Understand Your Risk Capacity and Risk Tolerance

You must stay invested in the securities markets to earn market risk premiums

The securities markets pay risk premiums. You have to have your money invested and at risk to be paid a risk premium.

Attempting to avoid risk or losses by jumping in and out to "time the markets" does not work. Scientific finance studies demonstrate the both amateurs and professionals are lousy at market timing.

Historically, U.S. securities markets have paid substantial risk-adjusted returns or risk premiums to investors. While risk premiums have been substantial, they have occurred irregularly. There have been intervening periods of losses, some of which were substantial. (See: How stable have common stock equity risk premiums been over time?)

To earn market risk premiums, your assets must be invested and exposed to potential risk or loss. The more risk you can tolerate, then the higher your potential return and perhaps the rougher the investment road you may travel. Those who have better emotional tolerance for asset volatility can more easily weather market sell-offs.

Practical considerations will also affect your tolerance of investment risk.

In difficult times, whether you need to liquidate risky assets at depressed prices will depend on your expenses and on your other other holdings of less risky, salable assets. Paying necessary living expenses and taxes are good reasons to withdraw funds. Trying to time the markets for a better return is not a good reason.

If you do not need to take out money during a market retreat and recovery cycle, then risk tolerance is solely emotional. For a risk tolerant investor with stable earned income, the recent bubble crash was just a few years of unpleasantness, if he or she was fully diversified and, therefore, not heavily loaded with technology and communications equities. The same, however, could not be said for those who were poorly diversified and also found themselves to be highly risk averse, when risk actually happened. This is especially true, if job loss forced the liquidation of assets at depressed values.

To some degree, all sane individual investors are averse to risk, so risk tolerance is a relative rather than absolute issue.

Therefore, you need to judge your preference or tolerance for risk relative to other investors. While very few people like investment risk, those who can tolerate it better are those who will be less uncomfortable when risk happens from time to time and market values decline by a little or a lot. Tolerating the potential for loss is the cost that investors occasionally pay so that they are always at the table, when the markets deliver their positive rewards.

The vast bulk of individual investors’ publicly traded investment assets are held in the primary cash, fixed income, and equity financial asset classesin the form of individual securities or funds. Your relative investment risk tolerance should influence how your assets are allocated among these primary financial asset classes. If your actual asset allocation is more risky than your risk tolerance, you may not be able to handle the downturns. You might panic, when you should stand firm. If your asset allocation is less risky than your risk tolerance, then you are likely to need to spend less and save at a higher rate to reach your goals.

Nothing is certain about this process, and that is the nature of investment risk. However, the scientific investment literature is relatively clear on certain points. Amateur and professional investors are just not good at timing changes in the markets. Active strategies that attempt to time market turns have under-performed continuous investment strategies. Consistently and profitably calling serial market turns correctly has been a skill beyond mere mortals and certainly beyond the skill of even the most proud of professional and individual investors.


It is better to buy into the asset markets in proportion to your preferred asset allocation and risk tolerance and to stay in the securities markets through thick and thin.

Trying to sit on the sidelines and jump in when things seem safe simply does not work. When things seem safer, they also seem safer to others. In this situation, securities prices will have already reflected this confidence. Most of the "upside juice" or risk premium will already be reflected in current asset prices and only current securities holders will have been paid. (See: Introduction to investment valuation and securities risk)

The converse of trying to jump out to avoid the downturns also does not work. Real-time securities markets are auctions about the expected value of future securities returns. Particularly toward the downside, markets can react extremely rapidly. Getting out in time does not work, because it is usually too late when you realize you should have sold. Worse, however, you might jump out too early and be absent from the table when the market moves upward. Staying in the markets just tends to work better.

If you are more highly risk averse, it is more appropriate for you to select an asset allocation that reflects your relatively higher risk aversion.

You would hold a relatively small portion of your assets in the more risky equity asset class. Therefore, you might be more comfortable and more able and likely to keep your smaller equity allocation invested at all times. Having a smaller, but sustained exposure to equity assets tends to work much better for the more risk averse investor, compared to jumping in and out of the equity markets in larger proportions.

If you stay out of the markets due to such fears, then you are likely to need to save far more to reach your goals. Over-cautiousness is not a free ride. There is never a safe time to be in the markets, because investing is always inherently risky. There is never a safe time to be out of the markets, because you cannot earn investment risk premiums on the cash under your mattress. (See: VeriPlan helps your to compare investment risk-return tradeoffs)

Finally, you should periodically rebalance you assets back toward your planned asset allocation proportions.

To minimize the negative impacts of investment transactions costs and taxes, you should rebalance infrequently and in a planned manner that anticipates deposit and withdrawal transactions that you would need to do anyway for other reasons.

If you want to understand your personal asset allocation and risk-return tradeoffs over your lifetime, VeriPlan provides powerful, automated "what-if" planning facilities. You can rapidly develop and analyze a range of fully personalized scenarios to see whether your asset allocation strategy would achieve your objectives with a level of risk that is acceptable to you. VeriPlan provides five adjustable and fully automated mechanisms to determine your preferred lifecycle asset allocation. VeriPlan gives you full control over rates of asset returns and asset return variability, and it automatically rebalances your assets annually. It even projects the annual expense coverage by your safer cash and bond assets throughout your lifecycle.

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http://www.theskilledinvestor.com/ss.item.174/you-must-stay-invested-in-the-securities-markets-to-earn-market-risk-premiums.html

A roof over our heads: Should we buy or rent?

By RAYMOND ROY TIRUCHELVAM | Jul 10, 2010

A roof over our heads: Should we buy or rent?

PERSONALLY speaking, I have been faced with this question – to buy or rent a house – many times in my life. While I haven’t quite found a clear answer to that, I have decided to go with both. I have bought a house (or rather acquired one through financing) but am renting it out while I live in a rented premise with my family.

It is a known fact (if not compounded by our parents, and uncles and aunties) that one should, if they can, own a house. Generally speaking, renting somehow has some negative connotations. Ideally, we should buy a property early in our lives to take advantage of the longer loan financing period and if we can, try to settle the financing early.

While there may be no straight forward answer here, there are several pertinent questions we need to ask ourselves. Where do we see ourselves, five, 10, or 30 years down the road?

First, let us exclude investors from our category as they would naturally fall under the ‘buy’ status, and let us delve into the lives of the average man-on-the-street manifested in these four individuals – Robroy, Rizal, Rowena and Rossindra, who face a similar dilemma.

Robroy is 35 years old, married with two children, and works as an senior accountant. He works for a multinational company and therefore is required to travel, and at times is posted overseas for a few years. He also has chalked up some credit card debts from all the travelling, and have been delinquent in payments during his absence in Malaysia. Most recently, he was posted to New Zealand and is now considering migration.

Rizal is 30 years old, married with two wives and six children and is a businessman who owns several restaurants. His income is good, but it fluctuates, and he currently has some savings which he plans to invest. His big family helps him runs the business.

Rowena, is a 28 year old care-free person, whom after graduation could not hold a steady job, but is very happy with part-time jobs that give her the freedom to travel as she loves travelling. She has a boyfriend and plans to get married in a year or two.

Rossindra is 25 years old; she is a social science university graduate who has decided to dedicate her life helping the needy and healing the world. She is currently working under one of the Unesco projects in Myanmar. She gets paid pretty well, and with food and lodging fully provided at her workplace in Myammar, she saves almost all her salary. She recently took over the rental tenancy of her parents who live in a rented house, and is considering alternative options.

Of these four individuals, who do you think should buy a house or rent? The following represents my take, which of course, is open for discussion.

Robroy should rent, mainly because of his work commitment. His work requires overseas posting, which includes his family, especially since he is considering migrating to New Zealand. Furthermore, he has been delinquent in his credit card payments, and this may not go well for his loan financing if he wants to buy.

Rizal should buy, mainly because the nature of his income is uncertain and he has amassed some savings, which should aid in his down payment for a house. He had originally wanted to buy a house in cash but given the size of his family, he decided to buy a bungalow for which he has settled 50% of the payment while the remainder is financed through a loan. As he rents his restaurant outlets and the returns from his business is used to settle the rent, he is confident that buying a house is a much better option for him.

On the other hand, Rowena, quite clearly falls under the rent category. First, she does not have the financial ability and second, she has not quite decided what she wants to do in life. Furthermore, her part-time jobs may not provide her with a good credit standing with the banks. Her boyfriend whom she intends to marry happens to be rich.

So, naturally, if things go as planned, she may be able to solve, to some extent, her financial issues.

Rossindra, on the other hand is in a real predicament. While her position and work do not necessitate her to rent or buy a house, she is undertaking the obligation to pay rent for the house her parents stay in. She is considering the option of buying a small house and naturally, her parents are overjoyed to finally live in their own house.

Buying a house is usually, for many, a once-in-a-lifetime decision. So don’t rush into it. Take your time evaluating the possible scenarios and outcomes and of course, make sure you choose a suitable property. Whatever it is, you must try to avoid putting significant pressure on your financial status.

● The writer, a business planner with SABIC Group of Companies says: I would rather my parents choose my house than choose my wife.

http://www.starproperty.my/PropertyScene/TheStarOnlineHighlightBox/5773/0/0

Market psychology pays off

MARTIN ROTH

July 7, 2010

Nerves of steel...a contrarian iinvestor may sell up and buy again after the fall.

In the first in our series on investment strategies, Martin Roth looks at contrarian investing.

In early 2009, as stocks continued the precipitous decline that had begun in November 2008, investors needed considerable courage to ignore the trend and plunge back in to buy.

Yet March 2009 marked a dramatic turning point, with the benchmark S&P/ASX 200 index soaring more than 50 per cent in the ensuing seven months. In retrospect, it is clear that investors were being offered a spectacular short-term buying opportunity of the kind that does not appear often.

Contrarian investing - an investment that goes counter to market trends or to conventional wisdom - can bring rich rewards. But it also requires considerable experience of the market and strong nerves. It is certainly not for every investor.

In 2002, investors generally believed that the US-dollar price of gold would continue to meander in a narrow range, as it had been doing for several years. Contrarians (who thought otherwise) have seen their investment soar more than fourfold since that time.

In essence, contrarian investing involves buying a quality asset when it appears to be mispriced and too cheap and then waiting for its price to rise. It can also mean selling an asset when it seems overvalued.

For equity investors this might mean taking advantage of the fact that markets can be based on investor emotion and so can overreact - sometimes quite dramatically - on both the upside and the downside.

"It means picking up the unloved companies, the beaten-up companies, the special situation-type companies," says the senior portfolio manager for Three Pillars Portfolio Managers, Otto Rieth.

Yet some market experts say this is little more than a variation of value investing, which involves seeking out undervalued companies and then waiting for the share price to rise. Many famous investors, such as Warren Buffett, do this all the time.

In addition, it can take time for a contrarian investment to yield a profit. In the mid-to-late 1980s, as the Japanese sharemarket continued to race ahead, some financial experts began saying that the increase was unsustainable and that the Japanese market was developing the characteristics of a classic financial bubble.

But contrarian investors who bet against the Japanese market at that time were forced to watch as it leapt from one new peak to another. It was only at the beginning of 1990 that the bubble burst and Japanese stocks began their long decline, from which they have yet to recover.

A similar observation could be made about the sub-prime debacle in the US.

"A number of high-profile contrarians were quite down on the US for some time," Rieth notes.

"They were saying it was an accident waiting to happen. But they were saying this for close to a decade before the market crashed. Eventually they were right. But a broken watch is right twice a day."

The sharemarket maxim "the trend is your friend" carries a lot of truth. Markets can continue moving in one direction for lengthy periods, sometimes sustained by little more than investor enthusiasm and emotion.

According to Rieth, a contrarian investor can take a bottom-up approach - for example, examining individual stocks - or a top-down view, which could involve making a judgment on an entire market or asset class.

The portfolio manager for the Select Alternatives Portfolio at Select Asset Management, Robert Graham-Smith, describes his approach as "trying to put together a very diversified portfolio of investments that are not correlated to traditional markets and that in some cases zig when the market zags, so to speak." Though not strictly contrarian investing, this method is quite similar.

In some cases it involves the purchase of out-of-favour assets, although quite often in relatively esoteric products such as hedge funds, managed futures, private equity, commodities and precious metals.

"The attraction of some of these types of investments is that they can genuinely make money when equity markets, in particular, are range-bound or are very choppy, even [during] overextended periods," he says.

One of his investments, in the Black Swan Fund, which specialised in long-dated options, showed a return of nearly 240 per cent in 2008.

But does the relatively unsophisticated home investor have any hope of replicating such success?

"I do not want to give the impression that what we are delivering in packaged format is an overly complicated thing," he says.

"But understanding some of the underlying investments does require specialist skill and not all the investments are easily accessible.

"Although, that said, there are some areas of what we do that are available to the general public, such as listed infrastructure, some hedge fund strategies or gold."

Where might the contrarian investor be looking today for ideas?

Rieth suggests the example of China. "The bulk of the street seems to think China is going to continue doing quite well," he says. "A contrarian would say China is in a crazy credit bubble. We will find out who is right in the next six to 12 months or so."

Finally, consider the Australian housing market. Prices have continued to rise and rise for many years, despite the global financial crisis and tumbling equity markets. Low interest rates and a growing population - particularly from immigration - are generally cited as among the reasons. Today, a house in one of our major cities is more expensive - as a multiple of average incomes - than in most other big cities around the world.

Yet recently some contrarian voices have been heard. In June, the renowned US fund manager Jeremy Grantham was quoted as warning that the Australian and British housing markets were the last two bubbles remaining from the global financial crisis and he predicted it was only a matter of time before they crashed.

He said Australian house prices needed to fall 42 per cent to return to the long-term trend and predicted that "sooner or later, the [interest] rates will go up and the game is over".

A decline of that magnitude would have a profoundly negative impact on many areas of the Australian economy. It would also present opportunities. You could even sell your own home in the hope of buying another dwelling later at a significantly cheaper price.

But that is one contrarian manoeuvre that would require the strongest of nerves.

http://www.brisbanetimes.com.au/small-business/managing/breaking-down-your--business-plan-20100712-1071x.html

Breaking down your business plan

MAX NEWNHAM

July 12, 2010 - 12:49PM

Last week I answered a question from a reader who had set up an online business and wanted help in preparing a business plan.

In my opinion there are two types of business plans for small businesses. 

• The first can cost a lot of money and in the end produces very little in the way of results. 
• The second is a lot simpler and is based around the cash flow of the business.

The first step in this planning process is to reduce the business to its smallest component parts. That does not mean taking last year’s results and increasing all of the income and expenses by a fixed percentage to reflect the effect of inflation. It does mean breaking down revenue into the different major income sources then breaking these down further to each product or service.

For example it does not make sense for a service station owner to increase his or her annual sales by 3 per cent a year. It makes a lot more sense to break the sales down into fuel, groceries, snacks and take away. Then break each of those lines down into each major product such as unleaded, premium and diesel.

The same goes for expenses. The first step in this process is to identify costs that have a direct relationship with income. These include costs of goods sold in retail or hours worked by a trade or service provider. Each of these expenses needs to be analysed to work out how much these costs increase if income increases.

Next, identify those costs that a business pays no matter how much income is earned. These are the overheads of the business and include rent, loan repayments, insurance and administration costs such as bookkeeping and accounting fees.

Each overhead expense needs to be broken down as much is practically possible. At the end of this process the business owner should have a statement that details all of the historical income and expenses and which components of the business are the most profitable. One of the most important results of this process will be the amount of income that must be produced for the business to break even.

Items of expenditure that have blown out or are not strictly necessary, such as a luxury car lease or excessive entertaining, and business lines that are not covering costs will become apparent. It is from this point that the business planning process can start.

At the heart of every good business plan is an analytical process where the business is assessed and ways found of improving it. A tried and tested way of analysing a business is to prepare a SWOT analysis of the business. This involves looking at what the Strengths and Weaknesses of the business are, the Opportunities it has to grow and what Threats it faces.

Business planning action are formulated to maximise the strengths of the business and ways found to reduce the cost and business impact of weaknesses. This could mean increasing the price of a good or service that is not profitable or dropping it altogether. It could also mean a loss leader of the business is identified that results in more profitable items being sold.

The big advantage of using the cash flow budget as the centre piece for this planning process is that the financial impact of each planning action can be modelled. This means the business owner can establish which planning options have the greatest impact and have a basis for benchmarking whether the actions taken are working. 
   Questions on small business issues can be emailed to max@taxbiz.com.au 
Tax for small business, a survival guide, by Max Newnham is available in bookstores.     

http://www.brisbanetimes.com.au/small-business/managing/breaking-down-your--business-plan-20100712-1071x.html

Fudging your revenue? Think again.

ALEXANDRA CAIN

July 9, 2010

If you're found to be not reporting, or under-reporting revenue, the consequences can be severe. Photo: Bloomberg.

If you run a small business and you're not recording the revenue you should, the Australian Taxation Office has you in its sights. The tax office has just released its tax targets for 2010/2011 and the cash economy is high on its list.

If you're not reporting revenue, or under-reporting revenue, and the ATO finds out, the consequences can be severe. Expect possible jail time and a criminal record, and the tax office forever on your back.

Tax Commissioner Michael D'Ascenzo said refund fraud, the cash economy, employer obligations, wealthy Australians and tax secrecy havens were all under the spotlight.

"We will crack down on businesses using cash transactions to hide income and evade tax, using benchmarks for more than 100 industries and reviewing or auditing the activities of more than 26,000 micro businesses," he said.

"We will also focus heavily on employers, ensuring they lodge their business activity statements on time, meet their pay as you go withholding obligations and make correct super payments to employees."

Mr D'Ascenzo said the ATO would also undertake 800 compliance reviews in industries showing a pattern of non-compliance, including road freight transport, automotive repair and electrical services.

Tax experts say there are also a host of business consequences if you don't record revenue properly.

Diane Terzian, partner with accounting practice J I Moore & Partners, says not recording revenue properly can considerably reduce the value of a business when it comes time to sell.

"The value of your business is based on a multiple of your earnings before interest and tax. So if you're not showing the right amount of income the value of the business will be lower than it should be."

Simon James, a partner with accounting firm HLB Mann Judd says improper revenue recognition is rife among small businesses, and is something that comes back to haunt the business owner when it comes time to sell up.

"I've been involved in around 200 transactions involving privately held businesses and almost all of them had to have normalisation adjustments to their reported numbers before the business could be sold."

Mr James says the consequences of this are that potential buyers of the business can lose trust in the vendor. He says when this happens transactions can often fall over.

If a potential acquirer loses trust he or she might also want to only buy the business's assets, rather than the equity in the business, to avoid being exposed to any future tax liabilities.

"This means capital gains tax exemptions might not be available to the person selling the business," Mr James says.

Under ATO rules, small business owners who sell a business because they are retiring don't pay capital gains tax on businesses valued up to $500,000.

According to Ms Terzian another consequence of not recording revenue is gaining access to the finance you need to develop the business.

"If you're not showing revenue you can't generate the  finance you require because you'll be showing the bank figures that under-represent income," she says.

Ms Terzian says if you're not recording revenue correctly you also compromise your insurance coverage. For example, when you take out income protection insurance and business expense cover you will only be able to cover the amount recorded in your financial statements, rather than the amount the business is really earning.

Adrian Raftery, principal of ARW Chartered Accountants, says it's also much easier now for the ATO to find out if you're not recording revenue properly. He says "data matching...makes it tougher to hide."

"You might also have sleepless nights worrying about it. It might not be that much tax that you are trying to hide at the end of the day, as marginal tax rates are a lot lower these days. Not banking money also means you can lose 6 per cent in interest and the risk of being robbed increases as well.

"I strongly recommend business people fully disclose their income. If you don't act in accordance with the tax rules you can definitely expect a knock on the door from the taxman.

"Tax penalties for fraudulent activity can be as high as 200 per cent of undisclosed income, plus interest penalties, which are currently 11.7 per cent.

According to Mr Raftery "while the taxman normally only looks back at four years of tax returns, the ATO can go back indefinitely if someone is shown to be fraudulent in those four years."

Source: theage.com.au

http://www.smh.com.au/small-business/finance/fudging-your-revenue-think-again-says-ato-20100709-10348.html

The Right Attitude to Value Investing

Value investing is based more on philosophy than on theorems.  Benjamin Graham's purpose was to make his students use the deductive process to think for themselves.

The three key concepts of Benjamin Graham's value investing are:

• Having the right attitude
• The importance of margin of safety
• Knowing the Intrinsic value.

To be successful, a value investor must adopt the right attitude toward investing in general, and an aversion to speculation in particular.  A speculation is not an investment.  Graham insisted, and it is crucial to be able to distinguish between the two.

Graham frowned upon market timing.  He insisted that any financial decision based solely on the prediction that the market will move up or down is a speculation.

Well done South Africa for a wonderful World Cup Tournament

Public Bank launches PB Templeton BRIC

Public Bank launches PB Templeton BRIC
Written by Edge
Tuesday, 08 September 2009 14:02


KUALA LUMPUR: Public Bank Bhd has launched a structured investment product, PB Templeton BRIC, offering investors the opportunity to capitalise on the growth potential of the Brazil, Russia, India and China (BRIC) economies.

“PB Templeton BRIC provides an annual variable coupon of up to 3% (subject to the US$/RM movement) for the first three years of the investment and at maturity, the potential is unlimited enhanced return based on the average performance of the underlying asset performing above 110%,” said Public Bank managing director Tan Sri Tay Ah Lek in a statement yesterday. He said the investment would provide its customers with immediate access to invest in equities in countries like Brazil, Russia, India and China.

Tay said according to the International Monetary Fund, the BRIC countries were four of the fastest-growing economies in the world, accounting collectively for about 30% of the world’s gross domestic product (GDP).

He said their outlook remained positive due to their relatively strong fundamental characteristics and faster growth compared to their developed counterparts, and the accumulation of foreign exchange reserves also put the BRIC countries in a much stronger position to weather external shocks.

Tay said despite the global economic slowdown, the Chinese and Indian markets continued to record exceptionally robust growth rates, while Brazil and Russia were likely to benefit from increasing global demand for commodities.

“This Investment is suitable for investors who are seeking potentially higher returns compared to the current fixed-deposit rates without taking undue risk on their wealth if the Investment is held to maturity, and for those seeking to diversify their investment portfolio into emerging markets,” said Tay.

Templeton BRIC is managed by Franklin Templeton Investments, which is one of the world’s largest investment-management companies.

Templeton is one of the pioneers in emerging markets investing, having been the first to set up a dedicated emerging markets equity team in 1987 under the leadership of Dr Mark Mobius, who is the lead manager of the Templeton BRIC Fund. Public Bank said this investment was for a three-year, nine-month period via floating rate negotiable instruments of deposit (FRNID) and was 100% capital-protected in ringgit terms if held to maturity. The product is available from yesterday to Oct 2, 2009. The minimum investment is RM65,000, with multiples of RM5,000 thereafter.

http://www.theedgemalaysia.com/personal-finance/148892-public-bank-launches-pb-templeton-bric-.html

Comment:  Capital-protected in ringgit terms if held to maturity.  These capital protected or guaranteed funds are unlikely to give exceptionall return.  A large part of the fund will be invested in "safe" investments to ensure the safety of capital and only a small proportion of the fund is invested in "more risky" investments for "higher returns."

Public Mutual’s new Australian fund

Public Mutual’s new Australian fund
Written by Edge
Tuesday, 08 September 2009 13:59


KUALA LUMPUR: Public Mutual Bhd is launching a new fund, Public Australia Equity Fund (PAUEF), today to provide investors the opportunity to capitalise on the long-term growth potential of that market.
In a statement yesterday, Public Mutual chief executive officer Yeoh Kim Hong said this was on the back of Australia’s strong position in natural resources and its diversified services sector.

She said commodity exports in Australia were likely to benefit from a pick-up in demand from emerging economies such as China and India, while Australia’s services sector was supported by a wide range of services such as the property, financial, health, transportation and educational services. “In addition, the Australian government’s fiscal stimulus measures and expansionary monetary policies are expected to stimulate domestic demand and benefit both the services and consumer sectors,” she said.

Yeoh said despite the recent market rebound, both the Australian and New Zealand markets had lagged the performance of the Asian markets. Thus, she said long-term investors should tap the opportunities to accumulate undervalued blue-chip stocks, index stocks and growth stocks in the Australian market.
PAUEF is an equity fund that seeks to achieve capital growth over the medium- to long-term period by investing primarily in the Australian market with the balance invested in the New Zealand and domestic markets. The fund will mainly focus on sectors such as the natural resources, banking, real estate and consumer segments. The equity exposure of PAUEF will generally range from 75% to 90% of its net asset value (NAV).

Yeoh said PAUEF was suitable for investors with an aggressive risk-reward profile who could withstand extended periods of market volatility in order to achieve their objective of long-term capital growth. It is also suitable for investors who seek to hedge their children’s future educational expenses in Australia.
“Investing in Australian equities is expected to keep pace with the rising cost of Australia’s university education over the long term,” she said.

The initial issue price of PAUEF is 25 sen per unit during the 21-day initial offer period until Sept 28, 2009. The minimum initial investment is RM1,000 and the minimum additional investment is RM100

http://www.theedgemalaysia.com/personal-finance/148891-public-mutuals-new-australian-fund-.html

Comment:  As usual, do your own due diligence and in particular, be aware of the costs involved.

ASM unitholders get 6.3 sen per unit

ASM unitholders get 6.3 sen per unit

Written by
Tuesday, 23 March 2010 15:42


KUALA LUMPUR: Amanah Saham Nasional Bhd (ASNB) yesterday announced an income distribution of 6.3 sen per unit for Amanah Saham Malaysia (ASM) for the financial year ended March 31, 2010.

Last year, the government-owned fund manager declared an income distribution of 6.25 sen per unit, which was the lowest since its introduction in 2000.

The highest dividend given by the wholly-owned subsidiary of Permodalan Nasional Bhd (PNB) was 7.8 sen.
PNB chairman Tun Ahmad Sarji Abdul Hamid said the income distribution involved a total payout of RM654.06 million, an increase of 60.5% from RM407.58 million paid in 2009.

The payment will benefit 552,000 unitholders who had subscribed to 11.2 billion ASM units as at March 19, 2010.

When announcing the income distribution for ASM here, Ahmad Sarji said the equity market and the domestic investment environment had shown market improvement compared with the situation a year earlier, in line with the global economic and financial market recovery throughout the ASM financial year.

“These factors, combined with the successful implementation of the RM67 billion government stimulus package and accomodative monetary policy, has helped Malaysia to record positive growth in its gross domestic product (GDP) of 4.5% in the fourth quarter of 2009,” he said.

PNB president and group chief executive Tan Sri Hamad Kama Piah Che Othman said the payout of 6.3 sen was “still better” compared to payouts from other instruments with a similar risk profile.

“We feel that this figure is good enough for our unitholders. If we were to look in total, our capacity is to pay out 7.4 sen per unit but we only paid 6.3 sen because we want to have more reserves to bring forward next year,” he said, adding that PNB has about RM118 million ASM reserves for 2011.

“The performance of the fund still depends on the market performance, which we hope our stock market will be better in tandem with the positive GDP growth.”

Hamad Kama Piah said most analysts had projected the benchmark FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) to hover around 1,300 to 1,400-point level this year.

“Foreign interest in the stock market is considered the lowest at present. Most probably the buying appetite will come back soon, then we can see better margin,” he said.

Up until March 19, 2010, ASM had recorded a gross income of RM800.83 million.

• Profit from the sale of shares contributed RM429.83 million, or 53.7% of the gross income.

• Dividend income provided RM259.69 million or 32.4% and 

• the remaining income of RM111.31 million or 13.9% was derived from investments in short-term instruments.

The income distribution will be reinvested in additional ASM units to be automatically credited into the unitholders’ accounts on April 1, 2010.

ASM is a fixed priced equity-income fund aimed at providing unitholders with a long-term investment opportunity that generates regular and competitive returns through a diversified portfolio of investments. — Bernama

http://www.theedgemalaysia.com/personal-finance/162136-asm-unitholders-get-63-sen-per-unit.html


Summary:

Up until March 19, 2010, ASM had recorded a gross income of RM800.83 million. 

• Profit from the sale of shares contributed RM429.83 million, or 53.7% of the gross income.

• Dividend income provided RM259.69 million or 32.4% and 

• the remaining income of RM111.31 million or 13.9% was derived from investments in short-term instruments.

LPI top gainer on earnings growth, bonus issue plan

LPI posted net profit of RM26.44 million in the second quarter ended June 30 versus RM22.74 million a year ago. It also declared an interim dividend of 10 sen per share.

The company proposed a bonus issue of up to 69.36 million new shares on a one for two basis and also a proposed renounceable rights issue of up to 13.87 million new rights shares at an issue price of RM7 per rights share.

The rights shares will be on the basis of one rights share for every 10 existing LPI shares held.


http://www.theedgemalaysia.com/business-news/169553-lpi-top-gainer-on-earnings-growth-bonus-issue-plan.html

LATEXX - CIMB Research maintains overweight on rubber glove sector

June 22, 2010
LATEXX - CIMB Research maintains overweight on rubber glove sector
Stock Name: LATEXX
Company Name: LATEXX PARTNERS BHD
Research House: CIMB

KUALA LUMPUR: CIMB Equities Research said despite the potential hiccups, it remains positive on the rubber glove sector and retain its OVERWEIGHT call.

It said on Tuesday, June 22 the outlook for rubber gloves remains positive as demand is still set to rise by at least 8-10% p.a., led by growth in the usage of medical gloves in emerging countries.

CIMB Research said the results announced during Apr- Jun proved that the rubber glove is a resilient sector and that cost changes have minimal impact on margins due to the transparent method of passing on the previous month's average latex price and RM:US$ exchange rate to customers.

'We expect earnings for rubber glove players to continue heading higher this year, especially given the additional capacity that is coming in. We make no changes to our earnings forecasts or Outperform calls for all the rubber glove players,' it said.

Its top picks remain are Supermax which sells most of its gloves under its own brand which allows it to command higher margins and gives it a strong presence in markets such as the US and Brazil.

It added that Latexx is well on course for continued growth, thanks to its aggressive expansion and move into the premium segment.

'Our Outperform call remains intact, along with our target price of RM5.44, which we continue to base on an 11.6x P/E or a 30% discount to Top Glove's target P/E of 16.5x,' it said.

http://bursapricetarget.blogspot.com/2010/06/latexx-cimb-research-maintains.html

Latexx Partners on aggressive expansion plans (3.2.2010)

Latexx Partners on aggressive expansion plans

February 3, 2010, Wednesday

KUCHING: Latexx Partners Bhd (Latexx Partners) is on aggressive expansion plans for the next few years to meet the increasing demand for rubber gloves.

HUGHER EARNINGS: A small box which contains nitrile disposable gloves. Latexx Partners, which is expected to release its earnings figure by the end of this week will witness the company reported strong earnings supported from higher prodcution capacity and more nitrile sales.

According to CIMB Investment Bank Bhd (CIMB) in a research report, it noted the company planned to bring forward the construction of its seventh plant this year from 2013.

The research firm observed that the company had been expanding its nitrile production capacity that made up about 20 per cent of sales in the fourth quarter of 2009 as compared with 18 per cent in the previous quarter.
It also observed that the company’s nitrile range had expanded to more than 30 per cent of its production as the group was recently awarded new contracts by major multi national companies.

Additionally, the research firm pointed out that the fifth largest rubber glove manufacturer in the country also aimed to be a premium rubber glove player by exploring more opportunities to develop the natural rubber (NR) powder-free and nitrile range gloves.

Meanwhile, CIMB stated that Latexx Partners’ recent tied up with Dutch Company, Budev BV to develop protein-free natural rubber (NR) gloves currently unavailable in the market to provide a further boost to its earnings and margins.

The research firm said the rubber glove manufacturer was presently the only company licensed to produce such gloves.

Financially, CIMB estimated that Latexx Partners could report its fourth quarter net earnings of around RM17 million. The research firm highlighted that the strong figures would be supported by its additional annual production capacity of 800 million pieces of rubber gloves during the quarter and high nitrile products sales.
Therefore, CIMB believed that the fourth quarter earnings results for Latexx Partners were expected to be robust, boosted by higher production capacity and more nitrile sales. The research firm predicted that Latexx full-year net profit was likely to meet its forecast of RM51.9 million.

Thus, the research firm retained its earnings forecasts for Latexx Partners and maintained its positive outlook for the company with a target price of RM5.44 per share.

http://www.theborneopost.com/?p=8461

What to do with a "tip"? Do not Ignore, however study and scrutinise this further.

From my chatbox:

6 Jul 10, 11:38 PM
STOCK WATCH: Hi guys,tips of the year.....CRESBLD.....syndicate will goreng this stock soon...BEWARE!!!!!!!!
7 Jul 10, 08:26 AM
bb: stockwatch gave a "tip". My approach to tip is not to act on it. However, one may wish to study the stock further.
7 Jul 10, 08:26 AM
bb: Often when the "tip" reaches your ear, it is often at a late stage in the game.
7 Jul 10, 08:30 AM
bb: Don’t believe everything you hear In a market full of various news and hearsay, it is difficult to differentiate between facts and rumours.
7 Jul 10, 08:31 AM
bb: There are many instances where owners and syndicates who want to see higher stock prices purposely fabricate various news on potential contracts, corporate exercise, etc to analysts and reporters with
7 Jul 10, 08:31 AM
bb: .... with the intention to mislead investors.
7 Jul 10, 08:32 AM
bb: Every piece of news must be scrutinised to determine the authenticity and its impact on the earnings.
7 Jul 10, 08:32 AM
bb: Although this could be difficult in many cases, effort is still needed to avoid falling prey to unwarranted predators.
bb: One advice for investors is to only believe events which are more likely to happen, and only on those stocks where the management can be trusted.

The Illusion of International Small-Cap Investing

The Illusion of International Small-Cap Investing

Drew Spangler
Grantham, Mayo, Van Otterloo & Co. LLC
March 2001

Investing in international small-cap is a complicated and deceptive business.  Many of the common assumptions used to justify international small-cap investing are misguided.  The sticker must read “caveat emptor.”


Many investors are attracted to international small-cap because they believe that small companies are capable of faster earnings growth.  They reason that higher growth rates will lead to superior performance.  But the great irony of small-cap investing is that these companies do not grow any faster than their larger peers.  

• In fact, the corporate financial performance of international small companies is below average.  
• The small universe is populated with mediocre companies because the common definition of small contains an implicit bias for stocks with low valuations.  
• Low stock valuations are often the consequence of inferior corporate results. 

However, the hidden tilt towards value stocks actually provides the international small sector with the engine for excess returns and ironically enables international small-cap investing to be potentially very lucrative.  In addition, this value bias can be used to assess the future prospects for small stocks in the international equity markets.  This paper seeks to reveal the true identity of international small stocks and thereby equip investors with the information, insight and tools.


Executive Summary

Investors are beginning to awaken to the compelling case for small stock investing in the international markets. Recent outperformance, low valuations and increasing diversification benefits are all reasons investors are becoming attracted to this sector. Before they jump in head first, however, investors need to be aware of a few issues that make assessing the risks and rewards of international small stocks more challenging.

1. First, it is not entirely clear how to define small-cap and there is a diversity of opinion about what method is most appropriate for identifying the small universe. In this paper, we compare and contrast the construction methodologies of the two leading international small-cap indices.
2. Second, most conventional methods for defining small use market capitalization to measure company size.This introduces an implicit bias for companies with low stock valuations relative to corporate fundamentals such as earnings or assets.
3. Third, it is the quality of cheapness rather than smallness that drives small stock performance and is a powerful tool for forecasting the future performance of these stocks.
4. Fourth, although investors are often tempted by small-cap because they perceive these stocks to be capable of higher earnings growth, our empirical analysis shows this to be a fallacy.  In fact, the fundamental corporate performance of small stocks is below average.

Finally, the diversification benefits of international small are alive and well. Not only have correlations with international large stocks decreased, but international small continues to be asynchronous with both US large and US small stocks.

In conclusion, while international small stocks currently present a compelling opportunity, investors need to be educated and informed in order to take full advantage of this potentially lucrative sector.


Read the full report here.

Training the Government towards a Good Governance

If the government is trained well enough, then they would be able to move towards a good governance. So, to set an example, the starting point for the training should be government itself.

The areas of training should be at least include:

- How to avoid Corruption
- How to respect and implement Law and Ethics
- How to implement Justice
- How to become a genuine and sincere Leader
- How to build Public and National Interest first and throw personal interest at the end.

This "Training Program” is required in the Government from top to bottom.