HSBC is a great business – but buy Standard Chartered
By Garry White
Published: 5:17PM BST 03 Aug 2009
HSBC
635.9p +30.15
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This column has shied away from recommending Western banks over the last six months, as there were too many uncertainties in their balance sheets. The full impact of bad loans has not worked its way through the system and there are a number of new regulatory hoops that look likely to be imposed. Caution continues to be the order of the day.
HSBC did not need to take government funds when other institutions were crumbling at the foundations, although it tapped existing shareholders for more money through a rights issue in April, raising $17.8bn (£10.5bn). This is a major positive for the group.
Yesterday's first-half report was relatively reassuring. Pre-tax profits in the six-month period to June 30 fell 51pc to $5bn on a year-on-year basis on revenues that were 10pc ahead of last year. Reassuringly, its Tier One ratio rose to 10.1pc from 8.3pc six months ago.
This is ahead of the 7.5pc – 10pc range targeted by the bank, with most of this extra funding coming from the group's cash call earlier this year.
HSBC still owns Household in the US – a sub-prime lender. The company paid $15bn for the business in 2003 and the bank – after defending the purchase for quite some time – admitted that it has made a mistake earlier this year. "With the benefit of hindsight, this is an acquisition we wish we had not undertaken," Stephen Green, HSBC's chairman, said in March.
Rising bad debts in the US, Europe and Asia forced the bank to write off $13.9bn, which was one-third higher than in the same period last year. This is a lot of money – even for a bank of the size of HSBC. The bank has had to make some $67bn of bad loan provisions in the last three-and-a-half years, most of these associated with Household.
Although there is the suggestion that bad debts could have peaked, this may not be the case. If you look at the stock market's recent performance, you would think that the future is rosy and bright. It is not. Unemployment looks set to rise and bad debts are going to take some time to work their way through they system. This is the main reason Questor is cautious
It is easy to argue that HSBC is managed better than most other "western" banks – because it's probably true – and there is no doubt that it has a great future ahead of it. The company's heavy exposure to Asia is a real positive.
However, it's a question of valuation. The shares have rallied substantially from their lows, more than doubling since March. This means that the shares are trading on a December 2009 earnings multiple of 28.6, falling to 21.5 next year and 13.8 in 2011. This looks pretty steep. The shares are only yielding 3pc as well, which is hardly earth shattering when compared to some of the dividend plays we have in the Questor portfolio such as Northern Foods (7.4pc) and BP (6.8pc).
Questor advises readers to buy shares in Standard Chartered instead. The bank was recommended when its shares were at £12.40 and they are now 18pc ahead of their initial recommendation price.
The shares are yielding just 2.4pc this year, but this is not a share to buy for income, it's a share to buy for long-term growth. The company operates in markets that have significant growth ahead and is heavily exposed to the Middle East. It escaped the collapse in global financial markets relatively unscathed and it is trading on a December 2009 earnings multiple of 15.7 times.
Standard Chartered publishes its interim figures today. Consensus is for earnings per share of 91 cents, with a range of 80 cents to $1.07.
So, although things are looking relatively good for HSBC, concerns about bad debts remains and the valuation looks pretty rich. Questor advises avoiding shares in HSBC for now, playing the banking sector through Standard Chartered which is highly geared to most of the long-term growth markets in the world.
http://www.telegraph.co.uk/finance/markets/questor/5967064/iHSBC-is-a-great-business-i-but-buy-Standard-Chartered.html
Tuesday, 4 August 2009
Commodity prices set to rise further, Roubini says
Commodity prices set to rise further, Roubini says
Commodity prices may extend their rally in 2010 as the global recession abates, said Nouriel Roubini, the New York University economist who predicted the financial crisis.
By Bloomberg
Published: 7:13AM BST 03 Aug 2009
Nouriel Roubini predicted the current financial crisis. “As the global economy goes toward growth as opposed to a recession, you are going to see further increases in commodity prices especially next year,” Roubini said today at the Diggers and Dealers mining conference in Kalgoorlie, Western Australia. “There is now potentially light at the end of the tunnel.”
Roubini, chairman of Roubini Global Economics and a professor at NYU’s Stern School of Business, joins former Federal Reserve Chairman Alan Greenspan in seeing signs of recovery. Commodity prices gained the most in more than four months on July 30 as investors speculated that the worst of the global recession has passed and consumption of crops, metals and fuel will rebound.
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“The things he was saying provide good indicators for our business,” Martin McDermott, a manager for metals project development at SNC-Lavalin Group Inc., Canada’s biggest engineering and construction company, said at the conference.
“The commodities that we’re involved with, being copper, nickel, gold, iron ore, all seem to have positive signs and we hope to take advantage of that.”
Greenspan said yesterday the most severe recession in the U.S. in at least five decades may be ending and growth may resume at a rate faster than most economists foresee. Oil has jumped 56 percent in 2009 and copper has surged 86 percent.
Roubini predicted on July 23 that the global economy will begin recovering near the end of 2009, before possibly dropping back into a recession by late 2010 or 2011 because of rising government debt, higher oil prices and a lack of job growth.
Economic growth in China, the world’s biggest metals consumer, accelerated in the second quarter, gaining 7.9 percent from a year earlier. China, the biggest contributor to global growth, overtook Japan as the world’s second-largest stock market by value on July 16 after the nation’s 4 trillion yuan ($585 billion) stimulus package spurred record lending and boosted prices of shares and commodities.
China will meet its target of 8 percent growth in gross domestic product this year, Roubini said. Manufacturing in China climbed for a fifth month in July as stimulus spending and subsidies for consumer purchases countered a collapse in exports, and helped companies from chipmaker Semiconductor Manufacturing International Corp. to automaker General Motors Corp. as well as mining companies such as BHP Billiton Ltd. and Rio Tinto Group.
China’s official Purchasing Managers’ Index rose to a seasonally adjusted 53.3 in July from 53.2 in June. A reading above 50 indicates an expansion. The manufacturing index has climbed from a record low of 38.8 in November.
A rise in commodity prices may help the Australian dollar, Roubini said today, adding he is “bullish” on the currency. Countries including Australia, New Zealand and Canada have so-called commodity currencies because raw materials generate more than 50 percent of their export revenues.
The Australian dollar today rose to the highest since September before retail sales and house price data tomorrow that may add to evidence the nation’s economy will rebound faster than the central bank forecast six months ago.
The price of aluminum, used in beverage cans and airplane parts, has declined by a third in the past year as the global recession crimped demand. A recovery in demand may be offset by the “huge amount of excess capacity,” which could be a risk to the price, Roubini said.
The Reuters/Jefferies CRB Index of 19 commodities has risen 12 percent this year. It jumped 3.9 percent on July 30 to 253.14,the biggest gain since March 19.
“That recovery will continue slowly, slowly over time,” Roubini said today. The global economy may contract 2 percent this year and swing to growth of 2.3 percent next year, he said.
Vale SA, the world’s biggest iron ore producer, said demand for metals is starting to recover and it will begin boosting output. Vale Chief Financial Officer Fabio Barbosa said on July 30 that “the worst is over”.
The price of oil may rise more than other commodities because of an expected rebound in demand, Roubini said separately in an interview with Bloomberg News. It may average between $70 and $75 a barrel next year, he said.
Crude oil traded above $70 a barrel today for the first time in a month on speculation fuel demand will increase, amid signs the global economy is recovering from recession.
The U.S. economy, the world’s biggest, is likely to grow about 1 percent in the next two years, less than the 3 percent “trend,” Roubini said last month. President Barack Obama said on July 30 the U.S. may be seeing the beginning of the end of the recession.
In July 2006 Roubini predicted the financial crisis. In February of last year he forecast a “catastrophic” meltdown that central bankers would fail to prevent, leading to the bankruptcy of large banks with mortgage holdings and a “sharp drop” in equities. Since then, Bear Stearns Cos. was forced into a sale and Lehman Brothers Holdings Inc. went bankrupt, prompting banks to hoard cash and depriving businesses and households of access to capital.
http://www.telegraph.co.uk/finance/markets/5963702/Commodity-prices-set-to-rise-further-Roubini-says.html
Commodity prices may extend their rally in 2010 as the global recession abates, said Nouriel Roubini, the New York University economist who predicted the financial crisis.
By Bloomberg
Published: 7:13AM BST 03 Aug 2009
Nouriel Roubini predicted the current financial crisis. “As the global economy goes toward growth as opposed to a recession, you are going to see further increases in commodity prices especially next year,” Roubini said today at the Diggers and Dealers mining conference in Kalgoorlie, Western Australia. “There is now potentially light at the end of the tunnel.”
Roubini, chairman of Roubini Global Economics and a professor at NYU’s Stern School of Business, joins former Federal Reserve Chairman Alan Greenspan in seeing signs of recovery. Commodity prices gained the most in more than four months on July 30 as investors speculated that the worst of the global recession has passed and consumption of crops, metals and fuel will rebound.
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“The things he was saying provide good indicators for our business,” Martin McDermott, a manager for metals project development at SNC-Lavalin Group Inc., Canada’s biggest engineering and construction company, said at the conference.
“The commodities that we’re involved with, being copper, nickel, gold, iron ore, all seem to have positive signs and we hope to take advantage of that.”
Greenspan said yesterday the most severe recession in the U.S. in at least five decades may be ending and growth may resume at a rate faster than most economists foresee. Oil has jumped 56 percent in 2009 and copper has surged 86 percent.
Roubini predicted on July 23 that the global economy will begin recovering near the end of 2009, before possibly dropping back into a recession by late 2010 or 2011 because of rising government debt, higher oil prices and a lack of job growth.
Economic growth in China, the world’s biggest metals consumer, accelerated in the second quarter, gaining 7.9 percent from a year earlier. China, the biggest contributor to global growth, overtook Japan as the world’s second-largest stock market by value on July 16 after the nation’s 4 trillion yuan ($585 billion) stimulus package spurred record lending and boosted prices of shares and commodities.
China will meet its target of 8 percent growth in gross domestic product this year, Roubini said. Manufacturing in China climbed for a fifth month in July as stimulus spending and subsidies for consumer purchases countered a collapse in exports, and helped companies from chipmaker Semiconductor Manufacturing International Corp. to automaker General Motors Corp. as well as mining companies such as BHP Billiton Ltd. and Rio Tinto Group.
China’s official Purchasing Managers’ Index rose to a seasonally adjusted 53.3 in July from 53.2 in June. A reading above 50 indicates an expansion. The manufacturing index has climbed from a record low of 38.8 in November.
A rise in commodity prices may help the Australian dollar, Roubini said today, adding he is “bullish” on the currency. Countries including Australia, New Zealand and Canada have so-called commodity currencies because raw materials generate more than 50 percent of their export revenues.
The Australian dollar today rose to the highest since September before retail sales and house price data tomorrow that may add to evidence the nation’s economy will rebound faster than the central bank forecast six months ago.
The price of aluminum, used in beverage cans and airplane parts, has declined by a third in the past year as the global recession crimped demand. A recovery in demand may be offset by the “huge amount of excess capacity,” which could be a risk to the price, Roubini said.
The Reuters/Jefferies CRB Index of 19 commodities has risen 12 percent this year. It jumped 3.9 percent on July 30 to 253.14,the biggest gain since March 19.
“That recovery will continue slowly, slowly over time,” Roubini said today. The global economy may contract 2 percent this year and swing to growth of 2.3 percent next year, he said.
Vale SA, the world’s biggest iron ore producer, said demand for metals is starting to recover and it will begin boosting output. Vale Chief Financial Officer Fabio Barbosa said on July 30 that “the worst is over”.
The price of oil may rise more than other commodities because of an expected rebound in demand, Roubini said separately in an interview with Bloomberg News. It may average between $70 and $75 a barrel next year, he said.
Crude oil traded above $70 a barrel today for the first time in a month on speculation fuel demand will increase, amid signs the global economy is recovering from recession.
The U.S. economy, the world’s biggest, is likely to grow about 1 percent in the next two years, less than the 3 percent “trend,” Roubini said last month. President Barack Obama said on July 30 the U.S. may be seeing the beginning of the end of the recession.
In July 2006 Roubini predicted the financial crisis. In February of last year he forecast a “catastrophic” meltdown that central bankers would fail to prevent, leading to the bankruptcy of large banks with mortgage holdings and a “sharp drop” in equities. Since then, Bear Stearns Cos. was forced into a sale and Lehman Brothers Holdings Inc. went bankrupt, prompting banks to hoard cash and depriving businesses and households of access to capital.
http://www.telegraph.co.uk/finance/markets/5963702/Commodity-prices-set-to-rise-further-Roubini-says.html
UK asset value falls for first time since 1992
UK asset value falls for first time since 1992
The value of all the assets in the UK has fallen for the first time in more than a decade and a half, in the latest evidence of the economic trauma wrought by the financial crisis.
By Edmund Conway
Published: 6:39PM BST 03 Aug 2009
The fall was driven largely by a fall in the value of housing which, at £3.7 trillion, constitutes more than half the nation's net worth. Photo: PA Britain was worth £6.95 trillion at the end of 2008, down 2pc from the previous year, according to new figures from the Office for National Statistics (ONS). The total, which has fallen for the first time since the last recession in 1992, takes into account all buildings, roads, factories, cars, trains, machinery and financial assets by the end of 2008, minus debts.
The fall was driven largely by a fall in the value of housing which, at £3.7 trillion, constitutes more than half the nation's net worth.
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According to the ONS, the value of Britain's housing stock dropped by 9.1pc last year – the biggest fall since comparable data began in 1989. It takes the value of the total housing stock down to levels last seen in 2006.
More strikingly, the fall in property prices, when compared with the comparative height of mortgage debt, means that the equity British households own in their homes fell by £423bn, or 14pc, during 2008. Net equity – in other words the extent by which home values are greater than mortgage debt – dropped from 335pc to 274pc in 2008, the lowest cushion since 2002.
Simon Ward, of Henderson New Star, said: "UK households will have to step up their saving to compensate for the huge loss of housing and equity market wealth in 2008, implying mediocre prospects for consumer spending."
Significantly, it is households and non-profit institutions as opposed to financial and non-financial corporations that have borne the biggest brunt of the falls in asset prices. Their assets dropped from £7.5 trillion in 2007 to £6.6 trillion last year – the biggest single one-year drop on record.
Despite the fall, the value of the UK is still equivalent to just under £115,000 for every man, woman and child in the country – and has increased by a factor of more than five since the ONS began keeping national accounts data in 1948.
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/5967533/UK-asset-value-falls-for-first-time-since-1992.html
The value of all the assets in the UK has fallen for the first time in more than a decade and a half, in the latest evidence of the economic trauma wrought by the financial crisis.
By Edmund Conway
Published: 6:39PM BST 03 Aug 2009
The fall was driven largely by a fall in the value of housing which, at £3.7 trillion, constitutes more than half the nation's net worth. Photo: PA Britain was worth £6.95 trillion at the end of 2008, down 2pc from the previous year, according to new figures from the Office for National Statistics (ONS). The total, which has fallen for the first time since the last recession in 1992, takes into account all buildings, roads, factories, cars, trains, machinery and financial assets by the end of 2008, minus debts.
The fall was driven largely by a fall in the value of housing which, at £3.7 trillion, constitutes more than half the nation's net worth.
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Average household has lost £45,000 in the economic crisis
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According to the ONS, the value of Britain's housing stock dropped by 9.1pc last year – the biggest fall since comparable data began in 1989. It takes the value of the total housing stock down to levels last seen in 2006.
More strikingly, the fall in property prices, when compared with the comparative height of mortgage debt, means that the equity British households own in their homes fell by £423bn, or 14pc, during 2008. Net equity – in other words the extent by which home values are greater than mortgage debt – dropped from 335pc to 274pc in 2008, the lowest cushion since 2002.
Simon Ward, of Henderson New Star, said: "UK households will have to step up their saving to compensate for the huge loss of housing and equity market wealth in 2008, implying mediocre prospects for consumer spending."
Significantly, it is households and non-profit institutions as opposed to financial and non-financial corporations that have borne the biggest brunt of the falls in asset prices. Their assets dropped from £7.5 trillion in 2007 to £6.6 trillion last year – the biggest single one-year drop on record.
Despite the fall, the value of the UK is still equivalent to just under £115,000 for every man, woman and child in the country – and has increased by a factor of more than five since the ONS began keeping national accounts data in 1948.
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/5967533/UK-asset-value-falls-for-first-time-since-1992.html
'China is the biggest thing to happen in the world economy for a century'
'China is the biggest thing to happen in the world economy for a century'
Fundamentalist view: our regular series in which a leading fund manager or expert at making money grow explains why savers and investors should see things their way
By Tom Ewing
Published: 12:00PM BST 03 Aug 2009
Comments 5 Comment on this article
Old and new: to ensure the Chinese economy was not engulfed by the global malaise, the government injected huge sums into public spending projects Photo: GETTY Fund managers often talk about the "themes" that excite them and how they work those ideas into their investments. China is full of exciting opportunities but I would not call it a theme. It is much bigger than that; it is the most important thing going on in the world this decade and the next.
You might find it surprising that the manager of a UK equity growth fund is as interested in China as the state of British banks and whether M&S will increase its dividend. But what is happening in China is as important to your investments as what happens here. Not to have a view on it in your portfolio would be a huge mistake.
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China is a long way away; culturally and geographically. As a result, some investors here often dismiss China as something happening to someone else. Their scepticism about the scale of activity means they enjoy belittling this emerging economic superpower. The fact is, without China propping it up, the global economy would be in a worse state than it currently is. It matters to us all whether or not Chinese growth is sustainable.
I have visited China several times in the past few years and my trip in June demonstrated once more China's glorious ability to astound; even after the financial crisis.
The main shopping street of any one of a hundred large Chinese cities at 10pm on a Tuesday is virtually indistinguishable from Oxford Street on a busy Saturday afternoon – perhaps with more neon!
China is a reason to be optimistic about the outlook for world growth. Government finances are healthy and consumers are spending as confidence returns. Chinese people, unlike us, are not encumbered by a decade of over-borrowing. Things may be bad in the West, but it's not often that a billion people go through an industrial revolution. In fact, it's never happened before.
To ensure the Chinese economy was not engulfed by the global malaise, the Chinese government injected huge sums of money into public spending projects. Apart from being the catalyst for a stock market recovery last autumn, you can see its impact everywhere. For example, China Railways has been adding track to the network at about 1,000 kilometres a year. This will rise to 10,000 kilometres per year by 2012. To put that into context, the whole UK network is just 16,000 kilometres.
There are critics of this ''overdevelopment''. You can drive along empty eight-lane motorways and wander shopping malls with more staff than customers. Countless suburbs are being developed and redeveloped to provide larger flats and to accommodate the 400 million people moving from rural to urban areas.
I visited Shenyang in north-east China, a city you might not have heard of despite having a population similar to that of Greater London. In just one corner of this one city, there is a construction site of two housing developments with a combined floorspace similar to the whole of London's Docklands.
Rather than see this as a bubble waiting to burst, I see the longer-term opportunity. Properties in Shenyang are selling faster this year than last. Before long the aspirational emergent middle class of China's mushrooming cities will be able to afford cars to fill the roads and to shop in the malls. Urbanisation begets economic growth.
In a broad sense, Chinese growth is affecting asset prices, demand and supply in almost every global industry. More specifically, despite their ingenuity, capital and human resource, the Chinese still look to British companies for certain goods and services.
British technology and engineering is in demand. Longer term, local competition will catch up. Therefore, investors' challenge is to find companies with whom the Chinese will never be able to compete. London's mining sector is an obvious beneficiary of China's lack of natural resources. Less obvious strong positions are those held by Western brands. Diageo, maker of Johnnie Walker, and fashion label Burberry, enjoy premium status among Chinese consumers. It is their very ''un-Chinese-ness'' that creates opportunity.
I am realistic. Rampant growth creates imbalances. This is a long-term story and not without risk. So be careful not to become overexposed and ensure your investments are balanced against many other themes and ideas. However, I am consistently surprised by the failure of many people to appreciate and take advantage of China being the biggest thing to happen in the world economy for a century.
Tom Ewing is portfolio manager at Fidelity UK Growth Fund
http://www.telegraph.co.uk/finance/personalfinance/investing/5964847/China-is-the-biggest-thing-to-happen-in-the-world-economy-for-a-century.html
UK Home owners 'face five years of negative equity'
Home owners 'face five years of negative equity'
Some home owners could be stuck in negative equity for at least another five years as the property market struggles to bounce back, grim figures predict.
Published: 9:09AM BST 03 Aug 2009
'Getting a mortgage can be like winning the lottery,' says the NHF's chief executive Photo: PA House prices will plunge by 12.2pc this year and by a further 4.6pc next year before stabilising in 2011 with a 1.1pc rise, according to research from the National Housing Federation (NHF).
Home owners who bought during the peak of the market in 2007 are likely to be waiting until 2014 to see any profit in their properties, the figures suggest. Homes in England's North West and the east Midlands could be waiting even longer, the figures showed.
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Overall, average prices will rise by 20pc on current values to £227,800 by 2014 as values climb by 8.4pc in 2013 and 6.8pc the following year.
David Orr, the chief executive of the NHF, said: "Our new research shows that while house prices are falling in the short term they will inevitably increase in the long term because of a fundamental undersupply of housing.
"Even though house prices are falling, and are set to remain sluggish in some areas for the foreseeable future, affordability is not improving for many low-to-middle income households."
He added: "For millions of people who want a home, getting a mortgage can be like winning the lottery. First-time buyers and those wanting to buy shared-ownership properties remain victims of a deep freeze in mortgage lending.
"Until lending is freed up, young and lower-income households without access to large deposits will be locked out of the market."
According to Oxford Economics, which produced the figures for the NHF, house prices in England in 2013 will be 3pc below their pre-credit-crunch peak of 2007, but by 2014 they will be 3pc higher.
http://www.telegraph.co.uk/finance/personalfinance/5964212/Home-owners-face-five-years-of-negative-equity.html
Some home owners could be stuck in negative equity for at least another five years as the property market struggles to bounce back, grim figures predict.
Published: 9:09AM BST 03 Aug 2009
'Getting a mortgage can be like winning the lottery,' says the NHF's chief executive Photo: PA House prices will plunge by 12.2pc this year and by a further 4.6pc next year before stabilising in 2011 with a 1.1pc rise, according to research from the National Housing Federation (NHF).
Home owners who bought during the peak of the market in 2007 are likely to be waiting until 2014 to see any profit in their properties, the figures suggest. Homes in England's North West and the east Midlands could be waiting even longer, the figures showed.
Related Articles
Mortgages: borrowers denied access to rock-bottom rates
House prices are still falling
Confidence returns to housing market but growth stays slow
Housing remains the biggest problem facing the US economy
Ten ways to cut mortgage costs
Sterling falls as house price gloom deepens
Overall, average prices will rise by 20pc on current values to £227,800 by 2014 as values climb by 8.4pc in 2013 and 6.8pc the following year.
David Orr, the chief executive of the NHF, said: "Our new research shows that while house prices are falling in the short term they will inevitably increase in the long term because of a fundamental undersupply of housing.
"Even though house prices are falling, and are set to remain sluggish in some areas for the foreseeable future, affordability is not improving for many low-to-middle income households."
He added: "For millions of people who want a home, getting a mortgage can be like winning the lottery. First-time buyers and those wanting to buy shared-ownership properties remain victims of a deep freeze in mortgage lending.
"Until lending is freed up, young and lower-income households without access to large deposits will be locked out of the market."
According to Oxford Economics, which produced the figures for the NHF, house prices in England in 2013 will be 3pc below their pre-credit-crunch peak of 2007, but by 2014 they will be 3pc higher.
http://www.telegraph.co.uk/finance/personalfinance/5964212/Home-owners-face-five-years-of-negative-equity.html
Monday, 3 August 2009
Two different approaches to security analysis: the way of prediction (or projection) and the way of protection
Our statement that the current price reflects both known facts and future expectations was intended to emphasize the double basis for market valuations.
Corresponding with these two kinds of value elements are two basically different approaches to security analysis.
Corresponding with these two kinds of value elements are two basically different approaches to security analysis.
- To be sure, every competent analyst looks forward to the future rather than backward to the past, and he realises that his work will prove good or bad depending on what will happen and not on what has happened.
- Nevertheless, the future itself can be approached in two different ways, which may be called the way of prediction (or projection) and the way of protection.
Those who emphasize prediction will endeavour to anticipate fairly accurately just what the company will accomplish in future years - in particular whether earnings will show pronounced and persistent growth.
- These conclusions may be based on a very careful study of such factors as supply and demand in the industry - or volume, price and costs - or else they may be derived from a rather naive projection of the line of past growth into the future.
- If these authorities are convinced that the fairly long-term prospects are unusually favourable, they will almost always recommend the stock for purchase without paying too much regard to the level at which it is selling.
- Such, for example, was the attitude with respect to the air-transport stocks - an attitude that persisted for many years despite the distressingly bad results often shown after 1946. We have commented on the disparity between the strong price action and the relatively disappointing earnings record of this industry.
By contrast, those who emphasize protection are always especially concerned with the price of the issue at the time of study.
- Their main effort is to assure themselves of a substantial margin of indicated present value above the market price - which margin could absorb unfavourable developments in the future.
- Generally speaking, therefore, it is not so necessary for them to be enthusiastic over the company's long-run prospects as it is to be reasonably confident that the enterprise will get along.
The first, or predictive, approach could also be called the qualitative approach, since it emphasizes prospects, management, and other nonmeasurable, albeit highly important, factors that go under the heading of quality.
The second, or protective, approach may be called the quantitative or statistical approach, since it emphasizes the measurable relationships between selling price and earnings, assets, dividends, and so forth.
- Incidentally, the quantitative method is really an extension - into the field of common stocks - of the viewpoint that security analysis has found to be sound in the selection of bonds and preferred stocks for investment.
In our own attitude and professional work, we were always committed to the quantitative approach.
- From the first we wanted to make sure that we were getting ample value for our money in concrete, demonstrable terms.
- We were not willing to accept the prospects and promises of the future as compensation for a lack of sufficient value in hand.
- This has by no means been the standard viewpoint among investment authorities; in fact, the majority would probably subscribe to the view that prospects, quality of management, other intangibles, and "the human factor" far outweigh the indications supplied by any study of the past record, the balance sheet, and all the other cold figures.
Thus this matter of choosing the "best" stocks is at bottom a highly controversial one.
- Our advice to the defensive investor is that he let it alone.
- Let him emphasize diversification more than individual selection.
Incidentally, the universally accepted idea of diversification is, in part at least, the negation of the ambitious pretensions of selectivity.
- If one could select the best stocks unerringly, one would only lose by diversifying.
- Yet within the limits of the four most general rules of common-stock selection suggested for the defensive investor there is room for a rather considerable freedom of preference.
- At the worst the indulgence of such preferences should do no harm; beyond that, it may add something worthwhile to the results.
- With the increasing impact of technological developments on long-term corporate results, the investor cannot leave them out of this calculations.
- Here, as elsewhere, he must seek a mean between neglect and overemphasis.
Ref: Intelligent Investor by Benjamin Graham
Double basis for market valuations
Asked a hundred security analysts to choose the "best" five stocks
Every investor would like his list to be better or more promising than the average. Hence the reader will ask whether, if he gets himself a competent adviser or security analyst, he should not be able to count on being supplied with an investment package of really superior merits.
A highly trained analyst ought to be able to use all his skill and techniques to improve substantially on something as obvious as the Dow Jones list. If not, what good are all his statistics, calculations and pontifical judgments?"
Suppose, as a practical test, we had asked a hundred security analysts to choose the "best" five stocks in the Dow Jones Average, to be bought at the end of 1970. Few would have come up with identical choices and many of the lists would have differed completely from each other.
This is not so surprising as it may at first appear. The underlying reason is that the current price of each prominet stock pretty well
Hence the view of any analyst that one stock is better buy than the rest must arise to a great extent
If all analysts were agreed that one particular stock was better than all the rest, that issue would quickly advance to a price which would offset all of tis previous advantages.
Our statement that the current price reflects both known facts and future expectations was intended to emphasize the double basis for market valuations.
Ref: Intelligent Investor by Benjamin Graham
Every investor would like his list to be better or more promising than the average. Hence the reader will ask whether, if he gets himself a competent adviser or security analyst, he should not be able to count on being supplied with an investment package of really superior merits.
A highly trained analyst ought to be able to use all his skill and techniques to improve substantially on something as obvious as the Dow Jones list. If not, what good are all his statistics, calculations and pontifical judgments?"
Suppose, as a practical test, we had asked a hundred security analysts to choose the "best" five stocks in the Dow Jones Average, to be bought at the end of 1970. Few would have come up with identical choices and many of the lists would have differed completely from each other.
This is not so surprising as it may at first appear. The underlying reason is that the current price of each prominet stock pretty well
- reflects the salient factors in its financial record plus
- the general opinion as to its future prospects.
Hence the view of any analyst that one stock is better buy than the rest must arise to a great extent
- from his personal partialities and expectations, or
- from the placing of his emphasis on one set of factors rather than on another in his work of evaluation.
If all analysts were agreed that one particular stock was better than all the rest, that issue would quickly advance to a price which would offset all of tis previous advantages.
Our statement that the current price reflects both known facts and future expectations was intended to emphasize the double basis for market valuations.
Ref: Intelligent Investor by Benjamin Graham
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
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
Saturday, 1 August 2009
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.
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?
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."
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.
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 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:
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.
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.
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
- 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.
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:
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:
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:
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
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?
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
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
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
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Stocks are crashing. News you can use from 'Benjamin Graham Financial Network".
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
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
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
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
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
Friday, 31 July 2009
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:
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
- 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
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