Peter Lynch's 6 categories of stocks: Turnaround Stocks

Turnaround stocks: The pleasure and pain

GREG HOFFMAN
February 24, 2010


In this fourth instalment of a five-part series, we'll examine turnarounds; a category beginner investors should be very careful of.

Like ice cream, turnarounds come in many varieties. The mildest form is the ''little-problem-we-didn't-anticipate'' kind of turnaround typified by Brambles' loss of 15 million pallets in Europe a few years ago.

Another is Aristocrat Leisure, which I recommended to The Intelligent Investor's members in June 2003 at $1.15 with the following quotes, fittingly, from Peter Lynch: ''Turnaround stocks make up lost ground very quickly'' and ''the occasional major success makes the turnaround business very exciting, and very rewarding overall.''

While I'm proud to have steered members into this great stock in its darkest days, I recommended people begin taking money off the table far too early in the turnaround process, beginning in March 2004 at $2.73 having recorded a gain of ''only'' 137%, when much more was to come. Thankfully we were recently given another bite at the cherry (as I explained in Betting on prosperous times).

Perfectly good company

Another category of turnaround is the perfectly-good-company-inside-a-troubled-one. I missed AMP in its ''lost years'', because I wasn't comfortable enough with the complexities of life insurance accounting to take the plunge. But Miller's Retail (now Specialty Fashion Group) provided an opportunity at its 2005 nadir, with progress in its women's apparel business being clouded by problems in its discount variety division.

Those brave enough to draw breath and buy the stock when I upgraded in May 2005 at 68.5 cents per share were rewarded with a 148% return in just 10 months before we sold in March 2006 at $1.70 (although the stock had provided a painful ride down prior to its relatively sudden resurrection).

Potential fatalities are probably the most uncomfortable type of turnaround. They can be explosive on both the up- and down-side.

My analysis of timber group Forest Enterprises on 8 March 2002 (Speculative Buy - $0.12) began: ''This company could go broke. But we're about to recommend you buy some shares in it.''

It may shock you that a conservative service like The Intelligent Investor could ever recommend a stock which has a significant chance of going to zero. But if the profit potential is large enough, and the percentage chance of it materialising is great enough, then we're prepared to risk a prudent percentage of our portfolios in a potential wipe-out situation.

Probability is the key

The key to turnarounds is to think about them in terms of probabilities. With Forest Enterprises back in March 2002, my probability calculation would have looked something like the accompanying table. (see below)

The stock ran even further after I recommended our members sell at 35 cents in April 2004, but that advice to sell quoted the words of famed American financier Bernard Baruch: ''Don't try to buy at the bottom and sell at the top. It can't be done except by liars.'' We were content with a near tripling of our initial outlay in just over two years.

The Intelligent Investor's sell-side record is a bit embarrassing on these turnarounds - tending to sell far too early. But buying is by far the riskiest part. Get one of these investments wrong and you could well be staring at a financial fatality - a ''bagel'', in the parlance of Wall Street.

Don't worry, though. You can live a rich and rewarding investing life without ever going near a turnaround situation in the sharemarket. You could also say the same about the final stock category we'll turn to on Friday: Asset plays. But asset plays appeal to a certain type of investor (I, for one, love 'em) and can offer great returns often with a good deal of underlying protection.

This article contains general investment advice only (under AFSL 282288).
Greg Hoffman is research director of The Intelligent Investor which provides independent advice to sharemarket investors.



http://www.businessday.com.au/business/markets/turnaround-stocks-the-pleasure-and-pain-20100224-p2pt.html

Peter Lynch's 6 categories of stocks: Cyclical Stocks

The pitfalls and profits of cyclical stocks

GREG HOFFMAN
February 22, 2010

Famous American investor Peter Lynch, in his great book ‘‘One Up On Wall Street’’, described how he split stocks into six different categories. In my previous two columns we covered sluggards, stalwarts and fast growers.

Now it’s time to move on to cyclicals which, along with the two categories we’ll cover on Wednesday and Friday, can offer lucrative opportunities. But they can also deliver crushing financial blows if you get them wrong.

If the sharemarket were a sporting competition, these stocks would be reserved for "first grade" players only. The market, though, is not like that. Beginners can quite easily lose their life savings on a cyclical stock bought at its peak, or on a turnaround that doesn’t turn around.

Most companies have a cyclical element to their operations. Even so-called defensive businesses benefit to some degree from a booming economy and suffer when things turn sour. But those particularly exposed to the ebbs and flows of a business cycle are known as cyclicals.

Retailers, vulnerable to fluctuations in discretionary consumer spending, are a good example. When unemployment or interest rates rise and consumers tighten their purse strings, they are hit hard. Shares in David Jones more than halved in the 14 months between December 2007 and February 2009. Then, as consumer confidence returned, they doubled over the ensuing 12 months.

There are also industry-specific cycles. Steelmaking and air travel can be deeply affected by movements in the supply and demand of their international marketplaces. The same is true of mining and related services groups, whose fortunes are much more tied to global economic conditions than to the local scene.

So, how does one spot a cheap cyclical stock?

A low price-to-earnings ratio (PER) often catches our eye at The Intelligent Investor. Yet this isn’t necessarily an opportunity with cyclical; it could be a trap. The fluctuating nature of a cyclical stock’s profits means they can appear superficially cheap, just as their earnings are about to fall off a cliff.

BlueScope Steel provided a classic example in 2007. Back then one of The Intelligent Investor’s researchers summed up his analysis like this: "The PER of 11.3 and the dividend yield of 4.4 per cent are deceptive and the stock would need to be a lot cheaper to offer a margin of safety. SELL."

BlueScope’s share price has since fallen by more than 75 per cent. Low PERs are not reliable indicators of value, especially when it comes to cyclical stocks.

To profit from cyclicals, you should seek them out at the point of maximum pessimism, when you’ve noticed signs that the underlying cycle is improving but the share price is still wallowing. Cyclicals aren’t the type of stocks you want to hold forever, though. And bear in mind that selling cyclicals too early can be uncomfortable.

Take my "Buy" recommendation on Leighton Holdings (something of a mix between a cyclical and a fast grower) at a low of $7.83 in May 2004. Less than two years later the stock was trading at $17.70 and I called on our members to take their 126 per cent profit (plus dividends) and run. Yet the stock price continued to soar throughout the resources boom, making my sell call look far too conservative, if not foolish.

A strong cycle can carry profits and stock prices further than you might imagine. But we must guard against greed becoming the dominant factor in any investment decision. While exiting a cyclical too early can lead to ‘seller’s regret’, getting out too late can be extremely hazardous to your wealth.

So one needs an understanding not just of the cycles affecting a stock but also of the expectations built into its share price at any point in time. When it comes to predicting cyclical turning points, I'm reminded of the quip that economists have predicted seven of the last three recessions – so don’t believe everything you read.

This article contains general investment advice only (under AFSL 282288).

Greg Hoffman is research director of The Intelligent Investor which provides independent advice to sharemarket investors.

http://www.businessday.com.au/business/the-pitfalls-and-profits-of-cyclical-stocks-20100222-oqi4.html

Peter Lynch's 6 categories of stocks: Fast Growers

Stalking the ten-bagger

GREG HOFFMAN
February 19, 2010

In Wednesday's column, we looked at what are generally less risky stock categories - sluggards and stalwarts. But what about the potential ten-bagger - a stock that rises by 10 or more times the price you paid for it?

Peter Lynch, the famous 1980s American fund manager and author, terms such stocks fast growers. Naturally, they're notoriously difficult to pick, inhabiting a land of broken dreams and expensive investment lessons for those too quick to put their faith in a good but elusive story.

The traps are numerous and deep. There are plenty of fast-growing industries - airlines, for example - that have been graveyards for investors. So it's vital to ascertain whether the company you have in your sights really has a sustainable competitive advantage.

Many a blistering growth stock has been lifted on the back of a single, hot product. Ballistics company Metal Storm was a favourite a few years ago, as was animal-focused biotech Chemeq; both ended up crashing spectacularly.

So it's crucial that you understand the risks and allocate your portfolio accordingly. Don't place all your hopes on one hot product.

And always make sure the company is delivering growth in earnings per share as well as net profit. It's too easy to grow net profit by raising more money from shareholders; double the amount of money you have in a plain old savings account and you'll double its ``profits''. What counts is growth in earnings on a per share basis.

Time to bale

The time to bale out is when you think the business might be maturing or saturating its market and no-one else has noticed. And, yes, unfortunately that is as hard as it sounds.

You should also pay heed to the loss of any key executives. Ten-baggers are often driven by one key entrepreneur like Chris Morris at Computershare, or a small team of motivated individuals, as is the case at QBE Insurance. If they're jumping ship then you might consider joining them.

As for retailers - often fast growers when they initially list - it's crucial to keep an eye on the same-store sales figure. When this number drops off it can be a sign that the concept is getting tired or that competition is staring to bite, even as profitability continues to grow through new store rollouts.

Is this 'nuts'?

More positively, the prices of these stocks can sometimes get way ahead of themselves and that's a good time to think about taking some or all of your money off the table.

Good examples would include Harvey Norman, Flight Centre and Cochlear back in 2001. All are great companies and, generally speaking, I'd be a happy holder (if not a buyer) of them, but there comes a point where you just have to say ''this is nuts''.

What constitutes a ''nutty'' price? It's difficult to say, but as Justice Potter Stewart once opined in the US Supreme Court on the subject of pornography: ''I shall not today attempt further to define the kinds of material I understand to be embraced within that shorthand description; and perhaps I could never succeed in intelligibly doing so. But I know it when I see it.''

Be warned though: Too many high valuations can make one blasé. In the boom years, investors routinely paid price/earnings ratios of 16, 18 and even 20 for fairly mediocre business. As with many aspects of investing, success is determined by the price you pay to buy in, more than the price at which you sell to get out.

Next on our agenda is a tour through the land of cyclicals, then turnarounds and, finally, asset plays. Each has the potential to provide exciting returns and excruciating losses, so stay tuned.

This article contains general investment advice only (under AFSL 282288).
Greg Hoffman is research director of The Intelligent Investor which provides independent advice to sharemarket investors.

http://www.businessday.com.au/business/stalking-the-tenbagger-20100219-okuj.html

Peter Lynch's 6 categories of stocks: Sluggards and Stalwarts

Which pigeon hole for Telstra?

GREG HOFFMAN
February 17, 2010

''If you don't know where you're going,'' said Austrian psychologist Alfred Adler, ''you'll end up somewhere else.'' Adler probably wasn't thinking of the stockmarket at the time but his quote alludes to a classic investing mistake.

Most investors spend much of their time looking for stocks to buy. Very little time is allocated to thinking about when to sell. Buying stocks warrants intense consideration, selling is often done on a whim.

The problem, as Adler suggests, is that it's easy to forget what you originally expected from an investment. As a result, you end up in a place you neither recognise nor expect.

What's the solution? One way is to write down what you expect from a stock when you're doing your initial research. Some of The Intelligent Investor's analysts talk about ''milestones'' and ''roadmaps'' but they're probably just overdue a holiday.

More famously, Peter Lynch, the American investor and author, places his stocks into six categories:

• slow growers (or ''sluggards''), 
• medium growers (or ''stalwarts''), 
• fast growers, 
• cyclicals, 
• turnarounds and 
• asset plays. 

Such terms capture one's expectations for a stock pretty well.

As Lynch explains in One Up on Wall Street: ''There are almost as many ways to classify stocks as there are stockbrokers - but I've found that these six categories cover all of the useful distinctions that any investor has to make.''

In this column and the four that follow, I'll run through Lynch's categories and draw out some important distinctions using my own experiences and those of The Intelligent Investor team over the years I've been leading it.

Sluggards

Slow growers, or ''sluggards'', are businesses growing at the same rate as the general economy, say 3-4% a year, or less not a place for ''tenbaggers'' (stocks that rise 10-fold from your buy price). But, purchased at the right price, they can be nice, steady providers of dividends.

When looking at sluggards you need to think about the nature of the business, how it's financed and the history of dividend stability and coverage (earnings per share divided by dividends per share - other things being equal, the higher, the better).

The time to think about selling these stocks is when they've enjoyed some kind of significant - and unwarranted - capital appreciation. You didn't buy them for spectacular gains so when you get some, it's often a good time to sell.

Operationally, it should catch your attention if they start losing market share or changing strategy away from their core business (through unrelated acquisitions or shifting into unfamiliar geographic territory, for example).

We aren't flush with these sorts of stocks in Australia but Telstra is probably a good example. It features a number of sluggard hallmarks including market share loss and very thin dividend coverage.

Stalwarts

Stalwarts grow faster than sluggards but at less than double-digit rates. Dividend yield is not as crucial as it is with sluggards as these companies are often still investing for growth. Stocks like Woolworths and Metcash are good stalwart examples.

When looking to buy them, paying a sensible price is paramount. Keep an eye on the price-to-earnings ratio (PER) and make sure the business's strategy is clear and consistent.

If the PER blows out relative to other stalwarts, then it could be an opportune time to consider a switch to ensure your money's working as hard as possible. Share sales by several directors can be another warning sign (www.directorstransactions.com.au can help your research in this regard).

Also, keep an eye on whether profit growth is a result of cost cutting rather than growing sales (Telstra again). This is not a way to sustainable profit growth and can indicate that a stalwart is turning into a sluggard.

On Friday, we'll turn our attention to arguably the most exciting category of stocks; fast growers, and provide a few examples.

This article contains general investment advice only (under AFSL 282288).

Greg Hoffman is research director of The Intelligent Investor which provides independent advice to sharemarket investors

http://www.businessday.com.au/business/which-pigeon-hole-for-telstra-20100217-ocap.html

Investment income – is it taxable?

Thursday March 25, 2010

Investment income – is it taxable?
By PAULINE TAM


IT IS the time of the year when some of us may feel uneasy as the deadline for filing our personal income tax return gets nearer. You may drag your feet when having to complete the return form (Form B or Form BE as the case may be) and procrastinate till the last minute as obviously paying taxes is not as exciting as receiving money from your investments.

After having received money from your investments in say, shares and property, have you considered whether the receipts are taxable?

Dividend income

In general, people are under the impression that dividend income is not required to be reported in the tax return. This is only true provided the dividend income is tax exempt as in the case where the dividend that is received is either a single tier dividend or is paid out of the exempt profits of the dividend-paying company. In the case where you received dividends where income tax has been deducted at source, such dividend income is taxable and consequently has to be declared in your income tax return.

Depending on your level of taxable income, you may actually obtain a tax refund from the Inland Revenue Board (IRB) if your tax bracket is at 24% or below.

Generally, the tax deducted by the company on the taxable dividend is at the rate of 25%. On the other hand, if your tax bracket is at 27%, then you are required to pay the 2% differential to the IRB.

In order to determine whether your dividend income is taxable or otherwise, you can look at the dividend vouchers. However, one common mistake in the reporting of taxable dividend income is where the actual amount received is declared as opposed to the gross dividend income, as stated in the dividend voucher.

Rental income

The other common investment income is rental income. Reporting of rental income would be simple if only the gross rental received without claiming deduction for expenses incurred in deriving the rental income was reported. As a smart investor with diversified investments, every penny saved or earned would be additional funding for your next investment.

Therefore, you should claim all the permissible expenses against the gross rental income. The permissible expenses would include assessment, quit rent, service charges, sinking fund contributions, fire insurance and property loan interest. In the case of a bank loan taken to finance a property which generated rental income, one has to remember that it is only the loan interest that is deductible and not the entire loan repayment amount.

Other rental-related expenses such as property agent’s commission and repairs may be deductible against the rental income. However, you would need to scrutinise such expenses in detail to establish if they are indeed deductible.

In the case of the property agent’s commission, where the property owned is being rented out for the first time, the commission paid for securing the first tenant would not qualify for a tax deduction. Subsequent commission paid to the property agent for securing tenants for the same property (after the first tenancy) would be deductible. Likewise, not all repair expenses incurred on the property could be deducted against the rental income.

If you were to repair a leaking roof and install a canopy at the verandah of the house at the request of the tenant, the expense incurred on the canopy would not be deductible as it would not be regarded as repairs and maintenance expense although the repair of the roof should qualify for a deduction.

Some points to take note of

Bearing in mind the penalty that can be imposed by the IRB in the event of an understatement of income in the tax return, you would have to be careful when determining the types of expenses to claim against your investment income. It is important that you do not make a claim for otherwise eligible expenses if you do not have the supporting documents to justify your claims.

If you have a property jointly owned with your spouse, the rental income will be taxed based on your share in the property. Correspondingly, your spouse would have to report the rental income based on his or her share in the property.

Where you and your spouse have investment income, you may be thinking of whether you should be filing for separate assessments or opting for a combined assessment. For most couples, a combined assessment is not beneficial as the combined income would push the tax rate to a higher bracket.

Further, a separate assessment would allow each person to claim the personal relief of RM8,000 whereas a combined assessment would only allow the person to claim either a wife or husband relief of RM3,000 in addition to the personal relief of RM8,000.

This would mean a loss of relief of RM5,000.

·Pauline Tam is executive director, KPMG Tax Services Sdn Bhd

http://biz.thestar.com.my/news/story.asp?file=/2010/3/25/business/5927473&sec=business

Is success causing you heartache? Are you a Type A personality?

March 23, 2010

Roberts finds out why high-flying professionals are more likely to suffer from cardiovascular disease and other ailments.

Are you ambitious and highly competitive, a corporate high-flyer who values achievement and status, and for whom perfection comes as standard? Would others describe you as workaholic, possessing a quick temper, and impatient to the point of being hostile to your colleagues? If so, you may have what psychologists call a Type A personality. While this can be great for business - such attributes have no doubt propelled you to the top of your game - it may also be damaging your health.

Corporate high-flyers are richly rewarded, but those corporations also demand their pound of flesh: Herculean workloads, 16-hour days and chronic stress exact a heavy toll. Type A is a set of psychological character traits identified in the 50s by cardiologists investigating a possible link between stress and heart disease.

A key component of the diagnosis, which includes being hard-driving, demanding, and secretly insecure about your own status, is "hostility" - shorthand for a borderline anti-social personality. Go-getters with an unusually aggressive approach to doing business are most prone to what one cardiologist termed "hostility-related heart attacks".

A high-pressure workplace can put a massive strain on the cardiovascular system. Elevated levels of cortisol and adrenalin, hormones that control the body's response to stressful situations, make the arteries expand and the heart race as blood rushes to the muscles.

While the latest research indicates that only Type As displaying the "hostility" component of the personality have a higher risk of coronary heart disease, all stress junkies in the group are putting their wellbeing at risk. New studies suggest that Type A personalities may be prone to a host of illnesses that had been hitherto unnoticed.

As a group, Type A personalities find it hard to switch off, which can adversely affect moods and sleep patterns. Periods of stress and anxiety can also cause muscular tension. In contrast, Type B people are more relaxed, less competitive, and therefore at lower risk of such ailments.

A recent report by the British Dental Health Foundation also singled out financial sector workers - classic Type As - as being prone to bruxism, a stress-related teeth-grinding, an upsurge in which has been linked to job insecurity during the recession. Those who grind their teeth are often unaware of doing it, as it mostly occurs during sleep, in bursts lasting up to two hours in total a night. The grinding can cause severe oral pain, as well as splitting headaches and eating problems. Those badly affected may crack their teeth beyond repair and require regular painkillers, which bring further complications.

Over the past 18 months, one dental practice in central Edinburgh has seen an increase of almost 20 per cent in bruxism, especially among patients working for the city's banks, fund managers and financial services firms.

The pressure put on Type-A professional women has also been shown to affect fertility levels. Last year, Prof Elizabeth Cashdan, an anthropologist at the University of Utah, said that go-getting lifestyles can cause a shift in a woman's hormonal balance which leads to oestrogen, the female hormone, being replaced by androgens, a group of hormones which includes testosterone, and which is associated with strength, stamina and competitiveness. The hormonal imbalance can then lead to body-shape changes which may compromise fertility.

However, it is high-flying men who are most prone to Type A-related illnesses. Executive coach Lisa Wynn has worked with "super-driven" Type A people in companies such as IBM and O2. "They see a straight line to success, and just go for it. Those Type-A attributes clearly help you get ahead, which is why these guys run their own businesses or head up large corporations.

"However, they often have very high levels of cortisol, which makes you feel more anxious, and guzzle coffee, junk food and chocolate - all those things that keep you running but also make you crash and crave more," says Wynn.

Jonathan Jay, 38, who runs a multi-million-pound business training company, can testify that anger and irritation are natural by-products of a 100-hour working week. "I've always put myself under huge pressure," he admits. "When I was trying to get my business to take off 10 years ago, I worked more than 80 hours every week. I was under the misconception that long hours equal success."

To get his company started, Jay sacrificed both diet and downtime. "I often forgot to eat, and when I did it was rubbish. And I was so hyped up, I couldn't sleep. I had terrible chest pains and eventually collapsed while giving a presentation." He blacked out for just a few minutes, but that was long enough to shock him into action.

"My consultant told me it was just stress, but that next time it might be more serious. That was a massive wake-up call. I re-evaluated my life and changed the way I did business, working smarter, not harder."

Michael Rice, a former chartered accountant and quintessential Type A, also learnt the hard way about the health problems that come from life at the top. "I used to be at my desk by 7am and thought it was a half day if I left before 10pm."

As the work piled up, his health plummeted. "I put on three-and-a-half stone, was smoking 40 cigarettes a day, and had terrible breathing problems. I ate rubbish and couldn't sleep at night. I was at the top of my game, but my health just went down the drain."

Luckily, Rice's wife, a GP, told him enough was enough. "She used to say that I didn't have blood in my veins, just nicotine and caffeine. But beyond the jokes, she was really worried about my stress levels and hypertension."

Heeding her advice, Rice resigned, setting up his own firm, Trixster, which produces executive exercise bicycles. "Stressed-out Type As are now my target market," he says.

According to Dr Tony Massey, medical director of the wellbeing consultancy Vielife, a healthy work/life balance can bring Type As even greater rewards. "Plenty of people with enormously successful careers figured out early on the importance of setting aside time for themselves," he says.

"There's good research to show that executives who work long hours but have a nutritional diet, are physically active and get adequate sleep will actually be more productive."

The London Telegraph


http://www.smh.com.au/executive-style/fitness/is-success-causing-you-heartache-20100323-qsux.html

Malaysia Will Adjust Its Racial Policies

ASIA NEWSMARCH 23, 2010, 8:47 P.M. ET
Malaysia Will Adjust Its Racial Policies
By PETER STEIN

HONG KONG—Malaysian Prime Minister Najib Razak said his government is planning to adopt new affirmative-action policies that are "more market friendly" but said the pace of reforms will depend in part on "people's buy-in to the changes."

In an interview Tuesday, Mr. Najib also addressed concerns about religious unrest in Malaysia, the trial of opposition leader Anwar Ibrahim and the use of oil revenue to subsidize domestic fuel prices.

After taking power in April last year, Mr. Najib announced a relaxation of restrictions in the country's services sector, including moves to encourage foreign investment in tourism and legal and financial services.

"The market, I must say, has not appreciated the significance of those changes," the 56-year-old Mr. Najib said in Hong Kong, where he spoke at a Credit Suisse investor conference. Also underappreciated, he said, were "the political risks we have to take to examine some of these policies and reform these policies."

Malaysia retains longstanding policies aimed at promoting the role of ethnic Malays, who make up 60% of Malaysia's 27 million population, and which leave many ethnic Chinese and Indians feeling disadvantaged.

However, his government plans to announce new overhauls in coming weeks. "And the new approach towards affirmative-action will be more market friendly, more transparent and more merit-based," Mr. Najib said, without disclosing any details.

The British-educated Mr. Najib, the son of Malaysia's second prime minister, took power last April after big losses at the polls for the governing National Front coalition precipitated the resignation of his predecessor, Abdullah Ahmad Badawi. The opposition, led by former deputy prime minister Anwar Ibrahim, has gained ground in part by drawing on support from disaffected ethnic groups.

Mr. Anwar is currently on trial for allegedly sodomizing a young male aide in 2008, the second time such charges have been brought against him in little more than a decade. Mr. Anwar, 62, says the charges are a fabrication aimed at destroying his reputation and political career. He was jailed on similar charges from 1998 to 2004, when his conviction was overturned on appeal.

Asked how he responds to criticism that Mr. Anwar is being tried for political reasons, Mr. Najib said that it "has nothing to do with the government. It's an individual matter. It just so happens the person concerned is the head of the opposition." He added: "Let us allow the process to take place and the international community can judge for itself."

This year, Malaysia has been hit by religious unrest. Tensions between Muslims and non-Muslims escalated after the country's High Court ruled on Dec. 31 that Roman Catholics could use "Allah" as a translation for "God" in a Malay-language church publication. That sparked protests among Muslims demanding that Islam be protected, and led to attacks on a number of churches and the desecration of two mosques. Mr. Najib's government has appealed the court decision, arguing that the Arabic word should be reserved for use by Muslims.

Mr. Najib blamed the violence on extremists. "In any society, there will be the whole spectrum of views," he said. "You will get the extremists on the far right and also the far left." He noted that "to change people's attitudes and values, it does take time."

Weaning Malaysia off dependence on royalties earned from its oil reserves is one of the nation's longer-term challenges, Mr. Najib acknowledged. Currently, the government uses that income to subsidize public fuel prices but "we've realized it's not sustainable." However, he noted that "there's a political cost to taking away subsidies," which will make it difficult to remove them quickly. He also stressed the need to strengthen Malaysia's social safety net to help poor people most impacted by any changes.

The prime minister confirmed that Malaysia is "quite keen" on joining an Australian-backed proposal for a trans-Pacific free trade zone. Last week, representatives of the U.S., Australia, China, Brunei, New Zealand, Peru, Singapore and Vietnam held preliminary talks on the idea of such a grouping in Melbourne.

Malaysia's policy is pro-free trade, he said, "so any kind of arrangement that helps to promote trade is something that we would be very supportive of."

Write to Peter Stein at peter.stein@wsj.com

http://online.wsj.com/article/SB10001424052748704211704575139492616954952.html?KEYWORDS=PETER+STEIN

FBMKLCI Chart 1990 - 2010

Saturday March 13, 2010

PETALING JAYA: The FTSE Bursa Malaysia KL Composite Index (FBM KLCI) may find it difficult to breach its all-time high of 1,516 points this year although the index is currently just 13% shy of that record.

Although the market hit a fresh two-year high of 1,328.22 points on Wednesday, it is still some way off the record high of 1,516.22 points reached on Jan 11, 2008.

http://biz.thestar.com.my/news/story.asp?file=/2010/3/13/business/5856504&sec=business

IMF warns of acute debt challenges for West

The International Monetary Fund has warned that advanced economies such as the UK and US are facing an 'acute' challenge in reducing debt loads following the financial crisis which could in turn hamper economic growth.

By James Quinn, US Business Editor
Published: 8:40PM GMT 22 Mar 2010

John Lipsky believes that high levels of governmetn debt could slow growth Photo: Bloomberg

The International Monetary Fund has warned that advanced economies such as the UK and US are facing an 'acute' challenge in reducing debt loads following the financial crisis, a problem which could in turn hamper economic growth.

John Lipsky, the IMF's first deputy managing director, said that high levels of government debt and fiscal deficits have already led to increased risks for a number of countries.

Mr Lipsky cautioned that such problems could slow economic growth over the medium-term and trigger higher interest rates.

"Maintaining public debt at its post-crisis levels could reduce potential growth in advanced economies by as much as half a percentage point annually compared with pre-crisis performance," he said in a speech in Beijing.

He went on to say that for "most advanced economies' " fiscal consolidation should begin in earnest in 2011, and gave warning that simply unravelling stimulus programmes would not be enough.

Mr Lipsky cited evidence that all G7 countries except Germany and Canada will have debt-to-GDP ratios close to or in excess of 100pc by 2014.

"This surge in government debt is occurring at a time when pressure from rising health and pension spending is building up," he continued.

In a separate speech in Hanoi, Mr Lipsky said the global economy will rebound by 4pc in 2010 and 4.25pc in 2011.

However, what the IMF terms the "emerging Asia" region – including China and India - will grow at more than twice the pace, with an economic growth rate of 8.25pc estimated in the current year.


http://www.telegraph.co.uk/finance/economics/7500211/IMF-warns-of-acute-debt-challenges-for-West.html

Sellers causing Steep drop in price of KNM

What every investor must know about stock market charts

March 23, 2010
Posted by: Pat McKeough Filed in: Market Analysis

Technical analysis (or reading stock market charts) can be a useful tool for picking stocks. However, some investors choose to make investment decisions based solely on charts. That’s when technical analysis can lead you to make poor (and sometimes disastrous) choices.

Technical analysis is the process of analyzing a stock’s price movements in an attempt to determine its future price. It focuses on how a stock has behaved in the past, and the clues that could offer about future price movements.

It’s crucial to keep stock market charts in perspective

We always look at stock market charts when we select stocks to recommend in our newsletters and investment services. And some successful investors find it helps to know a little about charts. But if you rely on charts at all, you should view them as just one of many things to consider when you make investment decisions. Here are two reasons why:

1. Technical analysis zeroes in on share prices: The main problem with chart reading is that it is based entirely on a stock’s past price movements. It’s not concerned with other crucial parts of a company’s business, such as financial statements, management strength or conditions in the company’s industry. In fact, an investor who relies solely on charts might buy and sell a stock while knowing little or nothing about the underlying company.

2. Technical analysis is not as consistent as it appears: The appeal of technical analysis is that it often seems to work, at least in small ways, but this may be an illusion. You may only remember your successful chart interpretations. More important, technical analysis tends to work in spurts. The risk here is that you may find it leads you to make five or even 10 small wins, then steers you wrong at the worst possible moment. That next mistaken trade may cost you much more than your winnings to date.

Stock market charts should support — not determine — your view of a company

The key to profiting from technical analysis is to avoid looking to the pattern on the chart for a prediction of what’s going to happen. Instead, see if the chart seems to support your view of the stock, based on its finances and other fundamentals.

It’s encouraging if your analysis and the chart seem to match. But sometimes they don’t. If a stock looks promising, but its chart shows a lengthy falling trend, insiders may know something you don’t. That’s when you have to dig deeper, and perhaps wait until the situation clarifies itself.

http://www.tsinetwork.ca/daily/market-analysis/what-every-investor-must-know-about-stock-market-charts/

The dreams of turning small money into a vast financial empire - Entrepreneurs Are Perfect For The Stock Market

Entrepreneurs definitely dont have a monopoly on how to earn cash fast. The dreams of turning small money into a vast financial empire have always existed in one form or another. The global economy and the Internet have created a new genre of entrepreneurs. However, the stock market has always had its own entrepreneurs. The stock market is also full of individuals wanting to experience large returns from a great idea or investment.

Entrepreneurs definitely know how to dream up an idea and act on it, at least the ones who are willing to do the work anyway. These are people who are not content working for a large corporation but instead want to become that large corporation themselves. Entrepreneurs are people who are willing to take sometimes great risks to make more money and see their idea become profitable.

If this describes you or someone you know then you know someone who would probably love investing in the stock market. Investing consists of a good amount of research but also a great amount of guesswork and speculation. It involves taking risks that many times others are too timid to take. These are the people who really make the money in the stock market. Yes they also lose money but they learn from this and move forward making calculated adjustments in their strategy.

Investors are aware of the risks depending on the investment and so are entrepreneurs. However, this does not stop them from taking the necessary steps to riches. Investors sometimes trust their hunches invest in a stock even though everyone else is saying sell. This applies to entrepreneurs as well.

You see, there are so many similarities in investors and entrepreneurs. Of course entrepreneurs can be more associated with higher risk investments such as penny stocks but this is certainly not the only stock they would be involved in. They take on only the risk that is required of them to position themselves for profit. This does not mean that investors or entrepreneurs are crazy. In fact they are just as sensitive about the risks as anyone else. It all comes down to a willingness to do what others are simply too scared to do.

So if you are an entrepreneur then guess what, you have exactly what it takes to make quite the living in the stock market. You have the guts and tenacity to make bold moves at the right time.

Author: Elton John
Source: articledashboard.com

http://stockoption.tahomafoodsystem.org/entrepreneurs-are-perfect-for-the-stock-market/

Dividend-paying companies: major shareholders must be willing to share their profits with their investors through good dividend payments.

Wednesday March 24, 2010

Dividend-paying companies

Personal Investments - By Ooi Kok Hwa

Despite investing in profit-making companies, a lot of investors have been complaining that they are not getting the desired returns from the companies that they have invested in.

One of the main reasons is that these companies usually pay very low dividends or no dividends to their investors.

Hence, even though these companies make good profits from their businesses, they are not sharing the profits with their minority investors.

Companies that pay good dividends to their investors imply that the major shareholders of these companies are willing to share their wealth with minority investors.

Given that minority investors have no control over these companies, they have only two sources of returns from their investments, namely 

• dividend returns and 
• capital gains.

If the companies refuse to reward their investors with good dividends, then investors need to make sure that they buy low and sell high in order to get capital gains.

Warren Buffett proposes one concept, which is called the one-dollar premise - for every dollar profit that a company makes, it either pays one dollar dividend to its shareholders or if that dollar is being retained, it needs to bring additional one dollar market value.

Companies with good management will always try to maximize the wealth of their investors.

The following table will show the importance of dividends to an investor.

Assuming you have invested in Company A with an average cost of RM15.

Company A generates earnings per share (EPS) of RM1.00 with price-earnings ratio (PER) of 15 times and pay out 80% of its profits as dividends or dividend per share of RM0.80.

Hence, with the purchase price of RM15, the dividend yield (DY) is 5.3%.

We also assume that Company A has a constant PER of 15 times and dividend payout ratio of 80% for the next 20 years.

Annual growth rate of EPS is 8% based on our country’s average nominal GDP growth rate of 8%.

For the first 10-year period, given that our original cost of investment is fixed at RM15, our dividend yield will be getting higher and higher.

For example, first year DY of 5.3% is computed based on DPS of RM0.80 divided by RM15.

And second year DY of 5.8% is calculated based on DPS of RM0.86 (RM0.80 x 1.08) divided by the same original purchase price of RM15.0.

As the company’s businesses continue to grow and generate higher profits, as long as the company practices a fixed dividend payout policy (our example is based on a fixed dividend payout ratio of 80%), investors’ DY will increase.

At Year 10, given that our purchase price remains the same at RM15, with a DPS of RM1.60, our DY is 10.7% (1.60/15.0).

Thus, the average DY for the first 10-year period is 7.7%.

Coupled with the annual capital gain of 8% (the share price has grown by annual growth rate of 8% from RM15 to RM29.99), investors will generate an annual total returns rate of 15.7% (7.7% + 8%)!

If we keep this stock for another 10-year period, our next 10-year annual total return is 24.7% (16.7% + 8%)!

From here, we can see that if we have invested in good companies that always reward their investors with very high dividend payments, our returns will be huge if we hold it long term.

Normally, consumer-based companies and companies that do not need high capital expenditures will be able to reward shareholders with good dividend payments.

Besides, major shareholders must be willing to share their profits with their investors through good dividend payments.

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

http://biz.thestar.com.my/news/story.asp?file=/2010/3/24/business/5919730&sec=business

Also read:

*****Long term investing based on Buy and Hold works for Selected Stocks

Dividend Yield Investing - Stock Selection is still the Key

A look at NTA/Share of KNM

KNM GROUP BERHAD
(Company No:521348-H)
( Incorporated in Malaysia )

Net assets per share attributable to equity holders of the parent (RM)
2009 0.48  
2008 0.46

No of shares (m)

2009 3998.76

2008 3998.76

NTA (m) (RM)

2009 194.427  

2008 39.919 

NTA/Share (RM)

2009 0.049

2008 0.010

http://spreadsheets.google.com/pub?key=tXdVkNO6CAd_pM5620QvUgg&output=html