bank regulator has also urged commercial banks to ensure loans are not misused.

However, some people argue that such concerns may be premature.

Professor Li noted that with the Chinese economy expected to perform well later this year, a sharp rise in the stock prices of companies with stable performance should not be viewed as a bubble.

“Right now, there is a bubble in certain stocks only, but not for the entire market,” he argued. – ST

Stocks are crashing. News you could use - "SALE! 50% OFF!"

Stocks are crashing, so you turn on the television to catch the latest market news. But instead of CNBC or CNN, imagine that you can tune in to the Benjamin Graham Financial Network. On BGFN, the audio doesn't capture that famous sour clang of the market's closing bell; the video doesn't home in on brokers scurrying across the floor of the stock exchange like angry rodents. Nor does BGRN run any footage of investors gasping on frozen sidewalks as red arrows whiz overhead on electronic stock tickers.

Instead, the image that fills your TV screen is the facade of the New York Stock Exchange, festooned with a huge banner reading: "SALE! 50% OFF!" As intro music, Bachman-Turner Overdrive can be heard blaring a few bars of their old barn-burner, "You Ain't Seen Nothin' Yet." Then the anchorman announces brightly, "Stocks became more attractive yet again today, as the Dow dropped another 2.5% on heavy volume - the fourth day in a row that stocks have gotten cheaper. Tech investors fared even better, as leading companies like Microsoft lost nearly 5% on the day, making them even more affordable. That comes on top of the good news of the past year, in which stocks have already lost 50%, putting them at bargain levels not seen in years. And some prominent analysts are optimistic that prices may drop still further in the weeks and months to come."

The newscast cuts over to market strategist Ignatz Anderson of the Wall Street firm of Ketchum & Skinner, who says, "My forecast is for stocks to lose another 15% by June. I'm cautiously optimistic that if everything goes well, stocks could lose 25%, maybe more."

"Let's hope Ignatz Anderson is right," the anchor says cheerily. "Falling stock prices would be fabulous news for any investor with a very long horizon. And now over to Wally Wood for our exclusive AccuWeather forecast."


Ref: Intelligent Investor by Benjamin Graham

====

Also click:

Stocks are crashing.  News you can use from 'Benjamin Graham Financial Network".

https://myinvestingnotes.blogspot.com/2025/11/news-you-could-use-from-benjamin-graham.html

Hardened investors need to pause

Hardened investors need to pause
Tags: commentary Quest Means Business Richard Quest

Written by Richard Quest
Wednesday, 29 July 2009 23:05


HAVE you ever watched a lady walking down the street on very high-heeled shoes that are clearly beyond her abilities? The tottering; the ungainly sway; the break of a spike; the twist of an ankle, and possibly a crashing fall to the floor.

The stock market in recent weeks has been behaving in just such a fashion. Rising from its March low, the S&P 500 is now 44% higher than its lows of early March. The DJ Euro Stoxx 50 has gained 42%.

This rise has taken place while we are still getting horrible numbers showing economies still in recession and unemployment rising. For instance, last week the UK government announced the economy contracted by 0.8% in the second quarter, leading to a 5.6% fall for the year, and yet the FTSE rose 7%!

The market is baffling sedulous investors seeking reasons for the gains, especially while economists continue to offer dark warnings about the future.

I could offer you many reasons to try and explain what is going on. Some will find comfort in the latest earnings reports from major companies.

Analysis by Bloomberg shows 75% of the S&P 500 companies that have reported so far have surpassed expectations. Others will remind me that markets are a leading indicator lighting the way forward, not some rear view mirror like gross domestic product (GDP) or jobless numbers.

And there are those who will delve into the bag of tricks used by technical analysts such as chartists to explain the inexplicable.

None of these reasons make good sense when you put them into the real world where companies are still cutting back.

On my programme Quest Means Business, we do our own analysis of the earnings season with the Q25. This isn't a scientific index!

We take 25 of the biggest companies across a broad range of industries and debate whether they receive red or green marks for their earnings, asking simply “did they meet or beat expectation?”

When we looked closely we saw a lot of window dressing making numbers look rosy. Core revenues were still weak; outlook and guidance were often poor or non-existent. Overall, we got the feeling many companies were just about getting by in horrible trading conditions.

In the end we gave 13 green and 12 red, hardly an endorsement justifying a 40% rise in share prices.

To those readers hoping I am going to square this circle, you will be disappointed. I do, however, have a theory, and it goes like this: Investors are naturally optimistic beasts.

They are driven by looking up the mountain to the next peak, only noticing falls once they have begun. After recent months they have become hardened to further falls. So the market has taken the horse called Optimism and ridden the blighter for all it is worth.

Unfortunately, no one really knows if this is doomed to fail under an ambush of further bad news.

In the end, we have to hope that the markets continue to behave like the young lady in her new, high-heeled shoes.

Upon wearing them, she may totter terrified out of the shop — but it isn't long before experience and confidence take over.

Soon, our lady in heels is negotiating concrete and carpet alike with escalators thrown in. What we need now is that same experience in our investing, which probably means having a pause to allow experience to set in.

Richard Quest is a CNN correspondent based in London, host of the weekday one-hour programme Quest Means Business.

Source: The Edge

Investment Owner's Contract

I, ________, hereby state that I am an investor who is seeking to accumulate wealth for many years into the future.

I know that there will be times when I will be tempted to invest in stocks or bonds because they have gone (or "are going") up in price, and other times when I will be tempted to sell my investments because they have gone (or "are going") down.

I hereby declare my refusal to let a herd of strangers make my financial decisions for me. I further make a solemn commitment never to invest because the stock market has gone up, and never to sell because it has gone down. Instead, I will invest $ xxxx.00 per month, every month, through an automatic investment plan or "dollar-cost averaging program," into the following mutual fund(s) or diversified portfolio(s):

____________,

____________,

____________.


I will also invest additional amounts whenever I can afford to spare the cash (and can affort to lose it in the short run).

I hereby declare that I will hold each of these investments continually through at least the following date (which must be a minimum of 10 years after the date of this contract): __, ____, 20__. The only exceptions allowed under the terms of this contract are a sudden, pressing need for cash, like a health-care emergency or the loss of my job, or a planned expenditure like a housing down payment or a tuition bill.

I am, by signing below, stating my intention not only to abide by the terms of this contract, but to re-read this document whenever I am tempted to sell any of my investments.

This contract is valid only when signed by at least one witness, and must be kept in a safe place that is easily accessible for future reference.


Signed:


Date:


Witnesses:

1. The Sheep

2. The Cow



XXXXXXXXX

Isn't the above an interesting contract?


Ref: Intelligent Investor by Benjamin Graham

U.S. GDP released Friday was better than economists expected.

U.S. Economy Shrank Less Than Expected in Quarter

The government reading on U.S. gross domestic product released Friday was better than economists expected.

By CATHERINE RAMPELL and JACK HEALY
Published: July 31, 2009

The economy’s long, churning decline leveled off significantly from April through June, the government reported on Friday, supporting hopes that the economy would turn around in the second half of the year.

The American economy shrank at an annual pace of 1 percent in the second quarter, after contracting at an annual pace of 6.4 percent earlier this year. Government spending, bolstered by the first payouts from a $787 billion stimulus package, propped up the economy and accounted for 20 percent of the country’s output.

But consumer spending, which makes up about 70 percent of the overall economy, has continued to fall as fearful Americans hold onto their paychecks and whittle down their spending. This has led to concerns about what will happen once stimulus funds peter out.

“The most severe part of the decline is behind us,” said Joshua Shapiro, chief United States economist at MFR. “But it’s hard to say how sustainable whatever bounce we might see will be. It depends largely on whether the consumer has the genuine ability to spend, or if it’s all just government cheese being handed out.”

The increasing reliance on the government to fuel the economy — and the decreasing contributions from consumers — could put the Obama administration and other Democrats in a difficult position. Many economists say that even if the economy has bottomed, the recovery over the coming months or possibly years many be painfully slow.

“We’re going from recession to recovery, but at least early on, it’s not going to feel like one,” said the chief economist at Moody’s Economy.com, Mark Zandi. “For economists, this is a seminal part in the business cycle, but for most Americans, it won’t mean much.”

Bright spots have been seen in stock markets, corporate profits, some housing markets and the pace of job losses. But generally the job market tends to follow the rest of the economy, as employers wait to hire more workers until their businesses strengthen. This means the threat of sustained, double-digit employment in coming months remains.

As long as employers keep slashing jobs, and consumers continue to hurt, pressure may mount on government officials to speed up the recovery.

“At some point it becomes Obama’s economy, not Bush’s economy anymore,” said Dean Baker, co-director of the Center for Economic and Policy Research, a liberal research group in Washington. “He made a big mistake in overselling the first stimulus, and then in celebrating all the ‘green shoots.’ That just opens the door for people to say, ‘Where are my green shoots? I still don’t have a job.’ ”

Unemployment climbed to 9.5 percent in June, leaving a total of 15 million people out of work and looking for jobs. Consumers, wary of losing their jobs or already unemployed, cut their spending by 1.2 percent in the second quarter and saved more than 5 percent of their disposable income, a stark turnaround from their spendthrift behavior during the housing boom.

“Concerns about a possible ‘double-dip’ recession probably would focus mainly on the consumer,” said Nigel Gault, chief United States economist at IHS Global Insight. “If households continue to try to bump up their savings rate, any growth we get in the overall economy could certainly relapse.”

Friday’s report on gross domestic product — a broad gauge of the country’s output — painted a bleaker picture of the recession than earlier estimates had.

The Commerce Department said the economy tumbled downward by 6.4 percent this winter as the country reeled from the shocks of the financial crisis, and it said the economy grew only 0.4 percent in all of 2008, compared to earlier assessments of 1.1 percent growth.

Now, even with jobs still vanishing and wages flat, many forecasters expect the downturn to level off. Economists say that businesses from small manufacturers to big automakers are poised to rebuild their depleted inventories, which fell by an annualized $141 billion in the second quarter. That restocking could spur economic growth later this year.


The Commerce Department’s quarterly assessment offered a tour through a dreary year. The economy withered during each of the last four quarters, its longest contraction since the 1940s. Businesses cut their investments and laid off millions of workers. Imports and exports tumbled.

The country’s gross domestic product fell to $14.15 trillion in the second quarter, from $14.5 trillion in the second quarter of 2008.

In interviews, small-business owners across the country say the ground is slowly reforming under their feet, and that business no longer seems to be careening downward. Indeed, business investment in structures like new factories and office buildings fell at a rate of 8.9 percent in the second quarter after declining by more than 40 percent in the previous three months. And investment in equipment and software, which fell 36 percent this winter, dropped a more modest 9 percent in the second quarter.

But many employers who have laid off employees or scaled back say they are not about to increase their spending or start hiring.

In Nashville, Jerry Robertson laid off one of his 15 employees, cut his budget for advertising and trade shows and moved into a smaller office space to cut costs at his company, which helps trucking companies manage their operations. His business is down about 10 percent from last year, and clients are still falling off his books.

“We do see it not declining as fast as it was, but we don’t see any growth,” Mr. Robertson said. “We’re still going down.”

http://www.nytimes.com/2009/08/01/business/economy/01econ.html?_r=1&hp

Using closed-ended funds

iCap closed ended fund is structured for those investors who are seeking maximum portfolio gain and who are not interested in income. The dividends and the realised capital gains in iCap are reinvested to achieve the objective of maximising capital or portfolio gain. It is not hard to see that iCap closed ended funds should be considered a long-term investment.

Should iCap be trading at a premium? It is presently trading at a discount. Well, let not the manager of the fund pleads on this, let the investors decide. The manager should stay focus on just improving the quality of the fund's portfolio and returns.

If the economy does improve, the market is still very cheap at the present level.

Here are some articles of related interests:
Kinds of closed-ended funds
Closed-ended funds: 2 ways to make and 2 ways to lose money
Closed-ended funds: Why a discount, anyway?
Using closed-ended funds

Can you beat the pros at their own game?

Here are some of the handicaps mutual fund managers and other professional investors are saddled with:

• With billions of dollars under management, they must gravitate toward the biggest stocks - the only ones they can buy in the multimillion-dollar quantities they need to fill their portfolios. Thus many funds end up owning the same few overpriced giants.
• Investors tend to pour more money into funds as the market rises. The managers use that new cash to buy more of the stocks they already own, driving prices to even more dangerous heights.
• If fund investors ask for their money back when the market drops, the managers may need to sell stocks to cash them out. Just as the funds are forced to buy stocks at inflated prices in a rising market, they become forced sellers as stocks get cheap again.
• Many portfolio managers get bonuses for beating the market, so they obsessively measure their returns against benchmarks like the S&P 500 index. If a company gets added to an index, hundreds of funds compulsively buy it. (If they don't and that stock then does well, the managers look foolish; on the other hand, if they buy it and it does poorly, no one will blame them.)
• Increasingly, fund managers are expected to specialize. Just as in medicine the general practitioner has given way to the pediatric allergist and the geriatric otolaryngologist, fund managers must buy only "small growth" stocks, or only "mid-sized value" stocks, or nothing but "large blend" stocks. If a company get too big, or too small, or too cheap, or an itty bit too expensive, the fund has to sell it - even if the manager loves the stock.

Lessons:

So, there's no reason you can't do as well as the pros.

What you cannot do (despite all the pundits who say you can) is to "beat the pros at their own game." The pros can't even win their own game! Why should you want to play it at all?

If you follow their rules, you will lose - since you will end up as much a slave to Mr. Market as the professionals are.

One of Graham's most powerful insights is this: "The investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage."

The intelligent investor has the full freedom to choose whether or not to follow Mr. Market. You have the luxury of being able to think for yourself.



Ref: cc Intelligent Investor by Benjamin Graham

What keeps most individual investors from succeeding?

When asked what keeps most individual investors from suceeding.

Graham had a concise answer: "The primary cause of failure is that they pay too much attention to what the stock market is doing currently."

The manic-depressive Mr. Market does not always price stocks correctly.

On March 17, 2000, the stock of Inktomi Corp. hit a new high of $231.625.

• Since they first came on the market in June 1998, shares in the Internet-searching software company had gained roughly 1,900%.
• Just in the few weeks since December 1999, the stock had nearly tripled.

What was going on at Inktomi the business that could make Inktomi the stock so valuable?

• The answer seems obvious: phenomenally fast growth.
• In the three months ending in December 1999, Inktomi sold $36 million in products and services, more than it had in the entire year ending in December 1998.
• If Inktomi could sustain its growth rate of the previous 12 months for just five more years, its revenues would explode from $36 million a quarter to $5 billion a month.
• With such growth in sight, the faster the stock went up, the farther up it seemed certain to go.

But in his wild love affair with Inktomi's stock, Mr. Market was overlooking something about its business.

• The company was losing money - lots of it.
• It had lost $6 million in the most recent quarter, $24 million in the 12 months before that, and $24 million in the year before that.
• In its entire corporate lifetime, Inktomi had never made a dime in profits.
• Yet, on March 17, 2000, Mr. Market valued this tiny business at a total of $25 BILLION. (Yes, that's BILLION, with a B.)

And then Mr. Market went into a sudden, nightmarish depression.

• On September 30, 2002, just two and a half years after hitting $231,625 per share, Inktomi's stock closed at 25 cents - collapsing from a total market value of $25 billion to less than $40 million.

Had Inktomi's business dried up?

• Not at all; over the previous 12 months, the company had generated $113 million in revenues.

So what had changed? Only Mr. Market's mood:

• In early 2000, investors were so wild about the Internet that they priced Inktomi's shares at 250 times the company's revenues.
• Now, however, they would pay only 0.35 times its revenues.
• Mr. Market had morphed from Dr. Jekyll to Mr. Hyde and was ferociously trashing every stock that had made a fool out of him.

But Mr. Market was no more justified in his midnight rage than he had been in his manic euphoria.

• On December 23, 2002, Yahoo! Inc. announced that it would buy Inktomi for $1.65 per share.
• That was nearly seven times Inktomi's stock price on September 30.
• History will probably show that Yahoo! got a bargain.
• When Mr. Market makes stocks so cheap, it's no wonder that entire companies get bought right out from under him.

(As Graham noted in a classic series of articles in 1932, the Great Depression caused the shares of dozens of companies to drop below the value of their cash and other liquid assets, making them "worth more dead than alive.")


Lessons:

Most of the time, the market is mostly accurate in pricing most stocks.

Millions of buyers and sellers haggling over price do a remarkably good job of valuing companies - on average.

But sometimes, the price is not right; occasionally, it is very wrong indeed.

And at such times, you need to understand Graham's image of Mr. Market, probably the most brilliant metaphor ever created for explaining how stocks can become mispriced.

The manic-depressive Mr. Market does not always price stocks the way an appraiser or a private buyer would value a business.

Instead, when stocks are going up, he happily pays more than their objective value; and, when they are going down, he is desperate to dump them for less than their true worth.

Is Mr. Market still around? Is he still bipolar? You bet he is.


Ref: cc Intelligent Investor by Benjamin Graham