Wednesday February 10, 2010

How to improve your investment skills

Personal Investing - By Ooi Kok Hwa

WE have been asked by many readers on ways to improve their investment skills. In fact, for all of us who invest, it is one of the essential skills that we need to acquire in our lifetime. Like it or not, we need to have it if we need to generate returns for our investment.

All investors want good returns from their investments. However, most of the times, instead of generating returns, retail investors are suffering from losses from their investments. We feel that one of the key differences between an intelligent investor versus a normal investor is that the intelligent investor will be aware that he may make mistakes in some of his investment decisions while a normal investor tend to overlook the fact that he will make wrong decisions no matter how good he thinks he is.

Despite extensive research on certain listed companies, due to some unforeseen changes in certain fundamental factors, even good value companies may suffer losses. Under such circumstances, an intelligent investor will admit that he had made a mistake in his investment decision and will cut losses fast.

However, the problem with most investors is that they refuse to face their mistakes; some are not willing to cut their losses even though they are aware of their mistakes.

Hence, rule number one in investing is that we must be fully aware that regardless of whether you are an investment guru or an average investor, everyone will make mistake in his investment decisions. That’s why some experts say: “When somebody mentions that they have more experience than you, they mean that they have incurred more losses than you in stock market.” The key is to learn from our mistakes.

In order to avoid incurring losses in stock market, we need to develop our own investing system that suit our needs, skills, knowledge and risk tolerance level.(Comment:  Time horizon, risk tolerance and investment objectives)  The investing system can be adopted from the fundamental analysis, technical analysis or combination of both. If we ask some remisiers, they will most likely tell you that they need two to three years to develop their own investing system that can help them to generate returns from stock market.

One of the fastest ways to acquire investing knowledge is through reading books relating to investment. There are many good investment books in the market. However, since every investor has different preferences, the best way is to visit bookstores and look for investment books that he or she can understand and can offer the skills needed. For beginners, always start with some basic investment books that explain well on key investment concepts.

Here are some good investment book titles for consideration: The Intelligent Investors (by Benjamin Graham), The Essays of Warren Buffett: Lessons for Corporate America (Warren Buffett and Lawrence A. Cunningham) and Rule #1 (Phil Town). For advanced investors, you may consider Security Analysis (by Benjamin Graham and David Dodd), which is still one of the best investment books in the world.

Apart from reading books, investors need to read more business news in newspapers and magazines to keep themselves updated on the latest happenings. In addition, many newspapers, magazines and websites also publish good articles for the purpose of educating general public on investment. For example, investors can get good investment knowledge from website like www.min.com.my, by Securities Industry Development Corp.

Reading analysts’ research reports will enhance our understanding on some issues and factors in valuation as well as comments on some corporate strategies and developments. This knowledge is crucial in helping us making better investment decisions. Besides, for those serious fundamental investors, they may consider buying books like Stock Performance Guide (by Dynaquest Sdn Bhd) and Shares (Pioneers & Leaders (Publishers) Pte Ltd), which will provide all the essential investment information like companies’ background and some key critical investment information.

Another way to acquire investing knowledge is through attending investment training classes. There are many types of investment training classes, for example, classes on fundamental investment, technical analysis, currency trading or option trading. Given that a lot of these classes are quite expensive, we need to check whether investment training suits our needs. We believe some of those classes may be able to help investors generating returns, however, they require higher level of discipline and commitment.

Before we start investing with “real” money, one of the ways to gain experience and at the same time test out our skills is by building up a “virtual” portfolio and investing using “virtual” money. We can always try out our investment skills through playing a simulated investment game and monitor the investment returns before putting the real money into the stock market. Besides, we should also start young. If we acquire these investment skills at younger age, the losses that we may incur will be much lower than trying them when we are getting nearer to our retirement age.

● Ooi Kok Hwa is an investment adviser and managing partner of MRR Consulting.

http://biz.thestar.com.my/news/story.asp?file=/2010/2/10/business/5646486&sec=business 

Comment:  Find a mentor.  Coat-tail on him or her for a period of time during your early years of investing.  

Wednesday March 10, 2010

How to analyse company statements and reports

Personal Investing - By Ooi Kok Hwa

Analysts usually judge the quality of a company’s management team by looking at the comprehensiveness and truthfulness shown in the management statements

FOR the next few weeks, investors will start to receive annual reports for companies that have their financial year ended Dec 31. Even though the majority of investors may not look at those reports in detail (in fact, some investors may not even open the envelope containing the annual reports), some people will still spend time analysing the whole report. One of the key sections that investors will analyse in detail is the chairman’s statement and management discussion or operations review. In this article, we will label the above statements as management statements.

Most of the management statements will explain the companies’ immediate past one-year financial performance, external environment, major corporate developments as well as the companies’ future prospects.

Based on our observations, the majority of companies will try to explain and highlight a lot of positive elements that happened in the companies. It is very rare to find negative issues that affect the companies’ performances being discussed in the statements. Even though we cannot conclude that those companies that are willing to highlight their financial problems as good companies, at least these companies show their effort in trying to be truthful to their investors. This will provide a lot of plus points to these listed companies.

Analysts usually judge the quality of a company’s management team by looking at the comprehensiveness and truthfulness shown in the management statements.

Nowadays, if there are areas that a company does not comply with the accounting standards, the external auditor will highlight those areas inside the auditor report. Hence, investors need to read the management statements and financial statements together with the auditor’s report.

The management statements will normally provide the reasons driving the companies’ overall performance, whether good or bad. However, there are certain companies that tend to focus on higher sales and avoid mentioning the profitability when ever they report lower profits during the year. They will try to avoid the reasons causing the reduction in profits, for example, higher operating costs, raw material costs or stiff price competition.

Some times, some companies will claim they have managed to maintain profits at the same level as the previous year. However, if we further analyse the financial statements, we will notice that the profit had included a lot of exceptional items, such as gains from the disposal of fixed assets as well as investments. Hence, we should not rely on the explanation given by the management in the chairman’s statement.

In fact, we need to investigate further the driving factors for the profitability of the company, especially if it had included some exceptional gains or losses, which are not part of the company’s normal operations. These details can be found in the notes to the accounts. Normally, most companies will list the key items that affect their profitability in the notes to the “profit before tax”.

We can get a summary of key corporate developments that happened in the company in the “corporate development” section. If you have been following the company’s corporate developments, this section may not provide you a lot of new information.

Nevertheless, certain companies may provide the latest status of their corporate developments, such as any new projects being initiated or certain approvals from relevant parties being granted for their critical projects.
As for the section on the company’s future prospects, investors should not place too much weight on it. Based on our experience, a lot of Malaysian companies have the same statement on future prospects by saying that “the company will perform better in the future”.

There are companies that have reported losses every year but the chairmen will still say the companies would perform better next year without the backing of solid grounds to improve profitability.

Hence, a good company statement should provide a fair account of the actual happening in the company. In reality, it is quite difficult for listed companies to hide their problems as the level of financial literacy of the general public has improved over years.

There are some mature investors and analysts who are able to detect the problems faced by the company by analysing the notes to the accounts in addition to making comparison of the current financial statements versus the statements or quarterly financial statements of past years.

● Ooi Kok Hwa is an investment adviser and managing partner of MRR Consulting.

http://biz.thestar.com.my/news/story.asp?file=/2010/3/10/business/5827481&sec=business 

More getting married later or not at all

Thursday March 11, 2010
More getting married later or not at all

KUALA LUMPUR: Fewer Malaysian men and women want to tie the knot now compared with 10 years ago.

A recent survey by the National Population and Family Development Board on trends between 2000 and 2007 indicated that the average marriage age of marrying Malaysians would increase to 33 years by 2015 or they may choose not to get married at all.

Universiti Malaya’s Associate Professor Tey Nai Peng said the average age at first marriage for men and women had increased from 25.5 and 22.0 years respectively in 1970 to 28.6 and 25.1 years in 2000.

Also, the number of those who had never been married between the ages of 25 and 29 years had more than doubled for women from 13% to 29%, and rose from 32% to 54% among men, he added.

“Although marriage behaviour varies widely across the various ethnic groups and regions, the general trend is one of rising age at marriage and non-marriage at all,” he said during the consultative forum on population strategic plan research conducted by the board here yesterday.

Tey noted that education and career considerations had expanded women’s horizons, giving them opportunities which competed with marriage.

“Traditionally, women tended to marry men with at least the same level of education. But with higher educational levels, more and more women are now having difficulty finding compatible partners,” he said.

Issues like migration, urbanisation and modernisation had also resulted in women having more autonomy in making decisions, including in those relating to marriage, he pointed out.

Tey said the younger generation was becoming more self-centred, with modern women having high expectations and becoming choosy when it came to finding mates.

Board director-general Datuk Aminah Abdul Rahman said current marriage trends were contributing to the rapid decrease in fertility rates for Malaysians.

“The changing role of women is the main reason for their infertility. They are getting married later now or not at all as they build a career alongside men to become equal breadwinners,” she said on recent data showing that Malaysians were now having fewer babies.

She said more focus should be placed on ways to increase the percentage of marriages instead of blaming any gender.

http://thestar.com.my/news/story.asp?file=/2010/3/11/nation/5837574&sec=nation

Money at the heart of govt: REFLECTING ON THE LAW

Wednesday March 10, 2010

Money at the heart of govt

REFLECTING ON THE LAW
By SHAD SALEEM FARUQI

The fiscal gap, the difference between the states’ domestic revenue and their expenditure, ranges between 15% and 75% of their total expenditure.

KELANTAN has a long-standing and popularly backed claim for royalty for petroleum extracted off its shores. Some years ago, the then PAS government in Terengganu had made a similar demand.
These persistent assertions highlight the broader question whether the financial resources of the nation are divided equitably between the federal and state governments.

To begin with, let us agree with Prof R.H. Hickling (who drafted the ISA) that “money represents power, and is at the heart of government”. An equitable distribution of financial resources between the federation and the states is the ultimate test of a true federation.

Under the Malaysian Constitution, there is a clear demarcation of financial powers between central and regional governments, though the balance is tilted heavily in favour of the former.

Federal revenues: In Schedules 9 and 10, most of the lucrative sources of revenue like income tax, customs and excise duties on imports and exports, sales tax, licence fees for motor vehicles, and incomes from banking, foreign exchange, capital issues, insurance, passports, visas, newspapers, radio, TV, tourism, foreign pilgrimages, maritime and estuarine fishing, shipping on the high seas, trade, commerce, industry, patents and designs are allocated to the federal exchequer.

Except for state power over licence fees, the development of mineral resources; mines, mining, minerals and mineral ores; oils and oilfields; import and export of minerals and mineral ores; and all petroleum products are within federal jurisdiction.

All foreign and extra-territorial jurisdiction (presumably including offshore prospecting for oil, gas or minerals) is in federal hands. Regrettably, the situation is clouded by clearly illegal contracts between Petronas and all state governments about payment for onshore as well as offshore oil.

Federal expenditure: With such lucrative sources of income to the federation, come the most onerous items of expenditure. Thus, foreign relations, diplomatic and consular representation, international organisations, national defence, internal security, the armed forces, the police, prisons and intelligence services are federal responsibilities.

Criminal and civil courts, elections, education, medicine, health, fire services, federal pensions and gratuities, medicine, health, social security, currency, audit, roads, bridges, ferries, railways, ports and harbours, posts, telegraph, communication, transport, airways and safety in mines and oilfields are entirely a federal burden.

State revenues: Even though there is a heavy preponderance of financial power in the hands of the Federal Government, the Constitution guarantees certain sources of internal and external revenue to the states.
Article 110 and the Tenth Schedule allocate to the states 14 domestic sources of income. The most lucrative are taxes derived from natural resources like land, mines and forests, fees from toddy shops, entertainment places and water supplies, rents on state property, fines and forfeiture in state courts, zakat, fitrah, Baitulmal and other Islamic religious revenue.

Under Article 110(3), each state receives 10% or more of the export duty on tin produced in the state. Likewise, Parliament may provide that each state shall receive, on such terms and conditions as may be laid down, a proportion of the export duty on mineral ores, metal and “mineral oils” (which term includes petroleum) produced within the territorial boundaries of each state.

Under Paragraph 2(c) of the Ninth Schedule, permits and licences for prospecting for mines and mining leases are exclusively within the competence of the states.

In addition to the above domestic sources of revenue, Articles 109 and 110 guarantee some money reimbursements to the states in the following forms:

Capitation Grants: Under Article 109, this is an annual mandatory payment by the Federal Government to each state based on the state’s population.

State Road Grants: Under the Tenth Schedule, the Federation is required to pay to each state a compulsory road grant to cover the average cost of maintaining state roads.

State Reserve Fund: Under Article 109(6), each year, the Federal Government, after consultation with the National Finance Council, deposits into the above fund, certain amounts to be allocated to the states for purposes of development.

Conditional grants: Under Article 109(3) the Federal Government allocates further conditional grants to supplement the states’ own domestic revenue. These grants are discretionary and are as much influenced by fiscal policies as by political considerations.

Kelantan under PAS from 1959 to 1974 and 1982 to now; Terengganu under PAS from 1959 to 1964 and 1998 to 2003; Penang under Gerakan from 1969 to 1974 and under DAP from 2008 to the present; and Sabah under PBS experienced such financial frustrations.

Loans: Under Articles 111 (2) & (3), a state is not allowed to raise or borrow money except from the Federation or a federally approved bank. In Government of Malaysia v Government of Kelantan (1968), the Pan-Malayan Islamic Party, after its victory in the 1959 state elections in Kelantan, sought to fulfil an election pledge to build a bridge over the Kelantan river but it was financially in no position to do so.

In the face of federal objections, it negotiated a clever financial arrangement with a private company which advanced RM2.5mil to it in return for mining and forest concessions. The Federal Government went to court to challenge the deal as an illegal loan. The Federal Court decided in favour of Kelantan.

The Federal Government then retaliated by pushing through a constitutional amendment so that pre-payment of royalties would now constitute lending.

In sum, it can be stated that in the financial field, the central government’s preponderance of power is very evident. The Constitution has been so devised that almost all the important direct and indirect taxes belong to the Centre.

The states are entitled to the proceeds from some taxes, fees and other sources of revenue, but these are insufficient to solve the chronic shortage of funds experienced by some states.

The fiscal gap, the difference between the states’ domestic revenue and their expenditure, ranges between 15% and 75% of their total expenditure. This imbalance has two aspects: vertical imbalances between the centre and the states, and horizontal imbalances between the states inter se.

It must be noted, however, that federal predominance in respect of functions and resources is less pronounced vis-à-vis the East Malaysian states of Sabah and Sarawak, which control a number of additional sources of income along with additional functions under Articles 112B, 112C, 112D.

Datuk Dr Shad Saleem Faruqi is Emeritus Professor at UiTM and Visiting Professor at USM 

http://thestar.com.my/columnists/story.asp?col=reflectingonthelaw&file=/2010/3/10/columnists/reflectingonthelaw/5827905&sec=Reflecting%20On%20The%20Law

Benjamin Graham Formula Valuation Spreadsheet

Benjamin Graham Spreadsheet Screenshot

Click here to download the above to analyse your stocks. 
http://sites.google.com/site/jjun0366/OSV_Graham_Formula_Spreadsheet-Basic.xls?attredirects=0


Also visit:
http://www.oldschoolvalue.com/intrinsic-value-spreadsheets/

http://www.oldschoolvalue.com/investment-tools/benjamin-graham-formula-valuation-spreadsheet/

• You can also download the other FREE and best investment valuation spreadsheet.

How to Analyze Receivables & Inventory

How to Analyze Receivables & Inventory

Thu, Feb 11, 2010

Featured, Stock Analysis

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How to Perform Inventory and Receivables Anlaysis

I wanted to go through a quick exercise that I perform during a stock analysis.

A recent stock that has come up in the Graham stock screener and forum is CONN. Conn’s Inc is a specialty retailer of home appliances such as fridges, freezers, washers, dryers and consumer electronics such as TV’s, cameras, computers etc. Think Best Buy.

The company just released their results for their 2009 4th quarter results and the stock took a 17%hit. The actual financial statements hasn’t been released but I wanted to show how these things are foreseeable by analyzing the inventory and accounts receivables. This has also been discussed in the balance sheet analysis.

Sales, Inventory and Receivables Analysis

For any company that sells products, a careful look at the correlation between sales, accounts receivables and inventories is crucial. In the above example, I’ve only compared the 3rd quarter statements but you can see that CONN does not know how to manage their assets.

From what I see, the problem began to surface in 2006 where revenue only increased 0.23% while accounts receivables increased 31% and inventory went up 8%. Before 2006, the company was able to grow revenues at a faster rate than accounts receivables and inventory but from 2006 onwards, the correlation worsened until 2008 where you can immediately see that things were bound to fall apart.

In 2008, revenues declined 3% compared to the previous comparable period while accounts receivables increased by 116% and inventories up 9%.

The same thing happened in 2009 where accounts receivables increased another 102%! The only thing waiting for CONN is trouble, and it finally surfaced in their latest quarter. It goes to show that Wall Street does not perform the proper analysis required.

Here is a graphical view of the same thing.

Whenever you see either accounts receivables of inventory increase quicker than sales, watch out. But for inventory, you need to dig deeper.

When raw materials component of inventories is advancing much  more rapidly than the work-in-progress and finished goods components, this means that the company is receiving many new orders and an inventory buildup is necessary. So the company will simultaneously ship products from its finished goods inventory while ordering raw materials in larger amounts.

But in the case of CONN, the company only sells the items so 100% of inventory is finished goods so any excessive increase is a big red warning sign.

Dirt Cheap or Value Trap

All valuations point to a cheap company. Looks like the intrinsic value is roughly $15-$16.

If I had come across CONN when I first started investing, I’m pretty sure I would have bought it. At today’s price of $4.61 it is definitely cheap and tempting but until there are signs that management is able to get a handle on inventory and accounts receivables, it is best to leave it alone.

Sure the stock can go up, but it doesn’t hide the fact that the company is struggling. CONN has also increased their accounts payables and taken on huge amounts of long term debt.

If I was to buy the stock now, I would only be speculating and hoping that things improve.

http://www.oldschoolvalue.com/stock-analysis/inventory-receivables-analysis-conn/

Earnings Made by Tax Rate Changes

Earnings Made by Tax Rate Changes
Wall Street is infatuated with EPS. If a company beats their estimates, the stock price is pushed up higher despite the fact that earnings is so easily manipulated by different accounting methods and hiding and/or delaying expenses.

Taxes also play a big role in the final EPS.

A company with a 40% tax rate one year, paying at 35% the next will create the illusion that growth has exceeded expectations, when in fact, the business did nothing but just get a tax break. The opposite is the same.

A company paying 35% in taxes and then 40% the next year will obviously report lower EPS and the consensus will be that the business is slowing down.

How to Calculate EPS Due to Tax Rate Change

Let’s use Boeing (BA: 67.24 0.00%) as an example.

1. Calculate the tax rate

To calculate the tax rate of a company, find the income tax expense on the income statement and divide by the Earnings Before Income Taxes (EBIT).



Boeing’s tax rate was 33.7%, 33.6% and 22.9% in 2007, 2008 and 2009 respectively.

2. Calculate the difference in tax rates

Just subtract the previous year tax to the next year tax rate.

3. Calculate the gain or loss due to difference in taxes

Use the difference in tax % compared to the last period and multiply it by the income before tax (EBIT) number.

In BA case for 2009, multiply 10.7% and $1,731m to determine how much of EBIT was due to a lower tax rate.



You can see that BA made $185m in EBIT due to taxes compared to $4.16m the year before. In 2007, Boeing’s tax rate increased by 2.7% which is why the % difference is negative and shows a loss due to difference in tax.

4. Divide by Shares Outstanding and Adjust the EPS

Divide the gain or loss due to tax change by the number of diluted shares.



You can now see that in 2009, of the full year diluted EPS, $0.26 was made up due to a reduction in taxes. So while the market may have seen this as a great recovery, the actual EPS was actually $1.58.

Multiply the current PE of 36 to $1.58 and the stock price should be at $56.

The above method can be applied to quarterly results for comparisons and basically any other line item including non-operating and non-recurring expenses.

Let’s wrap things up with a stock valuation summary of Boeing for those that hold the company.

Jae Jun


[www.oldschoolvalue.com]

'I bought the land for my house for £5,000. It's worth £10m now'

Stirling Moss: 'I bought the land for my house for £5,000. It's worth £10m now'

Sir Stirling Moss is said to be in good spirits as he recovers in hospital after falling down a lift shaft at his London home. Sir Stirling, 80, is still reckoned to be the greatest racing driver Britain has ever produced. He lives with his third wife Susie, 57.

 

By Mark Anstead
Published: 11:19AM GMT 09 Mar 2010

Sir Stirling Moss: 'Do I bank online? Good lord no'

How do you invest?

I endeavour to use money to my advantage by investing it in property. My father used to say there is no better hedge against inflation than bricks and mortar and I believe he was right. At the moment I have 45 tenants spread across 10 rented properties, some in bedsits accommodating eight or nine people and some in flats with just three or four sharing.

What's been your investment strategy?

If I'm going to buy a new property I go to see it and work out how much I might need to spend on basic improvements and then what level of rent I think I can get. I am usually looking for at least a 7pc return, but I always buy within scooter distance of my office so if someone calls to say the washing machine is broken I can get on my bike and go over myself to try and fix it. I have properties in West Kensington, Maida Vale, Pimlico and Battersea – all within a 10-minute scooter ride of my home in Mayfair.

 

Have you ever borrowed against the value of your properties to buy more?

No, I have never done that. 'Gearing up' seems to me a foolhardy thing to do. It may sound like a good on idea on paper, but borrowing against one property to buy another seems to me like building up a house of cards – it will only come crashing down later.

How do you separate responsibility for finance with Susie?

We share everything – we don't have joint accounts, but we might as well. I can't think of an occasion when I have ever bought anything for her without her knowing what it cost. I bring the money in and she can spend it as far as I'm concerned (I'm lucky because she's more frugal than I am). Anything she wants she just gives me a cheque and I sign it.

How do you feel about the proposal to phase out the use of chequebooks?

Excuse me? I'm shocked … somehow that little piece of news had passed me by. I hate the idea – cheques are how Susie and I conduct all our affairs. I don't know what I would do without them. You've ruined my day now…

How did your childhood experience influence your attitude to money?

My father was a dentist and we lived in a small house in London until I was seven or eight, at which point we moved to a farmhouse in the country where my parents kept chickens, cows and ducks. It wasn't a working farm, more of a gentleman's retreat, but my father would commute from there and stay overnight in a flat in London during the week.
He ran 16 different surgeries in different locations around the city and he just didn't like wasting time talking to patients about the weather, he only wanted to come in at the last minute, administer the anaesthetic and do the drilling, leaving all the aftercare to the nurses.
He was very successful, so I grew up well provided for, but he taught me if there was anything I wanted in life I had to work for it. I had either to wash his car or sell something I already owned. That attitude has stayed with me – I don't like being careless with money.

How do you show your caution with it?

I don't think I live nearly as high on the hog as I could if I wanted to. When I travel, for example, I always fly club class because even though I can afford first class I can't see any benefit in it. I'm just not a wasteful person – I'm pound wise and penny foolish.

Have you learned any difficult lessons about money through mistakes?

I lost quite a lot on Australian dollars 20 years ago. I used to visit Australia quite often and I converted a lot of English pounds when the rate was about two Australian dollars per pound sterling. I thought I was getting a good deal and I put it into a bank account over there, but soon afterwards the pound strengthened. When I wanted to convert some money back it was a total disaster – I got less than 40p a dollar.

Do you have many credit cards?

I use my Coutts Visa card and that's about it. When credit cards were first introduced they sent them to everybody with a bank account and I'll never forget the way my father took out a pair of scissors and cut his up. I use them, but I am careful with them – I make sure I pay off the balance every month.

How do you tip? Are you an easy tipper or do they have to work hard with you?

I do tip, but I find it difficult to understand why it's now 15pc when it used to be 10pc for most of my life. The only difference between then and now is that the cost of food has gone up – the service hasn't got any better. If I receive exceptional service I'll add a bit more, but I refuse to use 15pc as my starting point.

What's been your greatest extravagance?

We go on long cruises every now and again, but I feel they are a deserved extravagance because I have always worked very hard. We're about to go and cruise in Singapore for our 30th anniversary and it will cost about £4,000 plus the flights.

How much did your home cost when you bought it?

It was 1961 and I bought a plot in Mayfair and built a six-storey 2,500 sq ft house on it. It was a site that had been bombed out during the war and the council originally offered me the whole corner including a derelict hotel for £40,000.
I didn't want the hotel so I asked how much they wanted for just the two plots on the end and that was just £5,000. The build cost was £25,000 – I had to tank the bottom because there was a river running under it and I installed a lot of luxury items. I have a table, for example, that goes up into the kitchen where it can be laid for dinner and then descends into the dining room below.

What has been your best buy?

My house. Even if it was still a bomb site the plot alone would be worth £10m today. But the whole thing is out of date and needs modernising this year – I want a new kitchen and air conditioning in every room.

And your worst buy?

I once won a 12-hour race in America in 1953 and as part of the prize I was given a homestead in a little place called Avon Park, Florida. The trouble was every year I had to pay tax, $107 annually. I should have defaulted and they would have confiscated it, but I kept hold of it until thankfully a friend of mine bought it from me a year or two ago for $8,000.
By then I was glad to see the back of it – $107 was worth a lot more when I started paying it and I would say if you add it up over the years it probably cost me a lot more than I sold it for.

Have you ever invested in shares?

I'm very cautious about things like that I don't understand, but when I was racing abroad after the war a friend of mine borrowed some money from me and paid me back in shares – £5,000 in Western Mining. I've still got them although I don't know what company name they are now. They've actually done quite well despite the crash because I've had them for so long.

Do you use deposit accounts?

I do. The low interest rates are a lark, but I understand why we aren't getting very good rates at the moment and in any case I think America has always had it worse. I tend to just stay with the accounts that my bank Coutts can offer because in the end any difference gained by switching would be paltry anyway.

Do you bank online?

Good lord no. I can just about get on the internet to send email and look a few things up. I'm very old fashioned when it comes to managing my money and I keep all my old printed bank statements.

How are you dealing with the increasing cost of living?

Susie looks after our energy bills and I think she has made sure we are paying the cheapest rate. When I renovate my house next year I will fill it with auto-sensing lights that come on as soon as you enter a room and go off again after you have left, so that should save energy.

Have your pension returns been disappointing for you?

I have saved into a pension most of my life and I had to buy an annuity at 75. Actually for me it has worked out fine, but I wasn't trying to buy an annuity at a time of crisis so I think I'm lucky.
Sir Stirling Moss is supporting Prostate UK to raise awareness of prostate diseases. Join the 5k run 'Pants in the Park 2010' (www.pantsinthepark.org) 

http://www.telegraph.co.uk/finance/personalfinance/fameandfortune/7404777/Stirling-Moss-I-bought-the-land-for-my-house-for-5000.-Its-worth-10m-now.html 

FAIR VALUE OF SHARES

FAIR VALUE OF SHARES

March 8, 2010 in General by paresh_singh86

The fair value of a shares is the average of the value of shares obtained by the net assets method and the one obtained by yield method. 

• Under net assets method, the value of an equity share is arrived at by valuing the assets of a company and deducting there from all the liabilities and claims of preference shareholders and dividing the resultant figure by the total number of equity shares with the same paid up value.
• Under yield method, the value of an equity share is arrived at by comparing the expected rate of return with the normal rate of return.  If the expected rate of return is more than normal rate of return, the market value of the share is increased proportionately.

The fair value of shares can be calculated by using the following formula:

Fair value of share

= value by net asset method+ value by yield method / 2

This method is also known as dual method of share valuation. 

• This method attempts to minimize the demerits of both the methods. 
• This is of course, no valuation but a compromised formula for brining the parties to an agreement. 
• However, it is recognized in government circles for valuing shares of investment companies for wealth tax purposes.

http://churmura.com/general/fair-value-of-shares/32817/

Stock Market Investing Basics to help a beginner

Stocks Investing :Stock Market Investing Basics to help a beginner

Stock Market Investing Basics to help a beginner

Considering investing in the stock market? With some basic information and helpful tips and tricks, you will be a stock market pro in no time.

Stocks are a type of investment that represents ownership in a company. In other words, when you own a stock issued by a particular company, you own a portion—or a share—of that company. That’s why stocks are often referred to as shares, and why owners of stocks are often referred to as shareholders.

How much ownership do you have? Let’s say a company has issued 1,000,000 stocks. If you were to buy 100,000 stocks of that company, you would own 10% of the company. But if you only bought one stock, you would only own 1/1-millionth of that company. Generally speaking, people who invest in stocks are interested in trying 

• to increase the value of their investment as aggressively as possible or 
• to accumulate a significant amount of money for a long-term goal.

Stocks can also be used to take control of a company, either through a buyout or a hostile takeover. In this situation, another company attempts to purchase 50.1% of the available stocks of a company to gain a majority voting position on the company’s board of directors. These events make great headlines, but unless you’re very wealthy or the CEO of a Fortune 500 company, chances are you’re using stocks to build wealth for the future.

Stocks Characteristics
One of the basics of stock market investing is that greater short-term risk has the potential for greater long-term rewards.

• For example, money markets are typically associated with the least potential for investment risk, or the chance that price swings will cause your investment to lose value. As a result, money markets are also likely to provide the lowest long-term returns.

• Stocks are on the opposite end of the risk/return spectrum. Stocks generally pose the greatest risk of short-term price volatility and loss, yet stocks have historically provided the highest long-term average annual returns.

• Bonds are in the middle: They’re typically less risky than stocks and generate lower returns than stocks, but bonds are riskier and more likely to generate better returns than money markets.

Stocks are often the investment of choice for two types of investors:

• Those willing to take a big risk in return for a potentially big short-term return, and 
• those willing to tolerate short-term price swings while they pursue important investment goals that are still many years away.

Types of stocks
Just as there are many different types of companies, there are many different types of stocks. Stocks are often categorized according to the following descriptions:

As a general rule, investments in large-cap and growth stocks tend to be less risky, while investments in small-cap and value stocks typically carry more risk. This is because a large, diversified company with a solid track record is more likely to weather rough economic times than a small company that is struggling to generate profits.

Investing in stocks
There are two ways to invest in stocks:

• by purchasing individual shares on your own or 
• by investing in mutual funds that invest in stocks. 

If you’re thinking about assembling an asset allocation of individual stocks, consider working with a financial professional who can help you make well-informed decisions.

Mutual funds, on the other hand, make it possible for individuals to invest in a well-diversified mix of stocks with just a single investment. Technically speaking, when you invest in a stock mutual fund, you own shares of the mutual fund itself, not shares of company stocks. The fund is the owner of the company stocks. Each mutual fund’s managers pool the combined assets of the fund investors and use that money to assemble a portfolio of stocks. The value of your investment in the fund is determined by the performance of the stocks owned by the fund. If the stocks in the fund generally increase in value, then the value of the fund—and your shares in the fund—can be expected to increase.

You’ll find mutual funds targeted to the different types of stocks available. Some funds invest exclusively in large-cap growth stocks, while others focus on small- or mid-cap stocks with an eye toward higher annual returns. Risk varies among stock mutual funds, so it’s important to read the prospectus for any fund you’re considering so that you’re comfortable with the potential risks and returns.

One of the easiest ways to invest in stocks is to choose an index fund. These mutual funds buy stocks that are listed on a major index, such as the Dow Jones Industrial Average or the S&P 500. The goal of stock index funds is to mirror the annual returns of the index it invests in.

Stocks in a diversified portfolio
Choosing investments among stocks, bonds and money markets for your portfolio isn’t an all-or-nothing proposition. Not only is it possible to simultaneously own a mix of stocks, bonds and money markets, it may even be a good idea, because owning a mix of different investments can be an effective strategy for managing overall investment risk in your portfolio.

For example, owning stocks and bonds simultaneously could help to limit your losses if either market experienced a downturn. Theoretically, gains in the other market could offset those negative returns.

http://www.americandetritus.com/2010/03/stocks-investing-stock-market-investing-basics-to-help-a-beginner.html

Article on Malaysia in WSJ

An institutional overhaul is long overdue in Kuala Lumpur

"The Leopard," Giuseppe di Lampedusa's celebrated novel about the crumbling feudal order in 19th century Sicily, made famous the line, "If we want things to stay as they are, things will have to change." That pretty much sums up the predicament of Malaysia's ruling elite today.

BY ALICE LLOYD GEORGE, Wall Street Journal

The sodomy trial of Anwar Ibrahim drags on in Kuala Lumpur, with the opposition leader's freedom and political career hanging in the balance. But the true significance of this anachronistic case does not depend on the outcome in the courtroom. The political assassination of Mr. Anwar aside, Malaysia is witnessing the death throes of a political machine that has run the country for over five decades. Mr. Anwar is a skilled politician who holds together an unlikely alliance of opposition parties—his conviction would certainly be a blow for the prospect of real political pluralism in Malaysia. But he also serves as a vessel for wider social forces and a disenchantment with the country's leadership. Another figure would surely take his place at the head of the reform movement.

The ruling coalition was founded on the principle that the three main races—Malays, Chinese and Indians—participate in politics through their own parties. Coupled with an elaborate system of affirmative action, this has allowed the United Malays National Organization to maintain a lock on power by protecting Malays from the winds of competition. After the opposition made unprecedented gains in the March 2008 elections, desperate tactics were called for, hence a rather tired repeat of the homosexuality charge first brought against Mr. Anwar a decade ago, now dubbed "Sodomy II" by a skeptical public. The government has denied that the trial is politically motivated.

That the political system and patronage network are under increasing stress is clear, but the prognosis is not yet apparent to all. Some in UMNO, like Prime Minister Najib Razak, think they can maintain the old system by merely tinkering around the edges. Mr. Najib has gestured toward loosening long-standing affirmative-action policies, but any good intentions are obstructed by entrenched interests in UMNO's conservative wing—to date the repeals have been cosmetic at best. Others are coming to a different realization—Malaysian society has matured and even Malays now recognize that outdated and discriminatory policies must give way to a more transparent and accountable system.

One such leader is Tengku Razaleigh Hamzah, a former finance minister of royal blood. Mr. Razaleigh has re-emerged as an outspoken critic of the government in recent weeks, though he strongly denies any intention of switching to the opposition. The 73-year-old party veteran has a history of challenging the leadership; in 1988 he left UMNO and formed a rival Malay party before returning to the fold in 1996.

Sitting in his Kuala Lumpur home—a remarkably exact replica of the White House's Oval Office—Mr. Razaleigh argues that UMNO politicians have not been responsive to calls for reform. "The young want to see a really multiracial organization, fighting on egalitarian issues, without having to fall back on race," he explains. "Unless the party system and the political system are reformed exhaustively, I think we are going to be pulled back into the same boat we have been in for the last 50 years."

Mr. Razaleigh believes that Malaysians want to move beyond identity politics, but UMNO is unable to break away from its Malay nationalist roots. Most recently, the government appealed a court ruling that allowed the use of the word "Allah" by non-Muslims. Though UMNO called for calm, the prime minister's statement that he couldn't stop protestors from expressing their opinions only served to fan the flames. The ruling was followed by a spate of desecration and arson attacks on churches and mosques. Mr. Najib further undermined the government's response to the crisis when he flew across the world for a 10-day tour of Saudi Arabia, the UAE and India, taking key cabinet ministers and senior officials with him.

By contrast, in a milestone decision, the opposition Islamic party PAS—which only 10 years ago campaigned to create a theocratic state with Sharia law—took a more moderate stance, urging Malaysians to respect the court ruling. The irony is that while UMNO continues to play race politics to out-Islam its opponents, PAS is appealing to a more progressive voter base.

Part of the reason for the electorate's change of heart is the realization that Malaysia risks being left behind economically if it doesn't climb out of its middle-income trap and eliminate the inefficiencies inherent in racial policies. These policies were formulated in the 1970s, when Malaysia was a tiger economy. Now its growth lags behind Southeast Asian neighbors like Indonesia—the new "i" in BRIC—and China and India increasingly pose competitive challenges.

The country has suffered from an acute brain drain over the last decade, as individuals seek education and employment in countries where talent is better rewarded. Now it faces capital flight, too, with foreign direct investment dropping to $2.7 billion in 2009 from $8.1 billion the previous year, according to United Nations Conference on Trade and Development estimates. One reason is the fear that UMNO will continue to play the race card and stir up tensions to keep itself in power. Another is the government's failure to undertake much-needed institutional reforms and address issues such as corruption, civil liberties and judicial independence. Malaysia's risk index, as calculated by Hong Kong-based Political and Economic Risk Consultancy, rose to 5.4 in January from 5.24 in December on a 10-point scale.

If there is a silver lining here, it is that even as UMNO has stoked tensions, by and large Malaysians have refused to be provoked—a stark contrast to the May 13 Incident in 1969, when rumors of ethnic slights quickly snowballed into massive riots and emergency rule. And that is one more indication that leaders like Mr. Anwar and Mr. Razaleigh are right that Malaysian society is ripe for change. If the current UMNO elite is to stand any chance of remaining in power, it needs to focus on remedying the very real challenges on its doorstep, rather than felling the opposition. Societal reform based on equality of opportunity is a change that is long overdue.


Ms. Lloyd George is a Princeton in Asia fellow at The Wall Street Journal Asia

DIS Technology - Check List: What can we learn from this ugly saga?

As with Transmile, it is sad that the investors are again caught in such a fraud.  There must be heavy penalties for those involved, not least, to emphasize the seriousness of this matter and to deter future such happenings.

Could this fiasco, of false accounting, be predicted looking at the latest quarterly reported results?  Often the answer is NO, though it was obvious that the company's business was deteriorating and the balance sheet was not good quality. 

The revenues and earnings were manipulated in the accounting.  However, the cash flow statement would have indicated that not all is well with the company.  The CFO was strongly negative.

http://spreadsheets.google.com/pub?key=tZmdsnrXUbsFVCAmAaQRW4g&output=html

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Blogger Wisdom Wise has written a nice article on reading the annual report which I have copied and paste here:

Tuesday, March 09, 2010

Reading the Annual Report

When you look at a woman, which part of her anatomy do you look at first? Is it her face, her bosom or her bottom? It is all a matter of choice. It doesn't matter so long as you get to look at the whole picture. Now, when you look into an annual report, it is the same. Which statement do you prefer to see first. Is it the income statement, the cash flow statement or the balance sheet? Personally, I go straight for the balance sheet to find out what the company has and what it owes others. If I don't find things attractive there, I will just close the report, avoid the stock and move on.
The things that I pay attention in the balance sheet are: Paid-up capital, par value per share, retained earnings, current assets, and current liabilities. I pay special attention to its cash position and how much debt it has. If its debt is too high, when compared to its equity, I will normally lower the grading of the stock. Don't forget that all companies that folded are those with very high debt.
From the balance sheet, I go to the income statement , the cash flow statement, and then the CEO's statement, or Chairman's statement. If both are available, I'll read them both and also the notes in the annual report to ascertain that the company is not involved in any litigation. Lastly, I will go to the page that shows the names of the majority shareholders. A strong major shareholder is a advantage. Take the case of YTL Cement whose major shareholder is YTL Corp.
Things to consider when assessing a company are as follows: a) Calibre of management; b) Modal of business; c) Earnings per share; d) Dividend yield; e) Cash and debt position; f) Barrier of entry; and g) sustainability of profit.

FBM KLCI was at a two-year high of 1324.22 on 8.3.2010.

On 8.3.2010:

FBM KLCI was at a two-year high of 1324.22. It rose 1.9% that day. (Since March 10th 2009, it had risen 469 points (55%) from the FBM KLCI's low of 855.24.)

The FBM SmallCap Index, which tracks the performance of 98% of listed stocks outside the top 100 companies, advanced at 1.16%.

The broader FBM Emas Index climbed 1.7%.


Therefore, while the top counters saw heavy buying interest on 8.3.2010, the smaller-sized firms trailed behind.