The most popular method: buy or sell shares WITHOUT employing any valuation method

Anybody can buy or sell shares and if that's the case it is not the most accurate method of assessing value that matters but the most popular.

And the most popular method is - regrettably, or should that be thankfully - dealing in shares without employing any valuation method of all.

Invest wisely or get flattened by elephants

Invest wisely or get flattened by elephants

Anybody can buy or sell shares and if that's the case it is not the most accurate method of assessing value that matters but the most popular.
And the most popular method is - regrettably, or should that be thankfully - dealing in shares without employing any valuation method of all.


MARCUS PADLEY
February 6, 2010

Archie had his birthday this week. Seven. He is a wonderful kid having inherited all the best bits of his Mum and Dad with his everlasting smile, impartial consideration for others, dazzling good looks, the ability to talk the hind leg off a donkey, and his obsession with money - only one of which he got from me.

He is also a dedicated inquisitor, incessantly bombarding us with questions such as "Dad, what goes faster, a big jet or a small jet", "Dad, if you ditch the ants, are there more animals or humans in the world", "Dad, what would you prefer, to be sat on by an elephant, or poked in the eye by a baboon", "Dad, how many people are fishing in the world right now" and "Dad, how much money do you have in the bank".

We used to argue the relevance of the questions or the connection between the alternatives he presented but after four years of barrage we have now just learnt to answer "Animals","Big jets", "Sat on by an elephant" or "64,675,432", which unfortunately is not the amount of money I have in the bank.

So you can imagine the attack when Archie saw his first share price chart.

• "What's a chart",
• "What's a share price",
• "Why does it go up and down",
• "Why don't you know what the price is?",
• "If it was a scooter it would always be $99.95".

Ah, the clarity of youth.

• And why indeed don't we know what the share price is?
• That would be nice, if someone could simply tell us.

As rumour would have it, the most popular method of telling you what a share price should be is some form of Buffettology. Its reach is universal. There is hardly a man on the street who would not profess some ability and intention to invest on the sensible and highly publicised principles of value assessment and patience that "the Warren Buffett Way" supports. But allow me to let you in on a sharemarket secret.

• Anybody can buy or sell shares and if that's the case it is not the most accurate method of assessing value that matters but the most popular.
• And the most popular method is - regrettably, or should that be thankfully - dealing in shares without employing any valuation method of all.

Scary, but that's how shares prices move most of the time, without anyone doing any assessment of value.

• How else could the share price of the Commonwealth Bank more than halve from $62 to $24 in the global financial crisis and then more than double to $58 last month if the biggest driver of the share price was the rational assessment of the company's value.
• There is no way the bank's value fell 60 per cent and then rose 140 per cent, and it didn't, but the value of the shares did and this mismatch reveals the plain truth about shares.

There are two very different things going on in the market and every time you put on an order you have to choose to exploit one or the other with nothing in the middle.

• Either you are trading in shares and hoping the price will go up, or
• you are investing in companies and waiting for the value to surface.

Both are OK, both have intellectual pull, neither has the moral high ground (although many think they have) and you can do both at the same time. But as a buyer and seller of shares you do need to ask yourself every time an order goes on the screen "Just what am I doing?" because perhaps one of the most prevalent and enduring mistakes among clients and advisors alike is the use of the language of rational value investment as the pretence for disorderly trade. It is everywhere.

So what are you going to do?
Because I can guarantee that until you stop kidding yourself that

• you are investing in companies
• when you are in fact trading share prices

and until you choose to

• either devote yourself to a value approach
• or learn to trade with discipline

it will not matter what fantasy you have concocted for yourself,

• things will not improve and
• you will continue to be sat on by elephants and poked in the eye by baboons.

Marcus Padley is a stockbroker with Patersons Securities and the author of the daily stockmarket newsletter Marcus Today.


http://www.smh.com.au/business/invest-wisely-or-get-flattened-by-elephants-20100205-nilc.html

Also read:
Paying the price of a new Mercedes to buy a new Proton! Beware of manipulators in the market place

Paying the price of a new Mercedes to buy a Proton! Beware of manipulators in the market place

Overpriced: When you are buying a Proton for the price of a new Mercedes.

Undervalued: When you are buying a new Mercedes for the price of a Proton.

Most of the time (80%), the prices of stocks in the stock market are fairly priced.

On some occasions (80%), they are mispriced, either too high or too low relative to their intrinsic value.

If you can distinguish value and price,

• you can hope to gain a lot in the stock market, usually during the bear period, by buying a new Mercedes for the price of a Proton.  ;-)

If you are unable to distinguish value and price,

• you can conversely end up crying with a big hole in your bank account when you pay in the stock market, usually during the bull period, the price of a new Mercedes for a Proton.  :-(

Read:

Fountain View's Share Manipulators Caught And Fined!
http://whereiszemoola.blogspot.com/2010/02/fountain-views-share-manipulators.html

Zeti: Interest rates need normalisation

Zeti: Interest rates need normalisation
Written by Siti Sakinah
Friday, 29 January 2010 18:33

KUALA LUMPUR: Some “normalisation” of the interest rates are now in order after they were reduced to “unprecedented” levels following the global financial crisis, said Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz.

She said on Friday, Jan 29 that the interest rates were reduced to the current 2% to avoid a fundamental recession as the global crisis had led to an emergency condition.

“Therefore, (we) need to look forward to some normalisation of interest rates at some point,” she told reporters after a public lecture by the first holder of the International Centre for Education in Islamic Finance (INCEIF) Chair, Dr Abbas Mirakhor.

She said that the normalisation should not be looked at as a tightening, because the policy can still support growth “especially in an environment where inflation is going to remain modest”.

Asked on the danger of keeping the interest rates too low for too long, Zeti said that

• although there were no signs of asset bubble risk,
• it could lead to other financial imbalance, such as consumer moving their funds outside the country in order to enhance the return on their savings.

“It would result in them (the consumers) taking higher risk without them realising and cause problems later on,” she said, adding that if these problems were to happen, the central bank would have to implement more drastic measures, and to avoid that “we should look at some point to normalized the rates”.

Zeti said that the country was not seeing excessive leverage on home loans nor seeing the formation of an asset bubble as “borrowing by households still remains within prudential levels”. She said that Malaysia offers a wide range of advisory services so consumers had been “prudent in managing their debt and are living within their means”.

On a separate matter, Zeti said Malaysia’s plan to issue foreign banking licences would be revealed in the second half on this year as Bank Negara was currently in the process of evaluating the applications that had been sent before the Dec 31 deadline.

http://www.theedgemalaysia.com/business-news/158786-zeti-interest-rates-need-normalisation.html

Bursa 4Q net profit RM96.3m vs RM13.52m yr ago

Bursa 4Q net profit RM96.3m vs RM13.52m yr ago

Tags: Bursa Malaysia | derivatives | earnings | IPOs

Written by Joseph Chin
Thursday, 04 February 2010 13:19

KUALA LUMPUR: BURSA MALAYSIA BHD [] posted RM96.31 million in net profit for the 4Q ended Dec 31, 2009, up 612% from RM13.52 million a year ago, mainly due to the RM76.0 million gain on disposal of 25% stake in Bursa Malaysia Derivatives.

The stock exchange operator said on Thurdsay, Feb 4 that the group's 4Q09 operational profit (excluding gain on disposal of 25 per cent equity interest in Bursa Malaysia Derivatives) was RM20.3 million, up 50% from 4Q08.

"This was mainly due to the improvement of sentiments in the securities market towards the end of the year," it said. It recommended dividend of nine sen per share for 4Q09 compared with 7.8 sen in 4Q08.

Revenue was RM157.39 million versus RM71.11 million, earnings per share were 18.2 sen versus 2.6 sen.

Equities trading revenue recorded an increase of 30% to RM33.7 million in 4Q09 compared to 4Q08.

• Daily average trading value for on-market trades (OMT) and direct business trades (DBT) was higher at RM1.21 billion (4Q08: RM0.91 billion).

Derivatives trading revenue recorded a decline of 20 per cent to RM8.2 million in 4Q09 compared to 4Q08.

• The decrease was primarily due to a drop in total number of contracts traded to 1.36 million contracts in 4Q09 (4Q08: 1.45 million contracts) following the lower interest in FKLI contracts.

Stable revenue increased by 19% to RM28.3 million in 4Q09 compared to 4Q08 primarily due to

• higher public issue fees as a result of an increase in number of allotment for initial public offerings (IPOs),
• higher CDS fees in line with the improvement in the securities market,
• higher additional issue fees as a result of an increase in the number of new call warrants listed and
• higher additional listing fees as a result of an increase in corporate activities mainly from rights issuance.

For FY09,

• net profit was RM177.58 million versus RM104.42 million in FY08.
• Revenue was RM402.42 million compared with RM331.67 million.

http://www.theedgemalaysia.com/business-news/159151-ldhb-now-owns-21-of-megasteel-.html

OSK Research up Hai-O TP to RM10.55

OSK Research up Hai-O TP to RM10.55
Written by OSK Research
Friday, 05 February 2010 08:54

KUALA LUMPUR: OSK Research is maintaining a Buy on Hai-O with a higher target price of RM10.55.

It had recently hosted a corporate presentation by Hai-O which was attended by fund managers who raised questions relating to

• the company’s MLM’s expansion to Indonesia, and
• its new TECHNOLOGY [] venture.

"We gather that

• Hai-O’s MLM operations here and in Indonesia are proceeding smoothly, and
• that there are good prospects for its technology division.
• We also see ongoing expansion for the group’s retail business,"

it said on Friday, Feb 5.

OSK Research said as it believed its earnings forecast had been overly conservative previously, it was raising its FY09, FY10 and FY11 earnings by 15%-18%.

http://www.theedgemalaysia.com/business-news/159176-osk-research-up-hai-o-tp-to-rm1055.html

Crowded skies squeeze Asia's budget carriers

Crowded skies squeeze Asia's budget carriers
Written by Reuters
Friday, 05 February 2010 21:01

SINGAPORE: Asian airlines, particularly budget carriers, may be taking off on a high-risk strategy -- ordering hundreds of aircraft to offer new routes and more flights, just as growth in low-cost travel is seen slowing, according to Reuters.

Over the next five years, budget carriers from Malaysia's AirAsia to Singapore's Tiger Airways will take delivery of over 500 planes, meaning a capacity increase of 15 percent a year -- double what some observers are forecasting.

The real prospect that some budget carriers, and the full-service airlines they compete with, may not survive the dogfight could, in turn, mean billions of dollars of cancelled orders for Boeing and Airbus.

Asia has become the largest market for the two big planemakers, accounting for a third of outstanding orders.

"Not all airlines will survive," said Terence Fan, assistant professor at Singapore Management University. "Mid-double-digit growth is a lot to achieve, and the aviation industry has had a lot of ups and downs."

"We're already seeing Thai Airways, for example, reduce its short-haul flights from Bangkok because of competition from low-cost carriers," Fan added.

Fan, who last year published a paper on Europe's passenger airline industry, noted around 130 airline start-ups there in the 10 years to 2006. Only about 50 survived, and that number has since fallen further.

While Ryanair and Easyjet have thrived and become major players in Europe, others such as SkyEurope, described by consultancy Skytrax as the best low-cost carrier in Eastern Europe, have gone bankrupt, Fan said.

Asian low-cost carriers have grown rapidly over the past decade and now account for 14 percent of intra-Asia travel, according to Airbus estimates.

Indonesia's Lion Air, for example, has outstanding orders and options for over 100 Boeing 737-900s, each with a list price of around $80 million. AirAsia will boost its Airbus A320 fleet to 175 planes by end-2015 from 70 now.

SLOWING GROWTH

But, while budget carriers achieved compounded growth of 38 percent between 2001-09, the overall intra-Asia market expanded at just 6 percent, Airbus figures showed.

Boeing said this week it expects new orders for commercial aircraft to fall short of deliveries, with no increase in demand until 2012.

Boeing had gross orders from airlines for 263 planes last year, but net orders of 142 planes after cancellations. Airbus had gross orders of 310 planes and net orders of 271.

Alex Glock, Asia Pacific managing director for Brazilian planemaker Embraer, said the golden years for low-cost carriers ended with the global financial crisis, when many suffered falling demand, much like the full-service airlines.

In the last two years, the number of low-cost carriers in Asia Pacific fell to 17 from 20, and the number of flights dropped to 11,956 from 12,034.

Glock sees regional demand growing at an average annual rate of 7 percent, following a spike in the next two years as traffic returns to pre-recession levels.

"Even though low-cost carriers grew more than the regional average, the growth spurt has passed," he said.

Many of Asia's budget airlines are also losing money.

In India, a host of low-cost and conventional airlines have emerged to challenge state-owned Air India and Indian Airlines and, in Macau, Viva is seeking financial assistance from the government to stay afloat.

Even so, analysts expect low-cost carriers to do better than the overall industry by opening new routes and picking up market share from second-tier flag carriers such as Indonesia's Garuda.

"This sector will continue to gain market share particularly in Asia's emerging economies. The region is dynamic, has huge populations with vast physical distances and enjoys rising incomes," said Tan Teng Boo, CEO of Malaysian-based Capital Dynamics, which manages $300 million.

But Tan said he does not own airline shares.

"The airline business, though glamorous, is very tough. The industry has loads of players and airlines don't have pricing power. It's essentially a commodity business with very high capital requirements and low margins." - Reuters

http://www.theedgemalaysia.com/business-news/159247-crowded-skies-squeeze-asias-budget-carriers.html

Latexx Partners 4Q net profit up 157% to RM17m

Latexx Partners 4Q net profit up 157% to RM17m
Written by Joseph Chin
Friday, 05 February 2010 17:47

KUALA LUMPUR: LATEXX PARTNERS BHD []'s net profit in the fourth quarter ended Dec 31, 2009 jumped 157% to RM17.27 million from RM6.72 million a year ago, underpinned by

• recent capacity expansion,
• aggressive marketing strategy and
• overall cost savings.

The glove maker said on Friday, Feb 5

• group revenue increased 47.1% to RM102.84 million from RM69.86 million while
• pre-tax profit increased 158.8% to RM17.39 million from RM6.72 million.
• Earnings per share were 8.86 sen versus 3.45 sen.
• It proposed a dividend of one sen per share.

For FY09,

• group revenue rose by 47.1% to RM328.43 million from RM223.25 million in FY08 while
• net profit jumped 243% to RM52.1 million from RM15.19 million.
• Profit before tax increased 243.6% to RM52.22 million from RM15.20million.

On the outlook, Latexx was upbeat about repeating the FY09 growth in tandem with the growth of world demand for medical gloves in the health sector.

"The strategy of increasing capacity and switching to a better mix of products coupled with more aggressive marketing efforts into new markets will contribute to a sustained flow of profitability," it said.

• Latexx said the installation of eight double formers production lines was completed in December 2009 and is in full operation.
• In addition, the CONSTRUCTION [] of an additional production plant adjacent to existing production facilities is in progress.
• It is expected to start operation in early 2010 and total capacity will increase to 9 billion pieces per annum by 2011.

On Jan 8, Latexx teamed up with Dutch company Budev BV to manufacture and distribute natural rubber gloves that would have non-detectable level of proteins and allergens.

This tie-up with Budev would enable the group to produce a new and potentially higher margin product.

"The JV is expected to benefit the group with a major technological boost and a competitive advantage in the global market. In addition, the group has also targeted to increase nitrile output to more than 30% in the 1st quarter FY2010 due to strong demand," it said.

http://www.theedgemalaysia.com/business-news/159228-latexx-partners-4q-net-profit-up-157-to-rm17m.html

Note:  Latexx's three-year EPS CAGR of 104.4% is the highest in the industry (CIMB Research Feb 2)

Factors influencing decision making process-Stock Market

Factors influencing decision making process-Stock Market
Nits | Feb 05, 2010 | 0 comments


Factors influencing Decisions:
A Quest for the proper course of Decision-making in Share-investments

It has been seen for a long time that human being is not always rational and his decisions are not always objective. For instance, if one watches share market, technically the price of a stock should be reflection of its P/E, P/CF & P/BV values, but such is not the case most of times, because the prices of indices are also governed by various aspect and factors of human mindset- expectations, sentiments and excitement to name a few.

This unpredictability of human behavior has led to emergence of a new field in psychology termed as ‘Behavioral Finance’. Behavioral Finance is the study of roles of behavioral factors in the field of finance, especially investment

It is well-known fact that intelligence is one of the important factors, besides hard work and perseverance for achieving success in life. It is generally expected from an intelligent individual to perceive and understand situation properly, think rationally and reason out everything, before making any decision. Clarity of goal, a well-thought strategy to achieve the same, moderate level of motivation, a disciplined behavior with flexibility to reassess the strategies with new developments is certain other requirements to achieve success. This is applied everywhere, in all decisions and goals including individual’s investment decisions as well.

But since human beings do not live in isolation, therefore there are other factors as well which influence his interpersonal relations, and consequently his decisions. Rationality in a man’s decisions or behavior is not always seen as to be expected from them. For instance, people do make different decisions in the two similar situations or behave similarly in two different situations depending upon their emotive state of mind. Thus, emotion plays a vital role in influencing his behavior and decisions. This becomes more apparent in case of investment-related decisions when taken in relation to the share market.

But debate does not end just here. Human beings are not just born for investment; they have other things to do as well. There are numerous occasions when people make mistakes in investment-decisions mostly under the influence of emotions and stress. It is not possible for a person to be totally immune to his emotions, but once he is aware of the risks involved with emotional instability, one can limit the losses. In this context, fear and greed are the most well-known emotions. There is tendency in human-beings to make more money in short time and this tends him to invest in share-market, even when it is at boom. So when market is bearish, the emotion of fear replaces greed. Human-beings love profit, but hate loss even more. A slightly negative indication brings in a lot of negative emotions and consequently, fear comes in. Initially, investor holds position (while rationally, if he wants to quit, he should book losses at that time only) and once the market’s bottoming out tendency to quit gets bigger (though if investor has been rational, he should have waited for a little longer duration and should have stuck to his position). In this way, it would not be wrong to say that not only fear and greed have negative effect on rational thinking, but they also have adverse effects on the long-term strategies of individual. These two unfortunate passions bring in impulsiveness in the individual’s character and continue to press him to take irrational decisions.

Further, Defense-mechanism of denial used by a person to save his self esteem and his ego are also significant factors which prove dangerous in the long run. An investor is, most of the times, adamant to accept that he has made wrong decision. So, he sticks to his decision and end up holding his loosing position longer than what should have been. The anticipation of ‘being wrong’ by any investor, cuts his losses and enables him to take decisions which help him to recover the loss.

Another aspect of Defense-mechanism of denial is its effect on analytical reasoning. Under emotional state of denial, an individual perceives selectively. He tends to emphasize data and information which confirm his position and viewpoint. It also restricts the individual to rationally analyze any new adverse information. Sometimes, it also generates tendency to overemphasize any subtle good indicator and underemphasize the bad indicators, and so, compel the investor to continue with the loosing position, thus aggravating loses.

These factors always influence the decisions of an individual, but the degree of their influence differs. Now, it depends on the individual how he (or she) manipulates these factors for profit. A good investor is one who not only comes out of loss by applying logical thinking but also makes it profitable one. Moreover, one should not stick to his decisions , if situations have changed. The people with low self-esteem and low EQ stick with their decision and apply defense mechanism. False impression of hope leads them to further losses. They even set aside the direction of necessary indicators.

So, to be a good investor, the proper way to act is not simply to book profit at appropriate time, but also to minimize losses in the adverse situations.

’Never Say Die’

Read more:
http://ansblog.com/2010/02/factors-influencing-decision-making-process/#ixzz0ehyAKUQA
http://ansblog.com/2010/02/factors-influencing-decision-making-process/

Fund charges exposed as fees outstrip returns

Fund charges exposed as fees outstrip returns

More than £100 billion is invested in funds where the fees charged have outstripped investment returns over the past 10 years.

Published: 6:51AM GMT 02 Feb 2010

Millions of investors have their pensions and long-term savings in funds where the managers have taken more in fees than they have delivered in returns over the past decade.

New research – seen exclusively by The Daily Telegraph – has looked at the performance of the biggest pensions, insurance and investments funds in Britain – and it makes sobering reading.

More than £100 billion is invested in funds where the fees charged have outstripped investment returns over the past 10 years. In total, the managers of these funds have received almost £10 billion in fees.

Many of these funds are run by some of our best-known banks and insurers. Matthew Morris, a former financial adviser who conducted this research, said: "Special mention should be made of Scottish Equitable, NatWest, Scottish Widows, Scottish Life and Phoenix, all of whom have too many funds that meet these depressing standards."

NatWest (part of the RBS group) and Scottish Widows (now owned by Lloyds Banking Group) are now both partly owned by the Government.

The Daily Telegraph contacted all the above providers and only Scottish Equitable and Phoenix replied.

A spokeswoman for Scottish Equitable said: "We take fund performance very seriously. We've made changes to personnel and investment strategy to address areas of underperformance. Figures are improving, but in some cases not as quickly as we'd like."

A spokesman for Phoenix said: "Many of these policies have guarantees, the value of which exceeds the asset share. And in this case the investment return earned, whether good or bad, may not impact the payment a policyholder receives."

Mr Morris conducted the research for the financial website he runs – www.howmuchdoineedtoretire.co.uk – which offers consumers information about their retirement options.

He says: "There is a staggering amount of money invested in these underperforming funds, where the manager hasn't even been able to deliver sufficient returns to cover his own fee.

"We decided to create a list of those funds, which have a significant size (more than £100 million) and the returns averaged at less than 1 per cent a year."

A total of 260 funds met these criteria. To put this in context, over the same 10-year period

• the FTSE100 returned 9.8 per cent (including dividend payments),
• the FTSE All-Share was up by 18.6 per cent and 
• the average investment fund delivered a return 41.5 per cent.

But Mr Morris has also identified 45 funds within this group that "stood out from the crowd" because of their disappointing performance and their size – a number of which are listed in the table above.

These funds, he says, have failed their investors "on every count we can measure".

There is, of course, a cost to investing, be it

• an upfront fee charged on a pension or unit trust, 
• annual management charges deducted, or 
• the charges levied when a manager buys and sells investments within a fund.
• There are also tax charges to be taken into consideration, some of which are automatically deducted within a fund, others that are only paid when you cash in an investment.

It has been a tough decade for investors, with two sustained periods of falling share prices. During periods of volatility and lower investment returns, it pays to keep an eye on costs, which can obliterate slim returns.

There are a number of steps investors can take to reduce the cost of investing. Those buying an investment fund, such as a unit trust or Isa, should look to use a discount broker, where any commission charges are usually refunded in full.

Many fund managers will automatically deduct up to 5 per cent upfront as an "initial charge", which can take more than a year to recover in poor markets.

Annual management fees are often far lower on "passive" investments such as tracker funds, or exchange traded funds (ETFs), where the return is linked to the performance of a given stock market index (for example, the FTSE100) rather than paying a fund manager to manage a portfolio of selected stocks.

Many tracker funds now charge less than 1 per cent a year, and some ETF have expense ratios as low as 0.35 per cent. However, it is still normal for actively managed funds to charge 1.5 per cent a year.

Mr Morris adds: "There are occasions where a fund manager can justify taking a higher fee than they return. In the short term, this may frequently happen as investment values go down, but regular fees will still be deducted."

In some cases, this can happen over longer periods, too. Anyone who invested in a Japanese fund in the Nineties could not have avoided the extreme fall in share prices seen over this decade. But over 10-year periods such examples are few and far between.

For every fund where there is a genuine reason for a period of sustained underperformance, there will be many more where there is no justification for such poor returns.

As well as keeping an eye on costs, investors should regularly review the performance of all their savings and investments. This does not only mean looking at whether you have made money or not, but also checking how the fund managers rate in relation to their peers.

All funds should state what sector they are in and how they "benchmark" returns. So a fund invested in the US market might be benchmarked against the Dow Jones index, and should be compared against US fund managers.

If this market goes into decline, you would expect the fund to lose money, but the pertinent question to ask is whether your manager has lost less than others in this sector. If a manager seriously underperforms for an extended period – say three years – investors should consider moving their money elsewhere.

Those funds listed above have all underperformed over extended periods. The Scottish Equitable European Pension fund has lost almost 1 per cent in value over 10 years, compared to an average growth of 2.7 per cent in this sector.

It also has the unenviable record of being ranked bottom out of the 73 funds in its sectors over five years; and coming 43rd out of 43 funds over the decade.

Mr Morris says he would like the fund managers either to improve returns, reduce charges or start offering refunds. This seems unlikely, though, in the current climate.

But while billions remain languishing in these funds, it is not hard to see why managers continue to take their large fees. Investors need to start switching from fund managers who don't offer a commensurate return on their investment.

If enough people took action, these managers may not collect such generous bonuses, and you may start to see a decent return on your money.

A full list of funds that have underperformed can be found at www.howmuchdoineedtoretire.co.uk/thefundslist.html 

http://www.telegraph.co.uk/finance/personalfinance/7134695/Fund-charges-exposed-as-fees-outstrip-returns.html

Wealth workout: can savers fight back in battle for better rates?

Wealth workout: can savers fight back in battle for better rates?

For the 11th month in a row the Bank of England has voted to keep the Bank Rate on hold at 0.5pc, a decision that continues to cripple savers.

By Michelle Slade of Moneyfacts.co.uk
Published: 3:53PM GMT 04 Feb 2010

So much so that, in the year to February 2010 on a £10,000 balance, savers in an average-paying easy-access account earned just £76 in interest, over four times less than they would have earned in the year to February 2009.

The average interest rate for a £1,000 balance in an instant or easy access account is currently 0.88pc, which is well below the latest inflation rate (2.9pc for the Consumer Prices Index and 2.4pc for the Retail Prices Index), according to Defaqto, the analyst. Some accounts pay as little as 0.01pc whereas the Coventry’s Building Society’s easy access 1st Class Postal pays 3.15pc on balances of £1,000 or more.

Those who have been hit hardest by such a significant decline are those who rely on their savings to supplement their income, many of whom are pensioners, who either had to make sweeping lifestyle changes or have eroded their capital to get by. However, disgruntled savers are fighting back with the launch of the action group Save Our Savers, which is putting pressure on the Government and policy-makers for a fairer deal.

The calls for a better deal for savers have so far failed to reach the ears of the providers as the trend for cutting rates, particularly on fixed-rate bonds, continued this week. The only positive news remains for those looking to invest their Isa allowance, where the average rate has increased from 2.05pc to 2.12pc since last month, with further rises expected in the next few weeks as Isa season really takes hold.

http://www.telegraph.co.uk/finance/personalfinance/savings/7155863/Wealth-workout-can-savers-fight-back-in-battle-for-better-rates.html

Savers should ask themselves why they are staying in cash

The Bank of England's decision to switch 70pc of its staff pension fund into index-linked gilts was a heavy hint about what to expect.

By Ian Cowie
Published: 7:55AM GMT 22 Jan 2010

It's a daunting thought that inflation would halve the purchasing power of money during the time many people now spend in retirement if it remains at the higher levels announced this week.


Worse still, no less an authority than the Governor of the Bank of England forecasts that inflation will continue to rise, when this month's increase in Value Added Tax (VAT) has its inevitable effect on prices.

While the nominal figures themselves look like pretty small beer to anyone who can remember the 1970s, this insidious disease of money remains a real threat to savers – who, let's remember, outnumber borrowers by six to one.

Pensioners and others who rely heavily on savings and have no scope to earn their way out of this fiscal black hole are the most vulnerable of all.

If the Consumer Prices Index (CPI) were to remain at its new level of 2.9pc – compared to 1.9pc a month before – it would take less than 25 years for you to need £2 to buy what £1 buys today.

While some comfort can be drawn from the fact that the Retail Prices Index (RPI) is running at only 2.4pc per year, this measure of inflation is rising even more rapidly than the CPI; having jumped from only 0.3pc.

None of this will come as any surprise to regular readers. As pointed out in this space several times last year, the Government's policy of "quantitative easing" was bound to boost inflation – as printing money has always done in the past.

The Bank of England's decision to switch 70pc of its staff pension fund into index-linked gilts was another heavy hint about what to expect.

Looking forward, fixed-return bonds and deposits seem set to disappoint savers by repaying them with paper that buys less than their original capital.

Anyone keen to preserve purchasing power over the medium to long term should consider shares and share-based funds, particularly while the FTSE 100 index of Britain's biggest stocks is yielding an average of 3.3pc net of basic rate tax.

The only argument for delaying a move out of deposits – where the average instant access account pays just 0.75pc gross – is that share prices may be lower, and yields higher, after the General Election. 

http://www.telegraph.co.uk/finance/personalfinance/comment/iancowie/7050204/Savers-should-ask-themselves-why-they-are-staying-in-cash.html

Valentine's Day: Top 10 tips for flirting

Valentine's Day: Top 10 tips for flirting
Flirting tips from the experts.


By Casilda Grigg
Published: 12:21PM GMT 12 Feb 2009

valentines day- top 10 tips for flirting Photo: Universal Studios

# Listen to what the other person is saying – it’s the most seductive thing in the world.
# Smile. ''When you smile you secrete hormones that make you feel good,’’ says Pete Cohen.
# Think positive. ''Don’t talk yourself into doubt, fear and angst,’’ says Peta Heskell.
# Try to stay calm. ''It’s like a radio station,’’ says Cohen. “If you are coming from Nervous & Anxious FM you’ll be transmitting that.’’
# Be comfortable in your skin. Natural flirts include Brad Pitt, George Clooney and even David Beckham.
# Don’t limit your efforts to people you fancy. Connect with people randomly. It’s a great way of building up flirting skills.
# Look at the other person properly. Successful flirting is all in the eyes.
# Don’t be afraid to use props. Dogs, hats and even spare babies (not your own) are natural conversation starters.
# Try not to argue with compliments. If a man admires your outfit resist the urge to say “What, this old rag? I bought it for two quid at Oxfam”. Just say thank you and move on.
# Avoid the impulse to tell sad loser stories, however entertaining and witty. Aim for a playful, light-hearted, spontaneous mood. Never mention exes.

Eurozone 'pigs' are leading us all to slaughter

Eurozone 'pigs' are leading us all to slaughter
The financial crisis is coming to a new, potentially more deadly phase, says Jeremy Warner.


By Jeremy Warner
Published: 7:17PM GMT 05 Feb 2010

The 'pigs' of the Eurozone are causing worries for the other members Photo: AFP/Getty Images

Are we about to enter a third, and this time fatal, leg of the financial crisis? The problems of euroland which have so unsettled markets this week – and in particular those of Portugal, Ireland, Greece and Spain (the "pigs", as they have become known in financial circles) – are worrying enough in themselves.

But they are also a proxy for much wider concern about how national governments extract themselves from the fiscal and monetary mire they have created in fighting the downturn. It's proving messy, though, and they are running the risk of provoking an even worse crisis in the process.


Think of the three phases of the economic implosion like this.

1.  The first was a fairly conventional, if extreme, banking crisis where a cyclical overexpansion of credit and lending suddenly, and violently, corrects itself in a great outpouring of risk aversion.

2.  In the second phase, governments and central banks attempt to counter the economic consequences of this crunch with unprecedented levels of fiscal and monetary support. Temporarily, at least, it seemed to work.

Until now, investors have been happy to finance the resulting deficits, in part because government bonds have seemed the only safe place to put your funds, but also because central banks have, in effect, been creating money to compensate for the paucity of private-sector credit. The mechanism varies from region to region, but much of this new money has found its way into deficit financing.

3.  We are now entering the third, inevitable phase of the crisis where markets question the ability of even sovereign nations to repay their debts. Unnerved by this loss of fiscal and monetary credibility, governments and central banks are being forced, much sooner than they would have wished, to start withdrawing their support.

I say earlier than they would have wished because the recovery is not yet assured. Private demand and credit provision remain subdued. Policy-makers knew they would eventually have to abandon their fiscal and monetary support, but the timing of it may no longer be a matter of choice.

The first tremors around these so-called "exit strategies" occurred in Dubai a few months back when the emirate, fearing for its own solvency, shocked markets by announcing that it no longer stood behind the debts of its financially stretched state-owned enterprises. In this case, Dubai's fellow and richer emirate, Abu Dhabi, eventually came to the rescue.

It is much less clear that Greece, Spain, Portugal and Ireland can rely on similar support, either from richer members of the euro area or the European Central Bank.

For the "pigs", membership of the euro excludes the easy option, which is to devalue and turn on the printing presses according to local needs. Instead, monetary policy, and increasingly fiscal policy too, are dictated by Germany and France, the core euro nations.

Whether the fiscal consolidation demanded is politically feasible looks questionable. And even if these countries do succeed in making the necessary adjustments, they may face a classic deflationary debt spiral, where slashing the deficit causes the economy to shrink further which, in turn, increases the deficit.

Little surprise, then, that one of the big bets in markets right now is that these distressed members of the euro will be forced either into default, or rather like Britain with the ERM in the early 1990s, out of the single currency altogether. Serious knock-on consequences for creditor economies would follow.

Yet to true believers in the doomsday scenario, even an outcome as extreme as this would not be the end of the crisis. Fiscal ruin is not confined to the southern European nations. The hors d'oeuvre consumed, it would be on to the main course – the default of one or more of the big, triple-A rated sovereigns. Financial and economic chaos would follow quickly in its wake.

There's a world of worry out there, fed by self-interested speculators, which is proving hard to counter. Yet things rarely work out as predicted, and though nobody should be in any doubt about the scale of the economic adjustment still to be made in Western economies, more benign outcomes are still possible. Bigger, advanced economies with their own currencies are better placed to manage their exits than the "pigs".

However, right now, both Washington and London seem gripped by the sort of political paralysis that can indeed prove lethal. We should not assume that the sudden loss of market confidence that has afflicted Greece – essentially a developing market economy that should never have been in the euro in the first place – will be confined to the "pigs". The burgeoning size of public indebtedness the world over makes all economies vulnerable.

Even so, this week's tremors should be seen as more of a warning than the beginning of a fatal endgame. The austerity of tighter fiscal and monetary conditions is coming to all of us. With or without the compliance of policy-makers, the markets will impose it. But it doesn't have to be a rout.

http://www.telegraph.co.uk/finance/comment/jeremy-warner/7168631/Eurozone-pigs-are-leading-us-all-to-slaughter.html

Share investments soar as consumers hunt for returns

Share investments soar as consumers hunt for returns
Consumers paid a record amount into investment funds last year as they looked for a better return on their money than putting it in the bank.


By Philip Aldrick
Published: 6:30AM GMT 03 Feb 2010

Net sales of UK-based unit trusts and OEICs (open-ended investment companies) shot up to £25.8bn, the highest level since records began in 1992, according to the Investment Management Association (IMA).

The figure was 45pc higher than the previous record set in 2000, when new investments totalled £17.7bn. It was six times higher than the £3.8bn of sales in 2008.

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A spokesman said: "Low returns on savings accounts caused people to look at putting their money into other assets. At the same time, the recession caused them to increase their savings levels."

Overall, £9.9bn of new funds were invested in bonds and £7.3bn in shares over the year – a sharp turnaround from 2008, when people withdrew £1.3bn from the stock market. Richard Saunders, chief executive of the IMA, said: "This trend can be traced back to the autumn of 2008 in the immediate aftermath of the Lehman crash.

"Investors have prudently chosen wide diversification both across asset classes and geographically – in marked contrast to the previous record year of 2000. And it is good to see people once more investing via ISAs, after five years in which ISAs saw higher levels of withdrawals than investments."

Net new investment in ISAs, tax-free investment funds, climbed to £2.8bn – the highest since 2001.

The surge in investments, combined with strong stock market growth during the year, also helped to push up the value of funds under management to record levels.

At the end of December funds under management, including money held for institutional investors, totalled £481bn – £119bn more than in 2008.

http://www.telegraph.co.uk/finance/personalfinance/investing/7139872/Share-investments-soar-as-consumers-hunt-for-returns.html

Global stock market shakeout spreads to Asia

Global stock market shakeout spreads to Asia
Asian stocks tumbled on Friday after Wall Street dropped overnight on worries the global recovery is weaker than many expected.



Major markets from Tokyo to Hong Kong to Sydney dropped about 3pc or more after US stocks fell on bad news about American unemployment levels and European debt.

Oil prices slipped to near $73 a barrel, adding to a big slide overnight, while the dollar continued to gain against the euro, which was at its lowest since May.

Japan's benchmark Nikkei 225 lost 2.8pc, or 293.33 points, to 10,062.65 and China's Shanghai Composite Index fell 1.6pc, or 50.85, to 2,945.13. Hong Kong's Hang Seng was down 3.2pc at 19,701.33.

In the US on Thursday, the Dow Jones industrial average closed down 268.37, or 2.6pc, at 10,002.18 after briefly trading below 10,000 for the first time in three months. That came after the Labor Department said claims for unemployment benefits rose by 8,000 to 480,000 last week, disappointing investors who hoped for a decrease.

The slide began in Europe, where markets were dragged down by concern about high debt levels in Greece, Spain and Portugal. It is becoming harder for countries to contain rising debts and to borrow money to spend their way out of recession. Spain's IBEX tumbled 5.9pc, London's FTSE 100 2.2pc, Germany's CAC 2.5pc, and France's CAC 2.7pc.

Elsewhere in Asia, South Korea's Kospi was off 3pc at 1,568.33 and Taiwan's Taiex dived 3.3pc. Sydney's S&P-ASX 200 slid 2.8pc.

http://www.telegraph.co.uk/finance/markets/7162843/Global-stock-market-shakeout-spreads-to-Asia.html

Greece crisis: There but for the grace of God goes Britain

Greece crisis: There but for the grace of God goes Britain

Should markets pass the same verdict on Britain as on Greece, the results would be almost identical - and just as disastrous, says Edmund Conway.


By Edmund Conway
Published: 6:47AM GMT 04 Feb 2010



It was one of those moments that can only happen in a place like Davos. There I was last week, having a coffee and minding my own business, when from a nearby table I heard a desperate voice. I assumed it belonged to a beleaguered bank executive, or a stricken hedge fund manager. “We are doing everything we can,” he said, “but the markets don’t care.”

I looked up and realised the voice belonged to the Greek prime minister. His arms crossed defensively, George Papandreou was now listening as one of the world’s top economists told him he thought his best bet was to seek an emergency bail-out from the International Monetary Fund.

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A recession for the many, not the few

Greece is indeed buried deep in the financial mire. At first gradually, and then with alarming speed, the country has lost credibility with investors to such a degree that it is now having to offer an interest rate of 7 per cent to persuade them to buy its debt, compared with 4.5 per cent a few months ago.

Some, including Papandreou, characterise this as a speculative move aimed at splitting up the euro; others see it as a statement of economic disgust at a country whose public finances, always bad, have now dipped into no-hope territory.

There is some truth to both theories, but, more important, at least for both Gordon Brown and David Cameron, there is a broader lesson: the only thing that matters more than knowing what to do about the deficit is persuading the markets that you know what you’re doing about the deficit. Because there but for the grace of God goes Britain. There is no knowing how and when investors will lose their faith in a government, but when it’s gone, there isn’t much you can do to get it back.

Greece, in other words, is the fiscal Petri dish that reveals in gory detail what could happen in the UK if this Government – or the next – fails to maintain the confidence of investors. It is not merely that those interest rates are already inflicting an awful toll on borrowers in Athens and beyond. It is that they are sending the national government towards a full-blown debt spiral, in which the cost of its annual interest bill becomes so unmanageable that it can hardly afford to supply its citizens with basic services.

I have pointed out before that countries, like individuals, occasionally reach the point where they have borrowed so much that their debt simply becomes impossible to whittle away. Greece, the markets seem to think, has now passed that point. And an IMF bail-out would only layer new debt on top of the old. In the end, the only solution is to find some way to slash spending and raise taxes without a) sparking riots or revolution and b) critically damaging the economy.

Should markets pass the same verdict on Britain as on Greece, the results would be almost identical. In its Green Budget yesterday, the Institute for Fiscal Studies, with the help of Barclays Bank, attempted to map out what would happen if the Government failed to achieve the necessary cuts in its budget in the coming years. The verdict: a “very large, and fast-acting” impact on interest rates, pushing them even higher than Greek rates today.

Still, we are not there yet. And there are four reasons to be cautiously optimistic about Britain’s chances. The first is that much of the population is already reconciled to some form of austerity. Both main parties want to cut the deficit sharply, and although the Tories talk a little tougher, in economic terms there is actually not that much clear water between their proposals and those already laid out by the Treasury.

Second, the UK started the crisis with national debt below 40 per cent of gross domestic product, compared with Greece, whose national debt was already close to the 100 per cent of GDP – near the tipping point for a debt spiral. Third, it is a little-appreciated quirk of the British market that, rather like a homeowner on a long fixed-rate mortgage, the Government has to roll over its debt far less regularly than other countries, so is significantly insulated from a Greek-style crisis.

And fourth, unlike Greece, Britain has its own currency, which affords it more leeway to adjust.

But as Greece has shown, a credibility collapse can take place even when you least expect it. Despite George Osborne’s pledge earlier this week to safeguard Britain’s credit rating, some still reckon there is an 80 per cent chance of the UK losing its coveted triple-A status – something that could trigger an investor panic.

So both main political parties should, as a matter of course, prepare detailed emergency plans saying what overnight cuts they would impose in the event of a similar crisis.

However, avoiding such a credibility collapse will not spare Britain from having to drag itself through an economic transformation with the same end: to reduce debt and to live within its means. For some countries, the financial crisis was painful because people suddenly started spending less. For Britain, it uncovered the fact that the nation had duped itself into believing it was more prosperous than it really was. We mistook a debt bubble and the proceeds of financial engineering for sustained and lasting growth. Time to get real. 

http://www.telegraph.co.uk/finance/comment/edmundconway/7153169/Greece-crisis-There-but-for-the-grace-of-God-goes-Britain.html

Fears of 'Lehman-style' tsunami as crisis hits Spain and Portugal

Fears of 'Lehman-style' tsunami as crisis hits Spain and Portugal

The Greek debt crisis has spread to Spain and Portugal in a dangerous escalation as global markets test whether Europe is willing to shore up monetary union with muscle rather than mere words.


By Ambrose Evans-Pritchard
Published: 7:29PM GMT 04 Feb 2010


Julian Callow from Barclays Capital said the EU may to need to invoke emergency treaty powers under Article 122 to halt the contagion, issuing an EU guarantee for Greek debt. “If not contained, this could result in a `Lehman-style’ tsunami spreading across much of the EU.”

Credit default swaps (CDS) measuring bankruptcy risk on Portuguese debt surged 28 basis points on Thursday to a record 222 on reports that Jose Socrates was about to resign as prime minister after failing to secure enough votes in parliament to carry out austerity measures.

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Parliament minister Jorge Lacao said the political dispute has raised fears that the country is no longer governable. “What is at stake is the credibility of the Portuguese state,” he said.

Portugal has been in political crisis since the Maoist-Trotskyist Bloco won 10pc of the vote last year. This is rapidly turning into a market crisis as well as investors digest a revised budget deficit of 9.3pc of GDP for 2009, much higher than thought. A €500m debt auction failed on Wednesday. The yield spread on 10-year Portuguese bonds has risen to 155 basis points over German bunds.

Daniel Gross from the Centre for European Policy Studies said Portgual and Greece need to cut consumption by 10pc to clean house, but such draconian measures risk street protests. “This is what is making the markets so nervous,” he said.

In Spain, default insurance surged 16 basis points after Nobel economist Paul Krugman said that “the biggest trouble spot isn’t Greece, it’s Spain”. He blamed EMU’s one-size-fits-all monetary system, which has left the country with no defence against an adverse shock. The Madrid’s IBEX index fell 6pc.

Finance minister Elena Salgado said Professor Krugman did not “understand” the eurozone, but reserved her full wrath for the EU economics commissioner, Joaquin Almunia, who helped trigger the panic flight from Iberian debt by blurting out that Spain and Portugal were in much the same mess as Greece.

Mrs Salgado called the comparison simplistic and imprudent. “In Spain we have time for measures to overcome the crisis,” she said. It is precisely this assumption that is now in doubt. The budget deficit exploded to 11.4pc last year, yet the economy is still contracting.

Jacques Cailloux, Europe economist at RBS, said markets want the EU to spell out exactly how it is going to shore up Club Med states. “They are working on a different time-horizon from the EU. They don’t think words are enough: they want action now. They are basically testing the solidarity of monetary union. That is why contagion risk is growing,” he said.

“In my view they underestimate the political cohesion of the EMU Project. What the Commission did this week in calling for surveillance of Greece has never been done before,” he said.

Mr Callow of Barclays said EU leaders will come to the rescue in the end, but Germany has yet to blink in this game of “brinkmanship”. The core issue is that EMU’s credit bubble has left southern Europe with huge foreign liabilities: Spain at 91pc of GDP (€950bn); Portugal 108pc (€177bn). This compares with 87pc for Greece (€208bn). By this gauge, Iberian imbalances are worse than those of Greece, and the sums are far greater. The danger is that foreign creditors will cut off funding, setting off an internal EMU version of the Asian financial crisis in 1998.

Jean-Claude Trichet, head of the European Central Bank, gave no hint yesterday that Frankfurt will bend to help these countries, either through loans or a more subtle form of bail-out through looser monetary policy or lax rules on collateral. The ultra-hawkish ECB has instead let the M3 money supply contract over recent months.

Mr Trichet said euro members drew down their benefits in advance -- "ex ante" -- when they joined EMU and enjoyed "very easy financing" for their current account deficits. They cannot expect "ex post" help if they get into trouble later. These are the rules of the club.

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/7159456/Fears-of-Lehman-style-tsunami-as-crisis-hits-Spain-and-Portugal.html

Acronym: PIGS = Portugal, Ireland, Greece and Spain

What triggers an exit from your portfolio? Do you set sell targets?

What triggers an exit from your portfolio? Do you set sell targets?

Stephen Yacktman: Many people set a price target by saying, “Okay, I think it is worth $X.” Well, we don’t think that way. We look at

• what the forward rate of return is, 
• stack it up against other investments and 
• determine which one is the highest and 
• which one is the lowest and 
• what risk we are taking to get that rate of return. 

We account for things like

• leverage, 
• cyclicality of earnings, and 
• the quality of the business. 

An investment that is going to make it into the portfolio with the lowest rate of return would be a company like Coca-Cola that

• has high predictability and good management. 
• We can just go into autopilot. 
• It becomes our AAA bond.

A sale is triggered by two things.

* If the rate of return is not sufficient or

* if there is a better opportunity elsewhere with a larger margin of safety to get a similar or higher rate of return, we’ll sell it.

The overall market dropped and consumer product names held up and the media companies got killed.

* News Corp. went from the $20s to $5.
* That drop opened up a huge rate of return gap and encouraged us to sell some of our Pepsi and buy News Corp.
* We viewed that decision as going from a low teens rate of return to something that was going to make a 20% return.

There’s no price target ever set, it’s just a function of the environment.

* What ends up happening, unfortunately, in an environment where everything goes up, is fewer of these returns are satisfactory and we end up more heavily in cash.
* It’s not that we’re trying to time the market; it’s just there’s nothing to buy.