Friday September 25, 2009
Quek and Chua invest US$150mil in HK IPO
By YEOW POOI LING
PETALING JAYA: Tycoons Tan Sri Quek Leng Chan and Tan Sri Chua Ma Yu have agreed to take part in the initial public offering (IPO) of Wynn Macau Ltd on the Hong Kong Stock Exchange by investing US$80mil and US$70mil respectively.
Quek’s investment is via Guoco Management Co Ltd and GuoLine Group Management Co Ltd, which are indirect subsidiaries of Hong Leong Co (M) Bhd, while Chua’s vehicle is CMY Capital Markets Sdn Bhd.
It is learnt that these Malaysian parties are going in independently. Chua is an investor and the attraction in Wynn is purely seen as a China play.
Chua was unavailable for comment.
In the listing document, Wynn Macau said CMY’s stake could amount to almost 5% of the offered shares while Guoco and GuoLine could collectively hold 5.3% based on a mid-point offer price of HK$9.30 and assuming the over-allotment option was not exercised.
Wynn Macau, owned by US-based Wynn Resorts, is among the biggest gaming operators in Macau and caters mainly to high-end clientele. The IPO involves floating 1.25 billion shares at HK$8.52-HK$10.08 each.
Other investors include Hong Kong tycoons Walter Kwok and Thomas Lau, as well as fund management company Keywise Capital Management (HK) Ltd.
Quek, the sixth richest man in Malaysia based on Forbes Asia Malaysia Rich List 2009, is not new to the gaming business. His Hong Kong-listed entity, Guoco Group Ltd’s subsidiary, has gaming operations in Britain.
Chua, on the other hand, owned a stake in Star Cruises Ltd briefly in 2007.
Macau is the world’s largest gaming market based on gross gaming revenue and the only place in China with legalised casino gaming.
Last year, Macau attracted 22.9 million visitors, mostly from Hong Kong and mainland China. The gaming market generated HK$105.6bil in gross gaming revenue, double the amount of Las Vegas Strip. For the first six months, Macau generated HK$49.9bil in gross gaming revenue. In 2008, Wynn Macau took a 16% of Macau’s table revenues and a daily gross win per gaming table of about HK$119,000. Its listing, targeted for Oct 9, will make Wynn Macau the first American company to list on the Hong Kong Stock Exchange.
A local research house said the IPO would unlock the value and boost the valuations of Wynn Resorts.
“Currently, the simple average price-to-earnings (PE) for 2010 of gaming companies listed on the Hong Kong Stock Exchange is 66.9 times versus Wynn Resorts’ PE of 74.1 times in the United States. If Wynn Resorts’ PE were to expand, it would also boost valuations of regional gaming companies,” it said.
Wynn Macau is currently adding new VIP areas with 35 more high-limit slot machines and 29 VIP table games at the private gaming salons. These are expected to open in the first quarter of 2010.
A new resort, Encore, is also under way, which costs about HK$5bil and is expected to open in the first half of next year. These expansions should increase Wynn Macau’s VIP table games by 44%.
Meanwhile, Wynn Macau is still awaiting approval for its application to lease a 52-acre site in Cotai for the development of an integrated casino and a five-star resort.
Macau’s gaming business was hurt when China, in May 2008, limited travel by its citizens to Macau to once a month, and later extended the limit to once every two months.
However, there have been reports that the Chinese Government was easing restrictions, starting from those in Guangdong province travelling to Macau.
http://biz.thestar.com.my/news/story.asp?file=/2009/9/25/business/4776752&sec=business
Comment: What planning needs to be in place to graduate into their league?
Friday 25 September 2009
How to manage your taxes in challenging economic times
Friday September 25, 2009
How to manage your taxes in challenging economic times
KPMG CHAT - By NICHOLAS CRIST
IN the current challenging economic environment, management of taxes is increasingly important. Failure to implement effective tax management can result in lost opportunities and the imposition of tax penalties.
Cash tax management
At the micro level there should be effective cash tax management. Tax instalments for corporate taxpayers should be as accurate as possible so that they don’t pay tax unnecessarily to the Inland Revenue Board (IRB), or find themselves exposed to under-estimation penalties.
Variations to instalments can be made automatically in, broadly, the sixth and ninth months of the financial year.
Further, the Income Tax Act gives the discretion to the IRB to consider applications for variations by taxpayers outside of the above months. Where profits are falling, taxpayers should consider seeking this discretionary relief.
Default by debtors
As profits are generally recognised for tax purposes on an accruals basis, businesses may be paying tax on amounts they have yet to receive. A challenge for businesses will be their ability to collect outstanding debts.
The critical issue is whether debts are bad or doubtful of recovery, or whether the debtor is simply a slow payer.
For tax purposes, the distinction is important as provisions for debts which are paid slowly will not qualify for a tax deduction.
Notwithstanding the above, bad or doubtful debts may still qualify for a tax deduction provided a number of conditions are met, and these are reflected in the IRB’s Public Ruling No. 1/2002.
To claim a deduction for a doubtful debt, taxpayers must among other things, be able to demonstrate that each debt has been evaluated separately; a general provision of say X% after Y months will not qualify. There must be evidence to show how the doubtfulness of each debt has been evaluated.
Regard must be paid to the period for which the debt has been outstanding; the financial status of the debtor; the debtor’s credit record and experience of the particular trade or industry.
These requirements must be supported by documentation and this will be key to substantiating a doubtful debt deduction.
Deteriorating inventory
Where business has slowed down, inventory may accumulate and hence the risk of deterioration (and fall in value) increases.
Where for accounting purposes a provision for deterioration in value is made, this will not qualify for a tax deduction. However, subject to various conditions, a specific write-down of inventory may qualify for a tax deduction.
Taxpayers who wish to claim a deduction have to demonstrate that the write-down is accurately calculated and represents a permanent fall in value. Again, keeping detailed records is the key to support a claim for a tax deduction.
Default on contracts
In deteriorating conditions, it may be necessary for businesses to terminate contracts which might require payment of compensation.
To determine the issue of deductibility, the starting point is to consider the nature of the contract being terminated.
Where the contract being terminated is revenue in nature, for example the purchase of inventory, this would suggest, at an initial level, that a tax deduction might be available.
Where, however, the contract is capital in nature, for example the purchase of machinery, a tax deduction for any compensation payable is unlikely to be available.
Defaults on loans
A particular concern is whether borrowers will default on loan obligations.
Where a default arises it may be necessary to work out a compromise between the creditor and the borrower which might involve the borrower being released from part of its financial obligations.
It is necessary to determine whether a release could be subject to income tax.
The Income Tax Act provides that where a tax deduction has been obtained for an amount represented by the release, the release is subject to tax.
A similar result also arises where the amount released relates to the purchase of an asset on which capital allowances have been claimed.
Where, however, the amount released has not been claimed as a tax deduction, the release should not, normally, be subject to income tax.
Retrenchment costs
Businesses that are particularly hard hit may find themselves with little option but to retrench employees. Where the retrenchment exercise is carried out in conjunction with the closure of a business, a tax deduction, based on case law, would not be available.
A different view is, however, likely to be reached where retrenchments are incurred for the purposes of enabling a business to be saved from extinction.
In the current economic environment, effective management of all costs including taxes is vital. From the tax perspective, businesses need to be aware of eligible deductions and ensure that adequate supporting documentation is maintained.
·The writer is executive director, KPMG Tax Services Sdn Bhd.
http://biz.thestar.com.my/news/story.asp?file=/2009/9/25/business/4778387&sec=business
How to manage your taxes in challenging economic times
KPMG CHAT - By NICHOLAS CRIST
IN the current challenging economic environment, management of taxes is increasingly important. Failure to implement effective tax management can result in lost opportunities and the imposition of tax penalties.
Cash tax management
At the micro level there should be effective cash tax management. Tax instalments for corporate taxpayers should be as accurate as possible so that they don’t pay tax unnecessarily to the Inland Revenue Board (IRB), or find themselves exposed to under-estimation penalties.
Variations to instalments can be made automatically in, broadly, the sixth and ninth months of the financial year.
Further, the Income Tax Act gives the discretion to the IRB to consider applications for variations by taxpayers outside of the above months. Where profits are falling, taxpayers should consider seeking this discretionary relief.
Default by debtors
As profits are generally recognised for tax purposes on an accruals basis, businesses may be paying tax on amounts they have yet to receive. A challenge for businesses will be their ability to collect outstanding debts.
The critical issue is whether debts are bad or doubtful of recovery, or whether the debtor is simply a slow payer.
For tax purposes, the distinction is important as provisions for debts which are paid slowly will not qualify for a tax deduction.
Notwithstanding the above, bad or doubtful debts may still qualify for a tax deduction provided a number of conditions are met, and these are reflected in the IRB’s Public Ruling No. 1/2002.
To claim a deduction for a doubtful debt, taxpayers must among other things, be able to demonstrate that each debt has been evaluated separately; a general provision of say X% after Y months will not qualify. There must be evidence to show how the doubtfulness of each debt has been evaluated.
Regard must be paid to the period for which the debt has been outstanding; the financial status of the debtor; the debtor’s credit record and experience of the particular trade or industry.
These requirements must be supported by documentation and this will be key to substantiating a doubtful debt deduction.
Deteriorating inventory
Where business has slowed down, inventory may accumulate and hence the risk of deterioration (and fall in value) increases.
Where for accounting purposes a provision for deterioration in value is made, this will not qualify for a tax deduction. However, subject to various conditions, a specific write-down of inventory may qualify for a tax deduction.
Taxpayers who wish to claim a deduction have to demonstrate that the write-down is accurately calculated and represents a permanent fall in value. Again, keeping detailed records is the key to support a claim for a tax deduction.
Default on contracts
In deteriorating conditions, it may be necessary for businesses to terminate contracts which might require payment of compensation.
To determine the issue of deductibility, the starting point is to consider the nature of the contract being terminated.
Where the contract being terminated is revenue in nature, for example the purchase of inventory, this would suggest, at an initial level, that a tax deduction might be available.
Where, however, the contract is capital in nature, for example the purchase of machinery, a tax deduction for any compensation payable is unlikely to be available.
Defaults on loans
A particular concern is whether borrowers will default on loan obligations.
Where a default arises it may be necessary to work out a compromise between the creditor and the borrower which might involve the borrower being released from part of its financial obligations.
It is necessary to determine whether a release could be subject to income tax.
The Income Tax Act provides that where a tax deduction has been obtained for an amount represented by the release, the release is subject to tax.
A similar result also arises where the amount released relates to the purchase of an asset on which capital allowances have been claimed.
Where, however, the amount released has not been claimed as a tax deduction, the release should not, normally, be subject to income tax.
Retrenchment costs
Businesses that are particularly hard hit may find themselves with little option but to retrench employees. Where the retrenchment exercise is carried out in conjunction with the closure of a business, a tax deduction, based on case law, would not be available.
A different view is, however, likely to be reached where retrenchments are incurred for the purposes of enabling a business to be saved from extinction.
In the current economic environment, effective management of all costs including taxes is vital. From the tax perspective, businesses need to be aware of eligible deductions and ensure that adequate supporting documentation is maintained.
·The writer is executive director, KPMG Tax Services Sdn Bhd.
http://biz.thestar.com.my/news/story.asp?file=/2009/9/25/business/4778387&sec=business
Structural weakness could dampen M'sian long term growth
Friday September 25, 2009
Structural weakness could dampen M'sian long term growth
By LEONG HUNG YEE
PETALING JAYA: Malaysia is poised to be the largest beneficiary of higher commodity prices from positive terms-of-trade and commodity revenue supporting the public sector, according to Morgan Stanley Research.
“Beyond the cyclical uptick, we think structural weakness remains present which could put a dampener on longer-term growth prospects.
“However, we note that policymakers have been taking measures to liberalise the economy. Continued execution and acceleration will be needed to fully turn around the structural story, in our view,” it said in an Asean economics report.
The Malaysian market has generally fallen by the wayside amid structural issues in the economy. As a result, its asset market had ironically developed a defensive nature, outperforming during market downturns, and underperforming during market upturns, Morgan Stanley said.
“Despite this, from a macro perspective, we still expect Malaysia to deliver reasonable growth outlook in 2010,” it added.
Morgan Stanley’s 2009 and 2010 forecasts of contraction of 3.5% and a growth of 4.3% year-on-year respectively were below consensus’ contraction of 3% for 2009 but in line with the 4.3% growth for 2010.
“We see 2011 growth at 4.8% year-on-year. Interestingly, we note a dichotomy in terms of market sentiment. Whilst certain quarters of the market have been eager to get bullish on Singapore given the global rebound, we do not sense the same sentiment with Malaysia despite Malaysia being the second most exposed to global trade within Asean as well as a commodity play,” it said.
Morgan Stanley said the global backdrop and the political climate were two key risks for Malaysia.“Malaysia’s manufacturing exports are already under structural pressures, losing global competitiveness. Separately, the coordination within the federal government given the two-party system and the coordination between the federal and state governments would be key to watch in terms of how it would affect the workings of the public sector economy,” it said.
The research house said foreign interest in Malaysia had been waning. Net foreign direct investments (FDIs) in certain economies in the region (China, India, Singapore and Thailand) continued to climb higher, net FDI in Malaysia had generally trended down from the peak in the early 1990s, and was now dipping into negative territory.
On the upcoming Budget 2010, it expected it “to be less expansionary in terms of fiscal deficit.” “However, we still see Malaysia as likely to have one of the highest fiscal deficits within Asean for 2010.”
Commenting on policy measures, Morgan Stanley said Bank Negara was “relatively dovish.”
It said the absence of a strong credit cycle previously created more room for leverage.
“Policymakers also have the highest propensity for pump-priming within Asean.” Meanwhile, Credit Suisse Group said Bank Negara had become more confident the country was recovering from the global recession.
The central bank’s view was that the signs of an economic recovery seemed evident but it was only unsure on whether the economic rebound would be modest or sharp.
http://biz.thestar.com.my/news/story.asp?file=/2009/9/25/business/4778483&sec=business
Structural weakness could dampen M'sian long term growth
By LEONG HUNG YEE
PETALING JAYA: Malaysia is poised to be the largest beneficiary of higher commodity prices from positive terms-of-trade and commodity revenue supporting the public sector, according to Morgan Stanley Research.
“Beyond the cyclical uptick, we think structural weakness remains present which could put a dampener on longer-term growth prospects.
“However, we note that policymakers have been taking measures to liberalise the economy. Continued execution and acceleration will be needed to fully turn around the structural story, in our view,” it said in an Asean economics report.
The Malaysian market has generally fallen by the wayside amid structural issues in the economy. As a result, its asset market had ironically developed a defensive nature, outperforming during market downturns, and underperforming during market upturns, Morgan Stanley said.
“Despite this, from a macro perspective, we still expect Malaysia to deliver reasonable growth outlook in 2010,” it added.
Morgan Stanley’s 2009 and 2010 forecasts of contraction of 3.5% and a growth of 4.3% year-on-year respectively were below consensus’ contraction of 3% for 2009 but in line with the 4.3% growth for 2010.
“We see 2011 growth at 4.8% year-on-year. Interestingly, we note a dichotomy in terms of market sentiment. Whilst certain quarters of the market have been eager to get bullish on Singapore given the global rebound, we do not sense the same sentiment with Malaysia despite Malaysia being the second most exposed to global trade within Asean as well as a commodity play,” it said.
Morgan Stanley said the global backdrop and the political climate were two key risks for Malaysia.“Malaysia’s manufacturing exports are already under structural pressures, losing global competitiveness. Separately, the coordination within the federal government given the two-party system and the coordination between the federal and state governments would be key to watch in terms of how it would affect the workings of the public sector economy,” it said.
The research house said foreign interest in Malaysia had been waning. Net foreign direct investments (FDIs) in certain economies in the region (China, India, Singapore and Thailand) continued to climb higher, net FDI in Malaysia had generally trended down from the peak in the early 1990s, and was now dipping into negative territory.
On the upcoming Budget 2010, it expected it “to be less expansionary in terms of fiscal deficit.” “However, we still see Malaysia as likely to have one of the highest fiscal deficits within Asean for 2010.”
Commenting on policy measures, Morgan Stanley said Bank Negara was “relatively dovish.”
It said the absence of a strong credit cycle previously created more room for leverage.
“Policymakers also have the highest propensity for pump-priming within Asean.” Meanwhile, Credit Suisse Group said Bank Negara had become more confident the country was recovering from the global recession.
The central bank’s view was that the signs of an economic recovery seemed evident but it was only unsure on whether the economic rebound would be modest or sharp.
http://biz.thestar.com.my/news/story.asp?file=/2009/9/25/business/4778483&sec=business
Recession or not McDonald's increases dividend for the 32nd year
Updated: Friday September 25, 2009 MYT 7:55:44 AM
Recession or not McDonald's increases dividend for the 32nd year
OAK BROOK, Illinois: McDonald's Corp. said Thursday that its board has raised its quarterly dividend 10 percent to 55 cents. It will be paid on Dec. 15 to shareholders of record as of Dec. 1. The increase brings its yearly dividend to $2.20 and its total quarterly dividend payout to about $600 million.
The previous quarterly dividend was 50 cents.
The company said it has raised its dividend every year since paying its first dividend in 1976.
The most recent increase puts the company at the high end of its goal to return between $15 billion to $17 billion in cash to shareholders over a three year period that started at the beginning of 2007, the company said.
McDonald's also said it would delist its stock from the Chicago Stock Exchange, where it had its secondary listing.
It decided to leave the Chicago exchange because of low trading volume there.
After Oct. 30, it will be listed only on the New York Stock Exchange.
McDonald's shares rose 58 cents to close Thursday at $56.12.
The stock added another 3 cents after hours following the dividend increase. - AP
http://biz.thestar.com.my/news/story.asp?file=/2009/9/25/business/20090925075349&sec=business
Comment:
At the price per share of $56.12, the yearly dividend of $2.20 translates into a DY of 3.9%. This is equivalent to a dividend multiple of 25.5x.
A company giving increasing dividends year on year will see its share price trending upwards in unison.
Given the low interest rates for fixed deposits and low treasury yield, investing into this stock provides a better return comparatively. Those with a long term investing horizon need not worry about the price volatility of the share. The long term gains from dividends and capital gains seem safe and predictable as long as the company continues to perform as it did in the past.
Recession or not McDonald's increases dividend for the 32nd year
OAK BROOK, Illinois: McDonald's Corp. said Thursday that its board has raised its quarterly dividend 10 percent to 55 cents. It will be paid on Dec. 15 to shareholders of record as of Dec. 1. The increase brings its yearly dividend to $2.20 and its total quarterly dividend payout to about $600 million.
The previous quarterly dividend was 50 cents.
The company said it has raised its dividend every year since paying its first dividend in 1976.
The most recent increase puts the company at the high end of its goal to return between $15 billion to $17 billion in cash to shareholders over a three year period that started at the beginning of 2007, the company said.
McDonald's also said it would delist its stock from the Chicago Stock Exchange, where it had its secondary listing.
It decided to leave the Chicago exchange because of low trading volume there.
After Oct. 30, it will be listed only on the New York Stock Exchange.
McDonald's shares rose 58 cents to close Thursday at $56.12.
The stock added another 3 cents after hours following the dividend increase. - AP
http://biz.thestar.com.my/news/story.asp?file=/2009/9/25/business/20090925075349&sec=business
Comment:
At the price per share of $56.12, the yearly dividend of $2.20 translates into a DY of 3.9%. This is equivalent to a dividend multiple of 25.5x.
A company giving increasing dividends year on year will see its share price trending upwards in unison.
Given the low interest rates for fixed deposits and low treasury yield, investing into this stock provides a better return comparatively. Those with a long term investing horizon need not worry about the price volatility of the share. The long term gains from dividends and capital gains seem safe and predictable as long as the company continues to perform as it did in the past.
Market Correction
Short term traders should be careful.
Long term investors can buy into good quality stocks when these shares correct 10% to 15% from their high prices. Be ready to buy when the market corrects significantly. There are still many good stocks selling at good valuations.
Long term investors can buy into good quality stocks when these shares correct 10% to 15% from their high prices. Be ready to buy when the market corrects significantly. There are still many good stocks selling at good valuations.
Thursday 24 September 2009
KFIMA
http://spreadsheets.google.com/pub?key=tchlPoEmr7Slurf7K0p2trQ&output=html
Financial Year Ended 31 March 2009 2008 2007 2006 2005
(RM Million) (restated)
REVENUE 369.07 308.71 294.48 300.33 247.12
PROFIT
Profit before taxation 81.19 56.86 51.39 50.35 94.66
Profit before taxation
(excluding exceptional item) 81.19 56.86 51.39 50.35 44.36
Income Tax Expense 10.57 13.59 10.74 3.48 12.32
Minority Interests 24.47 12.99 10.99 12.01 8.58
Profit after taxation and minority interests 46.16 30.29 29.66 34.86 73.76
ASSETS AND LIABILITIES
Total assets 653.15 609.17 514.53 458.59 463.11
Total liabilities 201.32 209.05 149.74 138.54 172.63
Minority interests 117.21 100.73 78.97 70.54 61.69
Shareholders’ Equity 334.62 299.40 285.82 249.51 228.79
EARNINGS AND DIVIDEND
Earnings per share (sen) 17.54 11.51 11.30 13.20 28.03
Gross dividend per share (sen) 3.00 2.50 2.00 2.00 1.00
Net dividend per share (sen) 2.25 1.88 1.48 1.44 0.72
SHARE PRICES
Transacted price per share (sen)
Highest 51.0 94.5 75.0 54.5 58.5
Lowest 33.5 42.5 50.5 40.5 34.5
http://announcements.bursamalaysia.com/EDMS/subweb.nsf/7f04516f8098680348256c6f0017a6bf/520682cc8f32d7ea4825762a002da6f2/$FILE/KFIMA-AnnualReport2009%20(970KB).pdf
Financial Year Ended 31 March 2009 2008 2007 2006 2005
(RM Million) (restated)
REVENUE 369.07 308.71 294.48 300.33 247.12
PROFIT
Profit before taxation 81.19 56.86 51.39 50.35 94.66
Profit before taxation
(excluding exceptional item) 81.19 56.86 51.39 50.35 44.36
Income Tax Expense 10.57 13.59 10.74 3.48 12.32
Minority Interests 24.47 12.99 10.99 12.01 8.58
Profit after taxation and minority interests 46.16 30.29 29.66 34.86 73.76
ASSETS AND LIABILITIES
Total assets 653.15 609.17 514.53 458.59 463.11
Total liabilities 201.32 209.05 149.74 138.54 172.63
Minority interests 117.21 100.73 78.97 70.54 61.69
Shareholders’ Equity 334.62 299.40 285.82 249.51 228.79
EARNINGS AND DIVIDEND
Earnings per share (sen) 17.54 11.51 11.30 13.20 28.03
Gross dividend per share (sen) 3.00 2.50 2.00 2.00 1.00
Net dividend per share (sen) 2.25 1.88 1.48 1.44 0.72
SHARE PRICES
Transacted price per share (sen)
Highest 51.0 94.5 75.0 54.5 58.5
Lowest 33.5 42.5 50.5 40.5 34.5
http://announcements.bursamalaysia.com/EDMS/subweb.nsf/7f04516f8098680348256c6f0017a6bf/520682cc8f32d7ea4825762a002da6f2/$FILE/KFIMA-AnnualReport2009%20(970KB).pdf
We should try to make sure we're not in the pessimist camp
Your Pessmism Is Holding You Back
By Selena Maranjian
September 23, 2009
Surveys and studies can shed a lot of light on news that's important to our lives. I've reported on many of them, such as the Employee Benefit Research Institute's findings that we may not retire when we think we will. There's the annual Retirement Confidence Survey, showing us why we stand a good chance of ending up with a gruesome retirement. And there's the report from Fidelity that can help us see how we're doing compared to others in our retirement planning.
Now there's another study out from Fidelity, with even more data on retirement and investing. Looking over the report, which happened to focus on pessimists and optimists, I learned that (drumroll, please):
•Pessimistic investors are less likely to expect a comfortable retirement than optimistic investors, by a 61% to 83% count
•Pessimists typically take on less investing risk. That's been especially true during the current uncertainties in the financial markets.
There's more. Among married couples, 61% of pessimistic spouses don't have much confidence in their ability to take over control of the household finances, versus just 39% of optimists.
The scoop
Yes, I know, the study is telling us that pessimists are kind of … pessimistic. But there's more to the study than just disposition. For instance, nearly twice as many optimists as pessimists have a detailed plan for how they'll generate retirement income. That lack of planning certainly suggests that those pessimists have good reason to expect the worst.
Given those results, we should try to make sure we're not in the pessimist camp. More often than optimists, pessimists seem to invest mainly to preserve the value of their investments -- in other words, rather conservatively. That's not a great way for most of us to build a nest egg for tomorrow, especially if you still have awhile to go before you plan to retire.
It will take a long time to build the wealth you need for retirement if you focus only on preserving your wealth rather than growing it. You'll be stuck with low returns that may not even keep up with inflation, let alone help you increase your purchasing power after you retire. If you expect to need $50,000 to cover your annual expenses, for instance, you need to build a nest egg of $1 million or more. You probably can't get there sticking with ultrasafe investments.
What to do
If you're starting to break out in a sweat as you imagine putting lots of your dollars into stocks you don't know well -- ones that might suddenly implode -- relax and take a deep breath. You can aim for solid returns with stocks that won't strike you as all that risky. Check out the following companies with top ratings from our Motley Fool CAPS investor community:
Company
Return on Equity
Price-to-Earnings Ratio
10-Year Average Return
BP (NYSE: BP)
12%
15
4.0%
Canadian National Railway (NYSE: CNI)
18%
13
19.9%
Abbott Labs (NYSE: ABT)
27%
14
4.5%
Transocean (NYSE: RIG)
22%
7
10.6%
Petroleo Brasileiro (NYSE: PBR)
31%
10
27.1%*
Schlumberger (NYSE: SLB)
24%
17
10.1%
ExxonMobil (NYSE: XOM)
27%
11
8.8%
S&P 500
(0.2%)
Data: Motley Fool CAPS; Yahoo! Finance. *Over the past nine years.
Their relatively low P/E ratios suggest that they aren't wildly overpriced, and thus these stocks offer some margin of safety. You can find plenty of compelling familiar names these days, too -- ones that offer generous dividends.
So don't be such a pessimist! Over long periods, the stock market tends to make people wealthier. Feel free to feel optimistic that now, during a recession, is often the best time to invest.
http://www.fool.com/retirement/general/2009/09/23/your-pessmism-is-holding-you-back.aspx
By Selena Maranjian
September 23, 2009
Surveys and studies can shed a lot of light on news that's important to our lives. I've reported on many of them, such as the Employee Benefit Research Institute's findings that we may not retire when we think we will. There's the annual Retirement Confidence Survey, showing us why we stand a good chance of ending up with a gruesome retirement. And there's the report from Fidelity that can help us see how we're doing compared to others in our retirement planning.
Now there's another study out from Fidelity, with even more data on retirement and investing. Looking over the report, which happened to focus on pessimists and optimists, I learned that (drumroll, please):
•Pessimistic investors are less likely to expect a comfortable retirement than optimistic investors, by a 61% to 83% count
•Pessimists typically take on less investing risk. That's been especially true during the current uncertainties in the financial markets.
There's more. Among married couples, 61% of pessimistic spouses don't have much confidence in their ability to take over control of the household finances, versus just 39% of optimists.
The scoop
Yes, I know, the study is telling us that pessimists are kind of … pessimistic. But there's more to the study than just disposition. For instance, nearly twice as many optimists as pessimists have a detailed plan for how they'll generate retirement income. That lack of planning certainly suggests that those pessimists have good reason to expect the worst.
Given those results, we should try to make sure we're not in the pessimist camp. More often than optimists, pessimists seem to invest mainly to preserve the value of their investments -- in other words, rather conservatively. That's not a great way for most of us to build a nest egg for tomorrow, especially if you still have awhile to go before you plan to retire.
It will take a long time to build the wealth you need for retirement if you focus only on preserving your wealth rather than growing it. You'll be stuck with low returns that may not even keep up with inflation, let alone help you increase your purchasing power after you retire. If you expect to need $50,000 to cover your annual expenses, for instance, you need to build a nest egg of $1 million or more. You probably can't get there sticking with ultrasafe investments.
What to do
If you're starting to break out in a sweat as you imagine putting lots of your dollars into stocks you don't know well -- ones that might suddenly implode -- relax and take a deep breath. You can aim for solid returns with stocks that won't strike you as all that risky. Check out the following companies with top ratings from our Motley Fool CAPS investor community:
Company
Return on Equity
Price-to-Earnings Ratio
10-Year Average Return
BP (NYSE: BP)
12%
15
4.0%
Canadian National Railway (NYSE: CNI)
18%
13
19.9%
Abbott Labs (NYSE: ABT)
27%
14
4.5%
Transocean (NYSE: RIG)
22%
7
10.6%
Petroleo Brasileiro (NYSE: PBR)
31%
10
27.1%*
Schlumberger (NYSE: SLB)
24%
17
10.1%
ExxonMobil (NYSE: XOM)
27%
11
8.8%
S&P 500
(0.2%)
Data: Motley Fool CAPS; Yahoo! Finance. *Over the past nine years.
Their relatively low P/E ratios suggest that they aren't wildly overpriced, and thus these stocks offer some margin of safety. You can find plenty of compelling familiar names these days, too -- ones that offer generous dividends.
So don't be such a pessimist! Over long periods, the stock market tends to make people wealthier. Feel free to feel optimistic that now, during a recession, is often the best time to invest.
http://www.fool.com/retirement/general/2009/09/23/your-pessmism-is-holding-you-back.aspx
Biggest Market Opportunity: Cash? (No, I'm Not Insane)
Biggest Market Opportunity: Cash? (No, I'm Not Insane)
By Alex Dumortier, CFA
September 23, 2009
What sort of insanity is this? How could cash be an opportunity at a time when three-month T-bills yield less than 10 basis points? No one gets excited earning virtually nothing on their cash balances, but stock investors should consider future opportunities in addition to existing choices: It's not about what you're not earning on the cash today, it's about earning premium returns on the investments you'll be able to make with that cash tomorrow.
Cash needn't be an anchor
In the words of super-investor Seth Klarman: "Why should the immediate opportunity set be the only one considered, when tomorrow's may well be considerably more fertile than today's?" At the head of the Baupost Group, a multi-billion dollar investment partnership, Klarman employs a value-oriented strategy, achieving exceptional performance in spite of -- or rather, because of -- the fact that he frequently holds significant amounts of cash. For example, on October 31, 1999, a few months before the tech bubble began to collapse, his Baupost Fund was approximately one third in cash.
Over the "lost decade" spanning 1999 through 2008, Klarman smashed the market with a 15.9% average annualized return net of fees and incentives versus a (1.4%) annualized loss for the S&P 500.
Don't go all in (cash or equities)
Let me be quite clear: I'm not advocating that you liquidate all your stocks and go all into cash; the market's current valuation simply does not warrant that sort of drastic action. Conversely, it shouldn't compel you to raise your broad equity exposure, either.
As I noted last week, the market doesn't look cheap right now: Based on data compiled by Professor Robert Shiller of Yale, at yesterday's closing value of 1,071.66, the S&P 500 is valued at over 19 times its cyclically adjusted earnings, compared to a long-term historical average of 16.3. Based on average inflation-adjusted earnings, the cyclically adjusted P/E ratio is one of the only consistently useful market valuation indicators.
As prices increase, so does your risk
All other things equal, as share prices rise, stocks will represent a larger percentage of your assets; however, logic dictates you should actually seek to ratchet down your equity exposure under those circumstances. As stock prices rise, expected future returns decline (again, all other factors remaining constant), making stocks relatively less attractive. Another way to express this is that as stock prices increase, so does the risk associated with owning stocks.
That risk may simply be earning sub-par returns or, in the worst case, suffering capital losses. Extremes in market valuations offer the best illustration of this principle: Owning a basket of Nasdaq stocks in March 2000: a high-risk or low-risk strategy? How about buying Japanese stocks in December 1989, with the Nikkei Index nearing 39,000 (nearly 20 years on, the same index trades at less than 10,500).
Don't misinterpret Buffett's words
So what are we to make of Berkshire Hathaway (BRK-B) CEO Warren Buffett's words when he told CNBC on July 24th: "I would much rather own equities at 9,000 on the Dow than have a long investment in government bonds or a continuously rolling investment in short-term money"? (Investors must have concluded the same thing, sending the Dow 8% higher since then.)
First, with just 30 component stocks, the Dow isn't a broad-market index; it's a blue-chip index. The stocks of high-quality companies have underperformed the broader market in the rally from the March market low, which has left them relatively undervalued. This is reflected in the Dow's 14 price-to-earnings multiple, against 17 for the wider S&P 500.
Buying pieces of businesses vs. owning the market
Second, keep in mind that Buffett likes to own pieces of high-quality businesses, not the whole market. As I mentioned above, there is reason to believe that there is still opportunity left in the higher-quality segment of the market. The following table contains six companies that trade with a free-cash-flow yield above 10% -- i.e., they're priced at less than 10 times trailing free cash flow (these are not investment recommendations):
Company Sector
Free-Cash-Flow Yield*
General Electric (NYSE: GE)
Conglomerates
47.3%
UnitedHealth Group (NYSE: UNH)
Health care
11.7%
Bristol-Myers Squibb (NYSE: BMY)
Health care
10.6%
Raytheon (NYSE: RTN)
Industrial goods
10.5%
Altria Group (NYSE: MO)
Consumer goods
11.5%
Time Warner (NYSE: TWX)
Services
25.9%
*Based on TTM free cash flow and closing stock prices on September 21, 2009.
Source: Capital IQ, a division of Standard & Poor's, Yahoo! Finance.
Summing up: What to do from here
To sum up:
If, like Buffett, you have identified high-quality businesses that are undervalued, there is nothing wrong with buying them now.
However, if you are mainly an index investor, it is probably ill-conceived to increase your exposure to stocks right now.
Either way, whether you are a stockpicker or an index investor, there is nothing wrong with holding on to some cash right now -- not for its own sake -- but to take advantage of better stock prices at a later date.
Morgan Housel has identified three high-quality companies that are still cheap.
http://www.fool.com/investing/value/2009/09/23/biggest-market-opportunity-cash-no-im-not-insane.aspx
By Alex Dumortier, CFA
September 23, 2009
What sort of insanity is this? How could cash be an opportunity at a time when three-month T-bills yield less than 10 basis points? No one gets excited earning virtually nothing on their cash balances, but stock investors should consider future opportunities in addition to existing choices: It's not about what you're not earning on the cash today, it's about earning premium returns on the investments you'll be able to make with that cash tomorrow.
Cash needn't be an anchor
In the words of super-investor Seth Klarman: "Why should the immediate opportunity set be the only one considered, when tomorrow's may well be considerably more fertile than today's?" At the head of the Baupost Group, a multi-billion dollar investment partnership, Klarman employs a value-oriented strategy, achieving exceptional performance in spite of -- or rather, because of -- the fact that he frequently holds significant amounts of cash. For example, on October 31, 1999, a few months before the tech bubble began to collapse, his Baupost Fund was approximately one third in cash.
Over the "lost decade" spanning 1999 through 2008, Klarman smashed the market with a 15.9% average annualized return net of fees and incentives versus a (1.4%) annualized loss for the S&P 500.
Don't go all in (cash or equities)
Let me be quite clear: I'm not advocating that you liquidate all your stocks and go all into cash; the market's current valuation simply does not warrant that sort of drastic action. Conversely, it shouldn't compel you to raise your broad equity exposure, either.
As I noted last week, the market doesn't look cheap right now: Based on data compiled by Professor Robert Shiller of Yale, at yesterday's closing value of 1,071.66, the S&P 500 is valued at over 19 times its cyclically adjusted earnings, compared to a long-term historical average of 16.3. Based on average inflation-adjusted earnings, the cyclically adjusted P/E ratio is one of the only consistently useful market valuation indicators.
As prices increase, so does your risk
All other things equal, as share prices rise, stocks will represent a larger percentage of your assets; however, logic dictates you should actually seek to ratchet down your equity exposure under those circumstances. As stock prices rise, expected future returns decline (again, all other factors remaining constant), making stocks relatively less attractive. Another way to express this is that as stock prices increase, so does the risk associated with owning stocks.
That risk may simply be earning sub-par returns or, in the worst case, suffering capital losses. Extremes in market valuations offer the best illustration of this principle: Owning a basket of Nasdaq stocks in March 2000: a high-risk or low-risk strategy? How about buying Japanese stocks in December 1989, with the Nikkei Index nearing 39,000 (nearly 20 years on, the same index trades at less than 10,500).
Don't misinterpret Buffett's words
So what are we to make of Berkshire Hathaway (BRK-B) CEO Warren Buffett's words when he told CNBC on July 24th: "I would much rather own equities at 9,000 on the Dow than have a long investment in government bonds or a continuously rolling investment in short-term money"? (Investors must have concluded the same thing, sending the Dow 8% higher since then.)
First, with just 30 component stocks, the Dow isn't a broad-market index; it's a blue-chip index. The stocks of high-quality companies have underperformed the broader market in the rally from the March market low, which has left them relatively undervalued. This is reflected in the Dow's 14 price-to-earnings multiple, against 17 for the wider S&P 500.
Buying pieces of businesses vs. owning the market
Second, keep in mind that Buffett likes to own pieces of high-quality businesses, not the whole market. As I mentioned above, there is reason to believe that there is still opportunity left in the higher-quality segment of the market. The following table contains six companies that trade with a free-cash-flow yield above 10% -- i.e., they're priced at less than 10 times trailing free cash flow (these are not investment recommendations):
Company Sector
Free-Cash-Flow Yield*
General Electric (NYSE: GE)
Conglomerates
47.3%
UnitedHealth Group (NYSE: UNH)
Health care
11.7%
Bristol-Myers Squibb (NYSE: BMY)
Health care
10.6%
Raytheon (NYSE: RTN)
Industrial goods
10.5%
Altria Group (NYSE: MO)
Consumer goods
11.5%
Time Warner (NYSE: TWX)
Services
25.9%
*Based on TTM free cash flow and closing stock prices on September 21, 2009.
Source: Capital IQ, a division of Standard & Poor's, Yahoo! Finance.
Summing up: What to do from here
To sum up:
If, like Buffett, you have identified high-quality businesses that are undervalued, there is nothing wrong with buying them now.
However, if you are mainly an index investor, it is probably ill-conceived to increase your exposure to stocks right now.
Either way, whether you are a stockpicker or an index investor, there is nothing wrong with holding on to some cash right now -- not for its own sake -- but to take advantage of better stock prices at a later date.
Morgan Housel has identified three high-quality companies that are still cheap.
http://www.fool.com/investing/value/2009/09/23/biggest-market-opportunity-cash-no-im-not-insane.aspx
Wednesday 23 September 2009
How to analyse an annual report
Wednesday September 23, 2009
How to analyse an annual report
Personal Investing - By Ooi Kok Hwa
MANY of us receive a lot of annual reports every year.
Even though we are aware that there is a lot of important information in the reports, not many of us are willing to spend time going through those reports before buying stocks.
Besides, it is quite difficult for some investors, especially those who lack proper financial training, to analyse the financial information.
In this article, we will provide a quick guide on how to analyse an annual report.
Given that there are many ways to dissect an annual report, the following six pointers are just a quick check on the financial health of any listed companies.
Income statement is the financial statement that shows the effects of transactions completed over a specific accounting period.
In this statement, we have three key pointers: the current level of revenue; high growth in revenue; and the profits made in proportion to the level of revenue.
The current level of revenue indicates the size of a company. A company with revenue or sales of RM1bil is definitely bigger than one that has revenue of only RM100mil.
In Malaysia, companies with revenue of RM500mil and above should be considered as more established companies.
High growth in revenue implies that the company has been expanding over the past period.
Assuming the high growth in revenue will eventually translate into high growth in profits, we should invest in companies with higher growth in revenue because this may lead to higher stock prices.
If the overall economy is expanding, avoid those companies that are showing a decline in revenue.
This might imply that the overall operating activities of the companies are declining.
The profits made in proportion to the level of revenue indicates whether this company has high or low profit margins in its products. The profits here refer to the profit after tax or net income.
We should invest in high profit margin companies because high profit margins will provide a cushion to the sudden change in operating environment. A company with revenue of RM1bil and profits of RM10mil is more likely to face tougher challenges in a stiff price competition environment compared with a company with revenue of RM100mil and profits of RM10mil.
Balance sheet is the financial statement that shows a company’s assets, liabilities and owners’ equity at a point in time. The two main pointers in this statement are cash in hand and total borrowings.
Cash in hand refers to the cash or cash equivalent like fixed deposits. If possible, we should invest in companies with high cash in hand and zero borrowings. High cash in hand may imply that the company has high chances of rewarding shareholders with higher dividend payments.
Besides, companies with high cash in hand have more financial stability than companies with very tight level of cash. This explains why most investment gurus like to invest in cash-rich companies.
Total borrowings include the short- and long-term borrowings. Here, we should check whether the company has reported any sharp increase in borrowings during the financial periods. Most companies need to increase borrowings to support their capital expenditure on any business expansion.
However, if a company has been increasing its borrowings each year and the level has far exceeded one to two times the shareholders’ funds, unless its operating activities are able to support the repayments, the company faces very high financial risk.
Cash flow statement shows the sources and uses of cash over the period. One very important pointer in this statement is the operating cash flow.
High operating cash flow implies that the company is generating cash from its operating activities. A healthy company should show high operating cash flow because this number will indicate how much actual cash the company has generated from operations during the period.
We need to be careful of the companies that are showing profits but at the same time generating negative operating cash flows every year. This may imply that these companies have very high receivables. Any economic downturn may cause a sharp increase in provisions on bad debts.
Lastly, investors need to understand that the above six pointers are just a quick guide to analysing any annual report. Serious investors should not only analyse these six pointers. They are advised to scrutinise the reports further for more details.
Ooi Kok Hwa is an investment adviser and managing partner of MRR Consulting.
http://biz.thestar.com.my/news/story.asp?file=/2009/9/23/business/4762997&sec=business
How to analyse an annual report
Personal Investing - By Ooi Kok Hwa
MANY of us receive a lot of annual reports every year.
Even though we are aware that there is a lot of important information in the reports, not many of us are willing to spend time going through those reports before buying stocks.
Besides, it is quite difficult for some investors, especially those who lack proper financial training, to analyse the financial information.
In this article, we will provide a quick guide on how to analyse an annual report.
Given that there are many ways to dissect an annual report, the following six pointers are just a quick check on the financial health of any listed companies.
Income statement is the financial statement that shows the effects of transactions completed over a specific accounting period.
In this statement, we have three key pointers: the current level of revenue; high growth in revenue; and the profits made in proportion to the level of revenue.
The current level of revenue indicates the size of a company. A company with revenue or sales of RM1bil is definitely bigger than one that has revenue of only RM100mil.
In Malaysia, companies with revenue of RM500mil and above should be considered as more established companies.
High growth in revenue implies that the company has been expanding over the past period.
Assuming the high growth in revenue will eventually translate into high growth in profits, we should invest in companies with higher growth in revenue because this may lead to higher stock prices.
If the overall economy is expanding, avoid those companies that are showing a decline in revenue.
This might imply that the overall operating activities of the companies are declining.
The profits made in proportion to the level of revenue indicates whether this company has high or low profit margins in its products. The profits here refer to the profit after tax or net income.
We should invest in high profit margin companies because high profit margins will provide a cushion to the sudden change in operating environment. A company with revenue of RM1bil and profits of RM10mil is more likely to face tougher challenges in a stiff price competition environment compared with a company with revenue of RM100mil and profits of RM10mil.
Balance sheet is the financial statement that shows a company’s assets, liabilities and owners’ equity at a point in time. The two main pointers in this statement are cash in hand and total borrowings.
Cash in hand refers to the cash or cash equivalent like fixed deposits. If possible, we should invest in companies with high cash in hand and zero borrowings. High cash in hand may imply that the company has high chances of rewarding shareholders with higher dividend payments.
Besides, companies with high cash in hand have more financial stability than companies with very tight level of cash. This explains why most investment gurus like to invest in cash-rich companies.
Total borrowings include the short- and long-term borrowings. Here, we should check whether the company has reported any sharp increase in borrowings during the financial periods. Most companies need to increase borrowings to support their capital expenditure on any business expansion.
However, if a company has been increasing its borrowings each year and the level has far exceeded one to two times the shareholders’ funds, unless its operating activities are able to support the repayments, the company faces very high financial risk.
Cash flow statement shows the sources and uses of cash over the period. One very important pointer in this statement is the operating cash flow.
High operating cash flow implies that the company is generating cash from its operating activities. A healthy company should show high operating cash flow because this number will indicate how much actual cash the company has generated from operations during the period.
We need to be careful of the companies that are showing profits but at the same time generating negative operating cash flows every year. This may imply that these companies have very high receivables. Any economic downturn may cause a sharp increase in provisions on bad debts.
Lastly, investors need to understand that the above six pointers are just a quick guide to analysing any annual report. Serious investors should not only analyse these six pointers. They are advised to scrutinise the reports further for more details.
Ooi Kok Hwa is an investment adviser and managing partner of MRR Consulting.
http://biz.thestar.com.my/news/story.asp?file=/2009/9/23/business/4762997&sec=business
'Where are the Customers' Yachts?'
http://www.telegraph.co.uk/finance/personalfinance/investing/shares-and-stock-tips/6217619/Share-tips-yes-they-do-work.html
The analysis by GLG Partners, the hedge fund, suggested that recommendations from European brokers have done better than the funds over each of the past four years.
The idea that private investors armed only with simple share tips can beat most professional fund managers recalls the book Where are the Customers' Yachts? – the question asked by someone shown the lines of expensive stockbrokers' yachts in a marina, making the point that the City can seem better at making money for its own insiders than for its customers.
Whitbread GLG's research imagined a simple "long-only" fund management strategy – in other words, one that avoided trying to make money from falling shares – that followed all broker recommendations to buy particular stocks. Under the strategy, the shares are bought at the closing price on the day of the share tip and held for 65 trading days, when they are sold.
The annual returns from using this technique would be as much as 6.4 percentage points above the performance benchmarks used by fund managers, the researchers calculated. Each 65-day period would produce gains of between 0.8 and 1.69 percentage points above the benchmark, after payment of commissions, and this could be repeated four times a year.
Annual returns would therefore beat the benchmarks – which typically reflect the performance of the stock market – by between 2.8 and 6.4 percentage points.
"This is enough to place the strategy in the top quartile of UK mutual funds with a Europe-including-UK benchmark in all [of the past] four years," the researchers said. In other words, the strategy would beat at least three-quarters of British funds that invest in UK and European shares.
"This simple strategy involves implementing all recommendations over a fixed holding period for each idea [share tip]," the research added. "Obviously, there are numerous execution improvements that could be made. Our calculation of 2.8 to 6.4 percentage point gains over the benchmark is meant to be illustrative of the opportunities available for the simplest investment strategy."
The research also proposed an explanation for the fact that analysts tip more stocks as "buys" than as "sells". It pointed out that the intended "consumers" of share tips were fund managers, and they had a greater demand for buy recommendations. "The reason is simple. Most managers are long-only managers … so it makes sense that brokers would put less time into sell than buy recommendations."
There is also more to lose with an incorrect sell tip, GLG's research said. "The downside of being incorrect is greater with sell recommendations. A stock with a sell recommendation can go up by an unlimited amount – so there is unlimited potential error – while a stock with a buy recommendation can fall only by a limited amount, meaning limited potential error."
It concluded: "These factors suggest that at the very least an analyst should issue a new sell recommendation with more caution than a buy recommendation."
The analysis also cast doubt on the belief that tipsters tend to tip only shares that are already rising – "chasing momentum", in City jargon.
"In all four years, the average buy recommendation was either moving in line with the market or underperforming prior to the recommendation change. So there's relatively little evidence to suggest that analysts are 'momentum chasing' by putting buy recommendations on outperforming stocks."
The researchers' early data for 2009 suggests that this year has been an extreme one for analyst performance. "Buy recommendations have worked very well; sell recommendations very poorly." This is likely to reflect the fact that the stock market has recovered dramatically since its March low, so shares tipped as buys will have been helped by the trend in the market, while those tipped to fall may also have been dragged upwards.
Richard Hunter of Hargreaves Lansdown, the stockbroker that compiles share tips for The Daily Telegraph, said: "Investors' ability to access share research has never been greater. The proliferation of the internet, the market's movements being of wider interest to the public and an appetite from the press have meant that finding tips for larger companies is relatively straightforward."
But he advised private investors to be wary of some of the research they read. "It may have been written by an institutional broker and aimed at institutional clients. This in itself does not lessen the validity of the research, but generally an institution's attitude to risk and time frame may be vastly different to that of a private investor.
"For example, it is likely that the institutional investor will be measured by its success compared to a wider benchmark, such as the FTSE 100 or the FTSE All Share. As such, it needs to be nimble and will switch between stocks and sectors on a regular basis in an effort to outperform its peers. Furthermore, if it finds itself underperforming its targets, its attitude to risk may change as it chases higher returns."
Meanwhile, he added, the research will inevitably have been seen by its intended institutional audience, and then by the wider market, before it comes to the attention of the private investor. "Any change in market sentiment will, therefore, more than likely already have been reflected in an adjustment of the share price."
For the larger stocks, there will often be opposing views among analysts, he said. A selection of broker views on BP, for example, showed 19 rated the stock as a "strong buy" and five as a buy, while 12 recommended holding and three rated the share a "strong sell". The consensus in this case would be a buy – the opposite of three of the tips taken in isolation.
GLG's research did not say what investors might do in this situation, so investing your way to your own yacht might not be all plain sailing.
Pound slides again as markets enter Bank of England-fuelled 'bubble' stage
Pound slides again as markets enter Bank of England-fuelled 'bubble' stage
The pound slid closer to parity with the euro on Monday, as one of London's leading hedge fund managers warned stock markets are in a Government-fuelled bubble.
By Edmund Conway and Jamie Dunkley
Published: 6:26AM BST 22 Sep 2009
Pound slides closer to parity with euro as it hits a five-month low against the single currency. Photo: CHRISTOPHER PLEDGER "Markets are now entering a bubble phase [which may last] until the end of the year," said Crispin Odey of Odey Asset Management.
However, the bubble is almost entirely dependent on the Bank of England's quantitative easing (QE) policy, through which it is creating £175bn and pumping it into the system by buying Government debt, he added.
Mr Odey's comments came as the pound fell further against other leading currencies after a report from the Bank warned of the effect of the financial crisis on sterling's long-term value.
Mr Odey told clients in a note: "Individuals and institutions are stampeding into real assets – eager to have anything but cash or government bonds... The latter are expensive because of the QE which has caused that bubble.
"At some point the QE will have to come to an end but, until it does, this bull market is sponsored by HMG and everyone should enjoy it."
FTSE breaks six-day winning streak
Katherine Garrett-Cox, chief executive of Alliance Trust, said: "I think the recent stock market rally has been driven by sentiment rather than fundamental facts.
"In 2008 markets were driven by fear; this year they have been driven by greed.
"I'm sceptical about the market recovery given the fiscal environment we are in. Public spending is falling, consumer spending is down and unemployment will rise."
Although many central banks have taken on a QE policy, the Bank has committed to creating and spending more than any other, arguing that the alternative outcome is severe deflation. However, this is thought to have sparked a gradual exodus from UK investments by overseas asset managers fearful that the policy may generate inflation.
This has pushed the pound lower against most other currencies. The euro hit a five-month high against sterling yesterday before slipping back to 90.58p. Citigroup said yesterday that sterling would drop to parity against the euro in the coming months.
The bank's analyst Michael Hart said: "Tight fiscal policies and easy money is about as negative a policy mix as it is possible to get for the currency and we expect sterling to exceed parity with the euro."
http://www.telegraph.co.uk/finance/economics/6216874/Pound-slides-again-as-markets-enter-Bank-of-England-fuelled-bubble-stage.html
The pound slid closer to parity with the euro on Monday, as one of London's leading hedge fund managers warned stock markets are in a Government-fuelled bubble.
By Edmund Conway and Jamie Dunkley
Published: 6:26AM BST 22 Sep 2009
Pound slides closer to parity with euro as it hits a five-month low against the single currency. Photo: CHRISTOPHER PLEDGER "Markets are now entering a bubble phase [which may last] until the end of the year," said Crispin Odey of Odey Asset Management.
However, the bubble is almost entirely dependent on the Bank of England's quantitative easing (QE) policy, through which it is creating £175bn and pumping it into the system by buying Government debt, he added.
Mr Odey's comments came as the pound fell further against other leading currencies after a report from the Bank warned of the effect of the financial crisis on sterling's long-term value.
Mr Odey told clients in a note: "Individuals and institutions are stampeding into real assets – eager to have anything but cash or government bonds... The latter are expensive because of the QE which has caused that bubble.
"At some point the QE will have to come to an end but, until it does, this bull market is sponsored by HMG and everyone should enjoy it."
FTSE breaks six-day winning streak
Katherine Garrett-Cox, chief executive of Alliance Trust, said: "I think the recent stock market rally has been driven by sentiment rather than fundamental facts.
"In 2008 markets were driven by fear; this year they have been driven by greed.
"I'm sceptical about the market recovery given the fiscal environment we are in. Public spending is falling, consumer spending is down and unemployment will rise."
Although many central banks have taken on a QE policy, the Bank has committed to creating and spending more than any other, arguing that the alternative outcome is severe deflation. However, this is thought to have sparked a gradual exodus from UK investments by overseas asset managers fearful that the policy may generate inflation.
This has pushed the pound lower against most other currencies. The euro hit a five-month high against sterling yesterday before slipping back to 90.58p. Citigroup said yesterday that sterling would drop to parity against the euro in the coming months.
The bank's analyst Michael Hart said: "Tight fiscal policies and easy money is about as negative a policy mix as it is possible to get for the currency and we expect sterling to exceed parity with the euro."
http://www.telegraph.co.uk/finance/economics/6216874/Pound-slides-again-as-markets-enter-Bank-of-England-fuelled-bubble-stage.html
Markets 'in Government-fuelled bubble'.
Markets 'in Government-fuelled bubble', says hedge fund manager Crispin Odey
Stock markets are in a Government-fuelled bubble, one of London's leading hedge fund managers said, as the pound slid closer towards parity with the euro.
By Edmund Conway and Jamie Dunkley
Published: 7:43PM BST 21 Sep 2009
Katherine Garrett-Cox, chief executive of Alliance Trust, said the recent stock market rally has been driven by sentiment "Markets are now entering a bubble phase [which may last] until the end of the year," said Crispin Odey of Odey Asset Management. However, the bubble is almost entirely dependent on the Bank of England's quantitative easing (QE) policy, through which it is creating £175bn and pumping it into the system by buying Government debt, he added.
The warning came as the pound fell further against other leading currencies, and as Citigroup predicted that sterling would drop to parity against the euro.
Mr Odey told clients in a note: "Individuals and institutions are stampeding into real assets – eager to have anything but cash or government bonds... The latter are expensive because of the QE which has caused that bubble.
"At some point the QE will have to come to an end, but until it does this bull market is sponsored by HMG and everyone should enjoy it."
Katherine Garrett-Cox, chief executive of Alliance Trust, said: "I think the recent stock market rally has been driven by sentiment rather than fundamental facts.
"In 2008 markets were driven by fear; this year they have been driven by greed.
"I'm sceptical about the market recovery given the fiscal environment we are in. Public spending is falling, consumer spending is down and unemployment will rise."
Although many central banks have taken on a QE policy, the Bank has committed to creating and spending more than any others, arguing that the alternative outcome is severe deflation. However, this is thought to have sparked a gradual exodus from UK investments by overseas asset managers fearful that the policy may generate inflation. This has pushed the pound lower against most other currencies.
The euro is now worth 90.58p, with economists from Citigroup saying yesterday that sterling would drop to parity against the single currency in the coming months. The bank's analyst Michael Hart said: "Tight fiscal policies and easy money is about as negative a policy mix as it is possible to get for the currency and we expect sterling to exceed parity with the euro."
http://www.telegraph.co.uk/finance/economics/6216138/Markets-in-Government-fuelled-bubble-says-hedge-fund-manager-Crispin-Odey.html
Stock markets are in a Government-fuelled bubble, one of London's leading hedge fund managers said, as the pound slid closer towards parity with the euro.
By Edmund Conway and Jamie Dunkley
Published: 7:43PM BST 21 Sep 2009
Katherine Garrett-Cox, chief executive of Alliance Trust, said the recent stock market rally has been driven by sentiment "Markets are now entering a bubble phase [which may last] until the end of the year," said Crispin Odey of Odey Asset Management. However, the bubble is almost entirely dependent on the Bank of England's quantitative easing (QE) policy, through which it is creating £175bn and pumping it into the system by buying Government debt, he added.
The warning came as the pound fell further against other leading currencies, and as Citigroup predicted that sterling would drop to parity against the euro.
Mr Odey told clients in a note: "Individuals and institutions are stampeding into real assets – eager to have anything but cash or government bonds... The latter are expensive because of the QE which has caused that bubble.
"At some point the QE will have to come to an end, but until it does this bull market is sponsored by HMG and everyone should enjoy it."
Katherine Garrett-Cox, chief executive of Alliance Trust, said: "I think the recent stock market rally has been driven by sentiment rather than fundamental facts.
"In 2008 markets were driven by fear; this year they have been driven by greed.
"I'm sceptical about the market recovery given the fiscal environment we are in. Public spending is falling, consumer spending is down and unemployment will rise."
Although many central banks have taken on a QE policy, the Bank has committed to creating and spending more than any others, arguing that the alternative outcome is severe deflation. However, this is thought to have sparked a gradual exodus from UK investments by overseas asset managers fearful that the policy may generate inflation. This has pushed the pound lower against most other currencies.
The euro is now worth 90.58p, with economists from Citigroup saying yesterday that sterling would drop to parity against the single currency in the coming months. The bank's analyst Michael Hart said: "Tight fiscal policies and easy money is about as negative a policy mix as it is possible to get for the currency and we expect sterling to exceed parity with the euro."
http://www.telegraph.co.uk/finance/economics/6216138/Markets-in-Government-fuelled-bubble-says-hedge-fund-manager-Crispin-Odey.html
Rally at risk as long-term investors shun stocks
Rally at risk as long-term investors shun stocks
A glance at the shareholder register of Cadbury is revealing. It is no longer familiar UK names that control the company, but a motley assortment of US investment funds.
By Nicholas Paisner, Breakingviews.com
Published: 2:35PM BST 22 Sep 2009
This partly reflects the confectioner’s turbulent history, but it is also indicative of the changing shape of the European equity market.
A number of recent studies have shown that long-term institutional investors have cut equity allocations by as much as 40pc over the past two years. Many pension funds were net sellers of domestic equities even before the crisis, as they sought to diversify internationally and reduce risk. But by selling into the rally, and not reweighting portfolios in-line with market moves, the shift away from shares has been accelerated.
The crisis has given these investors more reason to be wary of stocks. Even on long-term time horizons, equity returns have not been attractive, with the UK’s FTSE-100 index now at the same level as in 1997. And after two bear markets in the past 10 years, individuals in defined-contribution pension schemes are understandably risk averse, prompting them to switch out of equities.
The flight of long-term money has left its mark. In spite of doubling or tripling, share prices in some sectors are still well-below their peaks. What’s more, liquidity in the mid- and small-cap stocks has plunged. This sharp decline in interest could well reflect risk-averse investors hastening their departure from these segments of the market. A large chunk of the investor base may simply have gone for good
The move by long-term investors into low-return safe havens of cash and government bonds is potentially bad news all round. For those who have not given up on equity, the exit of long-term money means that the current populace of shareholders are now a far less sticky lot. This hasn’t been a problem so far, as money has been flowing into the market on a net basis. But it could exacerbate future market wobbles.
Long-term investors could also suffer from their caution. Government bond yields are still at historical lows, albeit up from crisis troughs. The resurgent gold price suggests that the market is once again starting to fret about inflation. If rising prices do begin to take hold, bond yields could yet soar. Investors in risk-free assets may quickly start to wish they had been a little more adventurous.
http://www.telegraph.co.uk/finance/breakingviewscom/6218807/Rally-at-risk-as-long-term-investors-shun-stocks.html
A glance at the shareholder register of Cadbury is revealing. It is no longer familiar UK names that control the company, but a motley assortment of US investment funds.
By Nicholas Paisner, Breakingviews.com
Published: 2:35PM BST 22 Sep 2009
This partly reflects the confectioner’s turbulent history, but it is also indicative of the changing shape of the European equity market.
A number of recent studies have shown that long-term institutional investors have cut equity allocations by as much as 40pc over the past two years. Many pension funds were net sellers of domestic equities even before the crisis, as they sought to diversify internationally and reduce risk. But by selling into the rally, and not reweighting portfolios in-line with market moves, the shift away from shares has been accelerated.
The crisis has given these investors more reason to be wary of stocks. Even on long-term time horizons, equity returns have not been attractive, with the UK’s FTSE-100 index now at the same level as in 1997. And after two bear markets in the past 10 years, individuals in defined-contribution pension schemes are understandably risk averse, prompting them to switch out of equities.
The flight of long-term money has left its mark. In spite of doubling or tripling, share prices in some sectors are still well-below their peaks. What’s more, liquidity in the mid- and small-cap stocks has plunged. This sharp decline in interest could well reflect risk-averse investors hastening their departure from these segments of the market. A large chunk of the investor base may simply have gone for good
The move by long-term investors into low-return safe havens of cash and government bonds is potentially bad news all round. For those who have not given up on equity, the exit of long-term money means that the current populace of shareholders are now a far less sticky lot. This hasn’t been a problem so far, as money has been flowing into the market on a net basis. But it could exacerbate future market wobbles.
Long-term investors could also suffer from their caution. Government bond yields are still at historical lows, albeit up from crisis troughs. The resurgent gold price suggests that the market is once again starting to fret about inflation. If rising prices do begin to take hold, bond yields could yet soar. Investors in risk-free assets may quickly start to wish they had been a little more adventurous.
http://www.telegraph.co.uk/finance/breakingviewscom/6218807/Rally-at-risk-as-long-term-investors-shun-stocks.html
Private equity may be on cusp of ‘golden age’
Private equity may be on cusp of ‘golden age’
NEW YORK, Sept 23 — The near collapse of the global financial system, which wiped out trillions in corporate value and personal savings, may be giving way to a new “golden age” for private equity investment, Silver Lake Co-CEO Glenn Hutchins said in an interview today.
Private equity firms suffered badly when debt markets seized up as a result of the crisis and banks did not want to lend increasingly scarce capital. Only just recently have credit markets started to unfreeze.
“The financial markets may be on the cusp of a new ‘golden age’ for private equity,” Hutchins, who is also a co-founder of the firm, told Reuters on the sidelines of the International Economic Alliance Symposium.
Hutchins, the co-founder of the US$13 billion private investment firm, cautioned that while there has been a significant stock market rally, the economy is showing stable, though not robust, growth.
“This recent stock market rally is a little troubling because it seems to me not to be supported by underlying economic fundamentals,” Hutchins said.
“But that aside, we have gotten down to levels that are pretty attractive and the banks seem to be recovering enough to provide modest levels of financing, which is all we need. We feel pretty optimistic,” he added.
The major concern, he said, is how long will investors have to be prepared to withstand low levels of economic activity.
‘ATTRACTIVE’ RISK PREMIUMS
But for the moment, Hutchins said, investors are once again finding risk premiums at attractive levels versus the low premiums before the asset bubble burst in December 2008.
“Now that the sort of panic of ‘08 is over and capital markets seem to be returning to some degree of normality ... companies will be able to access debt and equity markets like they have in the past. And that is no surprise,” Hutchins said.
But he added that investors needed to be mindful that valuations in 2007 should not be defined as normal. They were an “overshoot in another way,” he said.
The average investment grade corporate bond now yields 232 basis points over US Treasuries, down from the all-time high of 656 basis points on Dec. 5, 2008. By comparison, in May 2007, before the credit crisis started, spreads narrowed to 92 basis points, according to the Merrill Lynch indexes.
“Now risk premiums are at attractive levels. Investors are being paid to take risk again. That means when you look back on this, when you get back to economic recovery, this will have been a good time to invest,” Hutchins said.
Silver Lake makes only a few acquisitions a year and is more inclined to use financing for working capital rather than purchases, Hutchins said.
“If you need financial engineering to enter a deal and multiple expansion to exit a deal, then your business is fundamentally challenged,” Hutchins said.
The firm, along with other investors, agreed to a deal earlier this month to pay US$1.9 billion to buy a 65 per cent stake in online telephony unit Skype from Internet auction and services company eBay Inc.
Ebay agreed to sell the stake in Skype for US$1.9 billion to a consortium including Netscape founder Marc Andreessen’s Andreessen Horowitz, venture firm Index Ventures, Silver Lake, and the Canada Pension Plan Investment Board.
Asked what he thought about the Skype sale and lawsuits filed by Skype’s founders, Hutchins responded: “No comment.” — Reuters
NEW YORK, Sept 23 — The near collapse of the global financial system, which wiped out trillions in corporate value and personal savings, may be giving way to a new “golden age” for private equity investment, Silver Lake Co-CEO Glenn Hutchins said in an interview today.
Private equity firms suffered badly when debt markets seized up as a result of the crisis and banks did not want to lend increasingly scarce capital. Only just recently have credit markets started to unfreeze.
“The financial markets may be on the cusp of a new ‘golden age’ for private equity,” Hutchins, who is also a co-founder of the firm, told Reuters on the sidelines of the International Economic Alliance Symposium.
Hutchins, the co-founder of the US$13 billion private investment firm, cautioned that while there has been a significant stock market rally, the economy is showing stable, though not robust, growth.
“This recent stock market rally is a little troubling because it seems to me not to be supported by underlying economic fundamentals,” Hutchins said.
“But that aside, we have gotten down to levels that are pretty attractive and the banks seem to be recovering enough to provide modest levels of financing, which is all we need. We feel pretty optimistic,” he added.
The major concern, he said, is how long will investors have to be prepared to withstand low levels of economic activity.
‘ATTRACTIVE’ RISK PREMIUMS
But for the moment, Hutchins said, investors are once again finding risk premiums at attractive levels versus the low premiums before the asset bubble burst in December 2008.
“Now that the sort of panic of ‘08 is over and capital markets seem to be returning to some degree of normality ... companies will be able to access debt and equity markets like they have in the past. And that is no surprise,” Hutchins said.
But he added that investors needed to be mindful that valuations in 2007 should not be defined as normal. They were an “overshoot in another way,” he said.
The average investment grade corporate bond now yields 232 basis points over US Treasuries, down from the all-time high of 656 basis points on Dec. 5, 2008. By comparison, in May 2007, before the credit crisis started, spreads narrowed to 92 basis points, according to the Merrill Lynch indexes.
“Now risk premiums are at attractive levels. Investors are being paid to take risk again. That means when you look back on this, when you get back to economic recovery, this will have been a good time to invest,” Hutchins said.
Silver Lake makes only a few acquisitions a year and is more inclined to use financing for working capital rather than purchases, Hutchins said.
“If you need financial engineering to enter a deal and multiple expansion to exit a deal, then your business is fundamentally challenged,” Hutchins said.
The firm, along with other investors, agreed to a deal earlier this month to pay US$1.9 billion to buy a 65 per cent stake in online telephony unit Skype from Internet auction and services company eBay Inc.
Ebay agreed to sell the stake in Skype for US$1.9 billion to a consortium including Netscape founder Marc Andreessen’s Andreessen Horowitz, venture firm Index Ventures, Silver Lake, and the Canada Pension Plan Investment Board.
Asked what he thought about the Skype sale and lawsuits filed by Skype’s founders, Hutchins responded: “No comment.” — Reuters
Saturday 19 September 2009
KLSE Stock Market Performance in 2008
Stock Market Performance in 2008
Riding on the strong local stock market performance of the last quarter of 2007, the Kuala Lumpur Composite Index (“KLCI”) quickly reached its record high of 1,516.2 points on the 11 January 2008. However, from that point onwards, the KLCI saw a steady decline as concerns over the health of the US financial markets and its economy in general dampened investor appetites. Then, on the 10 March 2008, the KLCI plunged 9.5% to 1,157.4 points as a reaction to the results of the 12th General Elections. The KLCI subsequently recovered to end March 2008 at 1,247.5 points, down 13.7% for the
1st quarter of 2008.
The recovery which began in mid-March lasted until hitting the 2nd quarter high of 1,300.7 on the 16 May 2008. At that point, fueled by the effects of rising commodity prices, the stock market started weakening. Inflation proved to be a very real concern as soaring commodity prices resulted in year-on-year inflation doubling in the month of June. As a result the KLCI closed the quarter at 1,186.6 points.
Bearish market sentiments persisted throughout the second half of 2008. Inflation concerns remained unalleviated until September. Simultaneously, many European economies announced 2nd quarter contractions. Finally, in September, the failure of several large financial institutions in the US sent shockwaves throughout the global financial markets. On this note, the KLCI ended the 3rd quarter of 2008 at 1,018.7 points, down 30% from the beginning of the year.
In the 4th quarter, the KLCI hit the year’s low on the 29 October 2008, closing at 829.4 points as the economies of the Eurozone and Japan enter a technical recession, and as the US records a quarter-on-quarter Gross Domestic Product (“GDP”) contraction. Locally, the Malaysian economy has seen its GDP contract by 11% from the previous quarter.
Following interest rate cuts and stimulus packages by various governments, including Malaysia, global and regional equity markets began to recover. It is on this note that the KLCI ended the year at 876.8 points, a total loss of 568.2 points or 39% from the beginning of the year.
On the outlook for the stock market in 2009, market sentiments are expected to remain bearish for at least the first half of the year as the major global economies struggle to escape the grip of recession. Malaysia has not been spared from this crisis. Rising unemployment along with the low GDP growth forecasted for the year will put further downward pressure on equity prices. However, there are signs that the global economic downturn may be bottoming-out. If global and/or regional economies succeed in turning around, we may well see the KLCI rebounding by the end of 2009.
http://announcements.bursamalaysia.com/EDMS/subweb.nsf/7f04516f8098680348256c6f0017a6bf/6c6bd58085864967482575be00261818/$FILE/TIENWAH-AnnualReport2008%20(3.2MB).pdf
Riding on the strong local stock market performance of the last quarter of 2007, the Kuala Lumpur Composite Index (“KLCI”) quickly reached its record high of 1,516.2 points on the 11 January 2008. However, from that point onwards, the KLCI saw a steady decline as concerns over the health of the US financial markets and its economy in general dampened investor appetites. Then, on the 10 March 2008, the KLCI plunged 9.5% to 1,157.4 points as a reaction to the results of the 12th General Elections. The KLCI subsequently recovered to end March 2008 at 1,247.5 points, down 13.7% for the
1st quarter of 2008.
The recovery which began in mid-March lasted until hitting the 2nd quarter high of 1,300.7 on the 16 May 2008. At that point, fueled by the effects of rising commodity prices, the stock market started weakening. Inflation proved to be a very real concern as soaring commodity prices resulted in year-on-year inflation doubling in the month of June. As a result the KLCI closed the quarter at 1,186.6 points.
Bearish market sentiments persisted throughout the second half of 2008. Inflation concerns remained unalleviated until September. Simultaneously, many European economies announced 2nd quarter contractions. Finally, in September, the failure of several large financial institutions in the US sent shockwaves throughout the global financial markets. On this note, the KLCI ended the 3rd quarter of 2008 at 1,018.7 points, down 30% from the beginning of the year.
In the 4th quarter, the KLCI hit the year’s low on the 29 October 2008, closing at 829.4 points as the economies of the Eurozone and Japan enter a technical recession, and as the US records a quarter-on-quarter Gross Domestic Product (“GDP”) contraction. Locally, the Malaysian economy has seen its GDP contract by 11% from the previous quarter.
Following interest rate cuts and stimulus packages by various governments, including Malaysia, global and regional equity markets began to recover. It is on this note that the KLCI ended the year at 876.8 points, a total loss of 568.2 points or 39% from the beginning of the year.
On the outlook for the stock market in 2009, market sentiments are expected to remain bearish for at least the first half of the year as the major global economies struggle to escape the grip of recession. Malaysia has not been spared from this crisis. Rising unemployment along with the low GDP growth forecasted for the year will put further downward pressure on equity prices. However, there are signs that the global economic downturn may be bottoming-out. If global and/or regional economies succeed in turning around, we may well see the KLCI rebounding by the end of 2009.
http://announcements.bursamalaysia.com/EDMS/subweb.nsf/7f04516f8098680348256c6f0017a6bf/6c6bd58085864967482575be00261818/$FILE/TIENWAH-AnnualReport2008%20(3.2MB).pdf
The Ultimate Hold-versus-Sell Test
Here is the overriding primary test, followed by observations on why it is so critically important:
Knowing all that you now know and expect about the company and its stock (not what you originally believed or hoped at time of purchase), and assuming that you had available capital, and assuming that it would not cause a portfolio imbalance to do so, would you buy this stock today, at today's price?
No equivocation. Yes or no?
Answers such as maybe or probably are not acceptable since they are ways of dodging the issue. No investor probably buys a stock; they either place an order or do not.
Here is the implication of your answer to that critical test: if you did not answer with a clear affirmative, you should sell; only if you said a strong yes, are you justified to hold.
Knowing all that you now know and expect about the company and its stock (not what you originally believed or hoped at time of purchase), and assuming that you had available capital, and assuming that it would not cause a portfolio imbalance to do so, would you buy this stock today, at today's price?
No equivocation. Yes or no?
Answers such as maybe or probably are not acceptable since they are ways of dodging the issue. No investor probably buys a stock; they either place an order or do not.
Here is the implication of your answer to that critical test: if you did not answer with a clear affirmative, you should sell; only if you said a strong yes, are you justified to hold.
Thursday 17 September 2009
Will there be another dip in US stocks?
Will there be another dip in US stocks?
ON the first anniversary of the Lehman Panic, investors may not have noticed that the New York Stock Exchange (NYSE) has already been rallying for six months and has risen a hefty 56% and yet there are many out there looking for the other shoe, the second dip, the W, and so on.
Looking at the persistently high cash level of the institutional fund managers, there is no doubt that there are many, many investors left out in the cold in the current rally. Many of them may end up holding cash for a long time that pays no or little interest. Why?
With the NYSE up 56%, these institutional lemmings are scared stiff to buy now because they think the NYSE will make another major drop. So, it is better to wait for the double dip or the W or whatever Armageddon to happen first.
Then, when the economic data come out showing that the US economy is on a decisive recovery path, one would have thought that this would be convincing enough for them to invest. Apparently not, as they also get scared stiff by this. Why?
The other worry that many investors have is that the US economy will be hit by high inflation as the economic recovery takes hold. The reasoning is simple. The US economy has been boosted by a massive injection of monetary and fiscal stimuli. These can only lead to rapid economic growth, and thus higher inflation.
As this happens, US interest rates are going to surge and this will take the US economy and NYSE down. So even the reassuring economic numbers are spooking these lemmings instead of reassuring them. Such a phenomenon is a simple reflection of how frightened investors have become. Nothing can be right. More importantly, are the concerns over rising inflation justified?
i Capital is of the view that the concerns of high and rising inflation happening in the next two to three years are misplaced. There is no doubt that the monetary and fiscal injections have been large but the global panic was of a massive scale. Without a sufficiently large stimulus, investors would not have been reassured and the panic would have ensued.
Then, there is plenty of spare capacity in the goods and labour markets. Factories have enough capacity to meet consumer demand without having to hike product prices and the labour market has enough workers to meet the demand of employers without having to pay higher wages.
Globally, the same situation applies. At the same time, there is no fear of a sustained deflation.
Producers face rising commodity prices as demand from the rest of the world, led by China, stays healthy.
While companies cannot raise selling prices, they cannot lower them by much or for a prolonged period either. In the end, the outlook for the US pricing environment over the next two to three years is rather sanguine.
Showing the headline and core inflation rates since 2002, the chart captures the sanguine scenario best.
The spike in US inflation rate in the second half of 2007 and the first half of 2008 was due mainly to the surging energy prices and then the inflation rate slumped in second half of 2008 and first half of 2009, again due primarily to the plunge in energy prices.
We all know that energy prices have been extremely volatile. So, policymakers tend to watch the core inflation rate, which has been remarkably stable at 1.5% to 3% in the last six to seven years, even when the US economy was booming.
i Capital is of the view that the lemmings waiting on the sidelines with their piles of cash would have a long time to wait.
The NYSE is not going to crash in September and October 2009 and inflation is not going to rear its ugly head anytime soon. i Capital sees the NYSE pausing further as it navigates these two months.
Greed and Fear
Thursday, September 17, 2009
Greed and Fear
I have been noting down on my emotions : When I was greedy, when and why? When I was in fear, when and why?
How I survived a nightmare(day-mare, actually)
ZiJin-cw : Yesterday, I queued for 0.148 and it was done. Shouldnt I be jumping for joy after TWICE it shot up above 0.14(my target price) to 0.144 and 0.142, only to see it pullback the next day to go below 0.130?! Should I be relieved that I could sell it at such a "HIGH" price as I saw it plummeted to a low of 0.07 last month?? I was not in joy after I sold it, as I m seeing more upside on it TODAY as gold reaching for 1020. Now, yesterday morning it was at 1005(and even went down to 990 level days ago!!) ... so, I do know it will jump, and placing a 25% increment from the previous closing price, I thought it wont be done(like I dont wish to sell? GREED in play) ... cool. It closed at 0.155. OUCH. Later I wont be surprise if it jumps up another 10-20% to 0.17 level, and breaching new high above 0.20 soon. SHOULDNT I BE in JOY? Hmmm ...
Now, for TWO times when it breached my target price at 0.140 ... I got GREEDY and did not sell it at 0.140(lack of discipline with GREED in play). But, both of the times, it dived below 0.130 the next few trading days. I was cursing myself for not being disciplined. I SHOULD HAVE SOLD IT AT 0.140, I said. As it reached 0.125 level(FEAR in play?), I was kicking myself(in my trading room ... without anyone know about it, and also I do not write about it. This is a confession of a novice trader!) ... and promised to sell it at 0.140 the next time. Yesterday, it breached 0.140 for the third time in as many weeks.
I bought ZiJin-cw at 0.142 with great confidence it will shoot up back to 0.20 level(it dived from 0.16+ to 0.14 level when I decided to buy into it). For first few days, it went up to 0.150. I started to feel confident. I even think of buying more?? GREED in PLAY. But, I did not as that was not in my trading plan. As China markets pullback, ZiJin started to show weakness and back to 0.140 level, and without much problem, going below 0.130 after a week or so!! I do not put a stop-loss, but thought of buying more at 0.120 level.
Yes, it reached 0.120 level ... I was in FEAR and was too stunned to execute my plan? Hello novice trader, you are supposed to follow your plans? I did not. It went back to 0.130 level ... then, HAI YAH, why I didnt buy at 0.120 as planned? It it going to shoot up 0.15 soon!! Yeah, right. Emotions in play ...
Funny, it dived below 0.120 level ... and I was watching it and braved myself : You better buy at 0.10 level or else I will slap you. PIAK. I bought more at 0.10, to avoid being slapped by myself.
FEARS? Wait till you see my face when it went below 0.10, and dived to 0.07 level. I will buy at 0.05 level, I mumbled. Yeah right ... when it really reached 0.05 level, we will be shivering??! I was holding on to 180k units averaging at around 0.12, so at 0.07 ... I m losing almost half of my values. With the expiry date shorten each day, the FEAR is very real. What should I do? As I searching for answers(like looking at my palm lines and the formation of stars above) ... ok, last plunge to 0.05 ... BUY!
It rebounded from 0.07 very quickly back to 0.10 level. PHEW!! What a relieve tho I was still down. As markets in HK recovering, gold price shooting higher to 980 level ... wow. Suddenly there is a great interest in ZiJin. It was shooting like 20% per day. Do the calculations : 0.070 to 0.100, the 0.120. That was just in a week!! It reached my average price. What a relief. Suddenly the FEAR disappear(very fast) and confidence is back. Ok ... I will be VERY glad to clear it at 0.140, I told myself.
Arrghh ... it did reach 0.14 ... ok, I think it will reach higher, say to 0.15?? Then, I started to write about it 2/3 weeks ago, exposing my rollercoaster ride with it. Well, it reached 0.140 TWICE but finally I sold it yesterday as it reached 0.140 again for the third time.
ZiJin breached HKD8 yesterday to close at 8.15, a level never expected in such a short period of time. I started to stalk ZiJin in Feb when it was at HKD3.50 level.
There are so much emotions involved that I was numbed. I m learning to ride on roller-coasters and to numb myself when I trade. But, frankly ... I dont like the emotions in play. I wish I m totally emotionless. Guess I just need to learn and experience more ... I m such a novice. HAHA.
I m trying to be a contrarian but due to lack of discipline, I have not really been doing that. I tend to 'follow the herd', and being slow, I will be slaughtered. The control of emotions is VERY essential and important. Move on after we sell(not looking back with regrets due to greed) ... and hold on after we bought it. Markets up and markets down ... it is the trend that we should TRY to follow. As the saying goes, market ALWAYS win. We buy, it goes down ... we sell, it shoots higher. It is wiser to be longer term investor rather than short-term trader if we could not contain our emotions.
NOTE : The above story is fictional as it is being used to illustrate FEAR and GREED in a novice trader like me and should not be taken seriously.
http://cpteh.blogspot.com/
Greed and Fear
I have been noting down on my emotions : When I was greedy, when and why? When I was in fear, when and why?
How I survived a nightmare(day-mare, actually)
ZiJin-cw : Yesterday, I queued for 0.148 and it was done. Shouldnt I be jumping for joy after TWICE it shot up above 0.14(my target price) to 0.144 and 0.142, only to see it pullback the next day to go below 0.130?! Should I be relieved that I could sell it at such a "HIGH" price as I saw it plummeted to a low of 0.07 last month?? I was not in joy after I sold it, as I m seeing more upside on it TODAY as gold reaching for 1020. Now, yesterday morning it was at 1005(and even went down to 990 level days ago!!) ... so, I do know it will jump, and placing a 25% increment from the previous closing price, I thought it wont be done(like I dont wish to sell? GREED in play) ... cool. It closed at 0.155. OUCH. Later I wont be surprise if it jumps up another 10-20% to 0.17 level, and breaching new high above 0.20 soon. SHOULDNT I BE in JOY? Hmmm ...
Now, for TWO times when it breached my target price at 0.140 ... I got GREEDY and did not sell it at 0.140(lack of discipline with GREED in play). But, both of the times, it dived below 0.130 the next few trading days. I was cursing myself for not being disciplined. I SHOULD HAVE SOLD IT AT 0.140, I said. As it reached 0.125 level(FEAR in play?), I was kicking myself(in my trading room ... without anyone know about it, and also I do not write about it. This is a confession of a novice trader!) ... and promised to sell it at 0.140 the next time. Yesterday, it breached 0.140 for the third time in as many weeks.
I bought ZiJin-cw at 0.142 with great confidence it will shoot up back to 0.20 level(it dived from 0.16+ to 0.14 level when I decided to buy into it). For first few days, it went up to 0.150. I started to feel confident. I even think of buying more?? GREED in PLAY. But, I did not as that was not in my trading plan. As China markets pullback, ZiJin started to show weakness and back to 0.140 level, and without much problem, going below 0.130 after a week or so!! I do not put a stop-loss, but thought of buying more at 0.120 level.
Yes, it reached 0.120 level ... I was in FEAR and was too stunned to execute my plan? Hello novice trader, you are supposed to follow your plans? I did not. It went back to 0.130 level ... then, HAI YAH, why I didnt buy at 0.120 as planned? It it going to shoot up 0.15 soon!! Yeah, right. Emotions in play ...
Funny, it dived below 0.120 level ... and I was watching it and braved myself : You better buy at 0.10 level or else I will slap you. PIAK. I bought more at 0.10, to avoid being slapped by myself.
FEARS? Wait till you see my face when it went below 0.10, and dived to 0.07 level. I will buy at 0.05 level, I mumbled. Yeah right ... when it really reached 0.05 level, we will be shivering??! I was holding on to 180k units averaging at around 0.12, so at 0.07 ... I m losing almost half of my values. With the expiry date shorten each day, the FEAR is very real. What should I do? As I searching for answers(like looking at my palm lines and the formation of stars above) ... ok, last plunge to 0.05 ... BUY!
It rebounded from 0.07 very quickly back to 0.10 level. PHEW!! What a relieve tho I was still down. As markets in HK recovering, gold price shooting higher to 980 level ... wow. Suddenly there is a great interest in ZiJin. It was shooting like 20% per day. Do the calculations : 0.070 to 0.100, the 0.120. That was just in a week!! It reached my average price. What a relief. Suddenly the FEAR disappear(very fast) and confidence is back. Ok ... I will be VERY glad to clear it at 0.140, I told myself.
Arrghh ... it did reach 0.14 ... ok, I think it will reach higher, say to 0.15?? Then, I started to write about it 2/3 weeks ago, exposing my rollercoaster ride with it. Well, it reached 0.140 TWICE but finally I sold it yesterday as it reached 0.140 again for the third time.
ZiJin breached HKD8 yesterday to close at 8.15, a level never expected in such a short period of time. I started to stalk ZiJin in Feb when it was at HKD3.50 level.
There are so much emotions involved that I was numbed. I m learning to ride on roller-coasters and to numb myself when I trade. But, frankly ... I dont like the emotions in play. I wish I m totally emotionless. Guess I just need to learn and experience more ... I m such a novice. HAHA.
I m trying to be a contrarian but due to lack of discipline, I have not really been doing that. I tend to 'follow the herd', and being slow, I will be slaughtered. The control of emotions is VERY essential and important. Move on after we sell(not looking back with regrets due to greed) ... and hold on after we bought it. Markets up and markets down ... it is the trend that we should TRY to follow. As the saying goes, market ALWAYS win. We buy, it goes down ... we sell, it shoots higher. It is wiser to be longer term investor rather than short-term trader if we could not contain our emotions.
NOTE : The above story is fictional as it is being used to illustrate FEAR and GREED in a novice trader like me and should not be taken seriously.
http://cpteh.blogspot.com/
Wednesday 16 September 2009
25 Best Warren Buffett Quotes on His Strategies, Investments, and Cheap Suits
25 Best Warren Buffett Quotes on His Strategies, Investments, and Cheap Suits
Posted by Admin in KLSE Talk on 09 16th, 2009
He's called the Oracle of Omaha, and for good reason: not only is he one of the best investors of all time, but hes also a witty communicator.
Here are twenty-five awesome quotes from the man himself. I find these quotes to be especially comforting when youre financially depressed after all, he views a market slump as a good thing!so I hope these can remind everyone that we just need to do the basics, and well be OK. Be a consistent net saver, buy the market through ups and downs, be a decent human being, and rest easy.
On Investing
- Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.
- Its far better to buy a wonderful company at a fair price than a fair company at a wonderful price.
- Only buy something that youd be perfectly happy to hold if the market shut down for 10 years.
- We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.
- Why not invest your assets in the companies you really like? As Mae West said, Too much of a good thing can be wonderful.
On Success
- Of the billionaires I have known, money just brings out the basic traits in them. If they were jerks before they had money, they are simply jerks with a billion dollars.
- The business schools reward difficult complex behavior more than simple behavior, but simple behavior is more effective.
- You do things when the opportunities come along. Ive had periods in my life when Ive had a bundle of ideas come along, and Ive had long dry spells. If I get an idea next week, Ill do something. If not, I wont do a damn thing.
- Can you really explain to a fish what its like to walk on land? One day on land is worth a thousand years of talking about it, and one day running a business has exactly the same kind of value.
- You only have to do a very few things right in your life so long as you dont do too many things wrong.
On Helping Others
- If youre in the luckiest 1 per cent of humanity, you owe it to the rest of humanity to think about the other 99 per cent.
- It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, youll do things differently.
- I dont have a problem with guilt about money. The way I see it is that my money represents an enormous number of claim checks on society. Its like I have these little pieces of paper that I can turn into consumption. If I wanted to, I could hire 10,000 people to do nothing but paint my picture every day for the rest of my life. And the GNP would go up. But the utility of the product would be zilch, and I would be keeping those 10,000 people from doing AIDS research, or teaching, or nursing. I dont do that though. I dont use very many of those claim checks. Theres nothing material I want very much. And Im going to give virtually all of those claim checks to charity when my wife and I die.
- Its class warfare, my class is winning, but they shouldnt be.
- My family wont receive huge amounts of my net worth. That doesnt mean theyll get nothing. My children have already received some money from me and Susie and will receive more. I still believe in the philosophy – FORTUNE quoted me saying this 20 years ago – that a very rich person should leave his kids enough to do anything but not enough to do nothing.
On Life
- Chains of habit are too light to be felt until they are too heavy to be broken.
- We enjoy the process far more than the proceeds.
- You only find out who is swimming naked when the tide goes out.
- Someones sitting in the shade today because someone planted a tree a long time ago.
- A public-opinion poll is no substitute for thought.
Funny Ones
- A girl in a convertible is worth five in the phonebook.
- When they open that envelope, the first instruction is to take my pulse again.
- We believe that according the name investors to institutions that trade actively is like calling someone who repeatedly engages in one-night stands a romantic.
- When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.
- In the insurance business, there is no statute of limitation on stupidity.
http://klse.talkmalaysia.com/2009/09/25-best-warren-buffett-quotes-on-his-strategies-investments-and-cheap-suits/
Posted by Admin in KLSE Talk on 09 16th, 2009
He's called the Oracle of Omaha, and for good reason: not only is he one of the best investors of all time, but hes also a witty communicator.
Here are twenty-five awesome quotes from the man himself. I find these quotes to be especially comforting when youre financially depressed after all, he views a market slump as a good thing!so I hope these can remind everyone that we just need to do the basics, and well be OK. Be a consistent net saver, buy the market through ups and downs, be a decent human being, and rest easy.
On Investing
- Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.
- Its far better to buy a wonderful company at a fair price than a fair company at a wonderful price.
- Only buy something that youd be perfectly happy to hold if the market shut down for 10 years.
- We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.
- Why not invest your assets in the companies you really like? As Mae West said, Too much of a good thing can be wonderful.
On Success
- Of the billionaires I have known, money just brings out the basic traits in them. If they were jerks before they had money, they are simply jerks with a billion dollars.
- The business schools reward difficult complex behavior more than simple behavior, but simple behavior is more effective.
- You do things when the opportunities come along. Ive had periods in my life when Ive had a bundle of ideas come along, and Ive had long dry spells. If I get an idea next week, Ill do something. If not, I wont do a damn thing.
- Can you really explain to a fish what its like to walk on land? One day on land is worth a thousand years of talking about it, and one day running a business has exactly the same kind of value.
- You only have to do a very few things right in your life so long as you dont do too many things wrong.
On Helping Others
- If youre in the luckiest 1 per cent of humanity, you owe it to the rest of humanity to think about the other 99 per cent.
- It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, youll do things differently.
- I dont have a problem with guilt about money. The way I see it is that my money represents an enormous number of claim checks on society. Its like I have these little pieces of paper that I can turn into consumption. If I wanted to, I could hire 10,000 people to do nothing but paint my picture every day for the rest of my life. And the GNP would go up. But the utility of the product would be zilch, and I would be keeping those 10,000 people from doing AIDS research, or teaching, or nursing. I dont do that though. I dont use very many of those claim checks. Theres nothing material I want very much. And Im going to give virtually all of those claim checks to charity when my wife and I die.
- Its class warfare, my class is winning, but they shouldnt be.
- My family wont receive huge amounts of my net worth. That doesnt mean theyll get nothing. My children have already received some money from me and Susie and will receive more. I still believe in the philosophy – FORTUNE quoted me saying this 20 years ago – that a very rich person should leave his kids enough to do anything but not enough to do nothing.
On Life
- Chains of habit are too light to be felt until they are too heavy to be broken.
- We enjoy the process far more than the proceeds.
- You only find out who is swimming naked when the tide goes out.
- Someones sitting in the shade today because someone planted a tree a long time ago.
- A public-opinion poll is no substitute for thought.
Funny Ones
- A girl in a convertible is worth five in the phonebook.
- When they open that envelope, the first instruction is to take my pulse again.
- We believe that according the name investors to institutions that trade actively is like calling someone who repeatedly engages in one-night stands a romantic.
- When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.
- In the insurance business, there is no statute of limitation on stupidity.
http://klse.talkmalaysia.com/2009/09/25-best-warren-buffett-quotes-on-his-strategies-investments-and-cheap-suits/
Tong Herr to set up a RM632m JV steel billet plant in Vietnam
Tong Herr to set up a RM632m JV steel billet plant in Vietnam
Written by Financial Daily
Tuesday, 25 August 2009 10:21
KUALA LUMPUR: TONG HERR RESOURCES BHD [] is teaming up with four individuals of a Taiwanese family to set up a steel billet manufacturing plant in Vietnam with an investment cost of US$180 million (RM631.8 million).
Tong Herr said yesterday it had entered into a shareholders’ agreement with Tsai Ching-Tung, Tsai Min Ti, Tsai Hung-Chuan and Tsai Yi Ting for the proposed joint venture (JV) in Fuco International Ltd.
The parties had earlier agreed to cooperate in the establishment of the steel billet manufacturing business in Vietnam through Fuco Steel Corporation Ltd.
It said Fuco Steel was granted an investment approval on April 2, 2007 by the BaRia VungTau Industrial Zone Authority to produce steel billets in Vietnam.
Subsequently, Fuco Steel had on March 18, 2008 entered into a land sub-leasing contract, amended on April 20, 2009, with the Ministry of CONSTRUCTION [], Vietnam Urban and Industrial Zone Development Investment Corporation to sublease a land measuring about 304,067 square metres at Phu My II Industrial Zone, Tan Thanh District, BaRia VungTau Province for the proposed plant. The duration of the land sublease is until June 29, 2055.
Fuco International’s current shareholders are the Tsai family members. Pursuant to the agreement, Tong Herr would subscribe for a 37.04% stake comprising 18,518 shares for a total of US$19.99 million cash.
Tong Herr said the JV parties would make a total cash investment of US$54 million via the subscription of new shares of US$1,080 each in Fuco International, which in turn will be injected into Fuco Steel, while Tong Hwei Investment Ltd will invest US$6 million cash in Fuco Steel.
It said the balance of US$120 million would be financed by Fuco Steel via borrowings from financial institutions.
Fuco International will have a 90% stake in Fuco Steel, while Tong Hwei will hold the balance 10%. Tong Herr expects the plant to be operational by 2011.
Tong Herr said it would finance its obligations of US$19.99 million from internal funds.
It said the proposed JV was consistent with its objective of seeking various strategic alliances and joint venture for synergistic benefits to enable it to expand into the steel billet manufacturing industry and enter into new overseas market.
“The proposed JV also represents a good opportunity for the group to further expand its revenue in terms of going upstream in the steel industry and hence, to further broaden its earnings base,” it said.
Tong Herr said the investment certificate offered tax incentives such as corporate income tax exemption for the first four years. Fuco Steel was liable to pay corporate income tax, an annual corporate income tax of 5%, instead 10%, for the following nine years, representing a 50% discount from the annual corporate income tax of 10%, tax of 10% for the following two years and 28% annual corporate income tax for the following years as well as other investment incentives.
This article appeared in The Edge Financial Daily, August 25, 2009.
Written by Financial Daily
Tuesday, 25 August 2009 10:21
KUALA LUMPUR: TONG HERR RESOURCES BHD [] is teaming up with four individuals of a Taiwanese family to set up a steel billet manufacturing plant in Vietnam with an investment cost of US$180 million (RM631.8 million).
Tong Herr said yesterday it had entered into a shareholders’ agreement with Tsai Ching-Tung, Tsai Min Ti, Tsai Hung-Chuan and Tsai Yi Ting for the proposed joint venture (JV) in Fuco International Ltd.
The parties had earlier agreed to cooperate in the establishment of the steel billet manufacturing business in Vietnam through Fuco Steel Corporation Ltd.
It said Fuco Steel was granted an investment approval on April 2, 2007 by the BaRia VungTau Industrial Zone Authority to produce steel billets in Vietnam.
Subsequently, Fuco Steel had on March 18, 2008 entered into a land sub-leasing contract, amended on April 20, 2009, with the Ministry of CONSTRUCTION [], Vietnam Urban and Industrial Zone Development Investment Corporation to sublease a land measuring about 304,067 square metres at Phu My II Industrial Zone, Tan Thanh District, BaRia VungTau Province for the proposed plant. The duration of the land sublease is until June 29, 2055.
Fuco International’s current shareholders are the Tsai family members. Pursuant to the agreement, Tong Herr would subscribe for a 37.04% stake comprising 18,518 shares for a total of US$19.99 million cash.
Tong Herr said the JV parties would make a total cash investment of US$54 million via the subscription of new shares of US$1,080 each in Fuco International, which in turn will be injected into Fuco Steel, while Tong Hwei Investment Ltd will invest US$6 million cash in Fuco Steel.
It said the balance of US$120 million would be financed by Fuco Steel via borrowings from financial institutions.
Fuco International will have a 90% stake in Fuco Steel, while Tong Hwei will hold the balance 10%. Tong Herr expects the plant to be operational by 2011.
Tong Herr said it would finance its obligations of US$19.99 million from internal funds.
It said the proposed JV was consistent with its objective of seeking various strategic alliances and joint venture for synergistic benefits to enable it to expand into the steel billet manufacturing industry and enter into new overseas market.
“The proposed JV also represents a good opportunity for the group to further expand its revenue in terms of going upstream in the steel industry and hence, to further broaden its earnings base,” it said.
Tong Herr said the investment certificate offered tax incentives such as corporate income tax exemption for the first four years. Fuco Steel was liable to pay corporate income tax, an annual corporate income tax of 5%, instead 10%, for the following nine years, representing a 50% discount from the annual corporate income tax of 10%, tax of 10% for the following two years and 28% annual corporate income tax for the following years as well as other investment incentives.
This article appeared in The Edge Financial Daily, August 25, 2009.
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