Write your will – before it's too late

No one wants to think about what might happen to their dependants after they die, which is why so many of us put off making a will.

By Rosie Murray-West
Published: 9:39AM BST 26 Oct 2010

Comment

A badly worded will could lead to relatives being saddled with massive legal fees

It is National Write a Will week this week, and 30 million people in Britain don't have a will – about 70 per cent of the population – according to unbiased.co.uk, the financial advisers' website.

Even if your affairs are simple, you do need to spell out what you want to happen to your assets. "If you die without, you leave your dependants at the mercy of the intestacy rules," warns William Marriott, of solicitor Meadows Fraser. "The rules don't always work the way you would expect them to."

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As well as making life easier for your dependants, making a will can help reduce the tax payable.

So what should you put in a will and what will happen if you don't have one?

IF I DIE INTESTATE, WHAT WILL HAPPEN TO WHAT I OWN?

If you die intestate, which means without making a will, your assets will be distributed according to the law, and not according to your wishes. Jill Dando and Stieg Larsson, the author of The Girl with the Dragon Tattoo, are among those who have died without leaving a will and whose estates were inherited by their fathers, not their partners.

In England and Wales, if you are married with children, you might assume that all of your assets would go to your spouse. However, if your estate is worth more than £250,000, your partner will only get the first £250,000. They will get a life interest in half of the remaining estate, which means they can't get rid of it or spend it, but they are entitled to the interest.

The remainder will go to the children. If your assets are worth less than £250,000, your children will get nothing.

If you are not married or in a civil partnership, your partner won't inherit under the intestacy rules. Similarly, if you have separated but not divorced, your ex-partner will inherit the first £250,000 of your estate.

If you are childless and single, various family members could take varying shares of your estate. If no one claims it, the Government will take the lot.

THAT'S NOT GREAT. HOW DO I GO ABOUT GETTING A WILL?

You can make your own will, as long as you get it witnessed and have all of the formal requirements within it. If your circumstances are fairly simple, you could consider using a will-writing kit, which is available from stationers. However, a will that is badly worded could lead to relatives being saddled with massive legal fees.

It is possible to use online services where your will would be checked by a professional. For a full will, which will help your family to avoid tax and trauma after you die, it's best to talk to a solicitor. Using a firm regulated by the Law Society (www.lawsociety.org.uk) will mean that you deal with a qualified person, and also that you have some consumer protection.

Will-writers, on the other hand, are cheaper, but not regulated.

WHAT ISSUES SHOULD I CONSIDER WHEN I MAKE A WILL?

Do everything you can to make sure that your wishes are not contested. Make sure you do not ask any of the beneficiaries of your will to help draft it. Older people may ask grown-up children to help them write a will, but this means the will could be challenged by other potential beneficiaries. Make sure your will is properly signed and witnessed by two people who are not beneficiaries.

You will need to decide who your executors are. These are the people who will administer your will. You can pay for a bank or solicitor to do this, or a friend can offer to do it for free. If you have young children, you will need to appoint guardians to look after them if you were to die.

WHAT ABOUT TAX PLANNING?

Inheritance tax is 40 per cent, but it is known as the "voluntary tax" because it is relatively easy to get out of paying it with proper planning. Anyone who dies with total assets of more than £325,000 could leave their family with a tax liability. But if you leave your assets to your spouse or civil partner, no tax is payable. If you want to avoid tax and leave money to your children, seek legal advice about setting up a discretionary trust.

HOW MUCH SHOULD IT COST?

To save money, check if your employer, union or home insurer offers a free or discounted solicitor will-writing service. More Than insurance's £20 legal "add-on" to its home insurance policy offers a service where they will check a will for you. If you are on a low income, aged over 70, disabled, or you have a disabled child, www.communitylegaladvice.org.uk may be able to help you.

November is Will Aid month, when more than 1,000 solicitors will draft wills in exchange for a charitable donation. Expect to pay a voluntary £75 per single person and £110 per couple. Visit www.willaid.org.uk.

WHERE DO I KEEP MY WILL?

If a solicitor has made the will, they will usually store it, or you can pay an annual charge to have it stored at a bank. You can keep it yourself, but this is not the safest option.

HOW OFTEN SHOULD I REVIEW IT?

If you get married, divorced or have a child, make sure your will reflects this. Ensure that it is properly changed – either with an official change called a codicil if the change is minor, or by making a new will. Either way, make sure the changes are witnessed.

http://www.telegraph.co.uk/finance/personalfinance/consumertips/8087048/Write-your-will-before-its-too-late.html

Happiness the key to success

October 25, 2010

Being happy doesn't just make you feel good, it can also make you more successful, according to a Harvard University lecturer.

Shawn Achor, whose book The Happiness Advantage will be published in Australia next month, says, positive thinkers have a biological advantage over people who are are neutral or negative.

The good news is that being happy is a skill we can all learn, Achor says.

Here are some tips from his book on how to retrain your brain to capitalise on positivity and improve your productivity and performance.

- Meditate - research shows that regular meditation can permanently rewire the brain to raise levels of happiness, lower stress and even improve immune function.

- Find something to look forward to - often the most enjoyable part of an activity is the anticipation. If you can't take time out for a holiday now or a night out with friends, put something on the calendar. Anticipating future rewards can actually light up the pleasure centres in your brain.

- Be kind: research has found that giving to friends and strangers decreases stress and contributes to enhanced mental health.

- Infuse positivity in your surroundings - people who put pictures of their loved ones on their desk at work aren't just decorating; they are ensuring a positive hit of emotion each time they glance at them.

- Exercise: it is not just a powerful mood lifter but also a long lasting one. Run, walk, ride, play, stretch, skip or jump around on a pogo stick, it doesn't matter so long as you get moving.

- Spend money, but not on stuff. Spend it on experiences like concerts or a night out with friends. This produces more long lasting positive emotion than buying things. Spending money on other people, such as family and friends, also makes us happy.

- Exercise your strengths; to learn what your top strengths are (you can do this for free at www.viasurvey.org) pick one of your signature strengths and use it in a different way each day. Studies have shown that the more you use your signature strengths in daily life, the happier you become.

The Happiness Advantage (Virgin Books) by Shawn Achor is out in November, $35.

AAP

http://www.theage.com.au/executive-style/management/happiness-the-key-to-success-20101025-170mp.html

In Bond Frenzy, Investors Bet on Inflation

October 25, 2010

In Bond Frenzy, Investors Bet on Inflation

By CHRISTINE HAUSER

At a time when savers complain that they are earning almost no interest from their bank accounts, some investors on Monday bought United States government bonds that effectively had a negative rate of return.

Bizarre as it sounds, that is correct. In an auction of a special kind of five-year Treasury bond, investors paid $105.50 for every $100 of bonds the government sold — agreeing to pay the government for the privilege of lending it money.

The reason is that these types of bonds offer a guaranteed protection against inflation. So, if inflation soars — as some economists worry might happen, with the government seeking to give the economy a boost by flooding it with money — the value of the bonds would go up accordingly.

The investors who took part in the $10 billion auction are betting that inflation, now at about 1 percent annually, will rise to a level that more than compensates for the premium they paid.

The unusual auction on Monday “reflects a condition in the Treasury market that has been in place for months, chiefly that yields on shorter maturities have moved below the inflation rate,” Anthony Crescenzi, a senior vice president at the bond giant Pimco, wrote in a research note.

Guy LeBas, the chief fixed-income strategist for Janney Montgomery Scott, said there were about $28 billion worth of bids for the notes. About 40 percent were foreign buyers, 57 percent dealers and the rest were possibly retail investors, he said. The prediction is for a 1.58 percent rate of inflation, as measured by the Consumer Price Index.

“It was good demand considering the negative yields,” he said. “They are counting on the Fed to be successful in generating inflation.”

As strange as all this may seem, these investors were actually going along with conventional market wisdom. Many economists are concerned that if the economy continues to stagnate, there is a danger of deflation, or a decline in prices, that would be difficult to reverse.

Most analysts expect that the Federal Reserve, which has already lowered interest rates to near zero and bought Treasury securities in efforts to reinvigorate the economy, is about to pump even more money into the system. Such a move would probably increase the rate of inflation.

Fed officials have hinted at such action in recent appearances. In a speech in Boston on Oct. 15, the Fed chairman, Ben S. Bernanke, said that “there would appear — all else being equal — to be a case for further action.”

The markets interpreted that and other statements as unmistakable signals that the Fed was poised to act at its next meeting, on Nov. 2-3.

Mr. Bernanke couched his argument in terms of the Fed’s mandate to keep prices stable and maximize employment. He said that inflation had been running well below the implicit target of about 2 percent and that unemployment, at 9.6 percent, was too high.

Inflation-protected Treasury securities have already been trading at negative yields on the open market for some time, as professional and institutional investors have sought to hedge their portfolios against the risk of inflation. But Monday was the first time since the government began selling these so-called Treasury Inflation-Protected Securities in the 1990s that new ones were sold at a negative yield.

Buyers “believe we have reached the bottom of the inflation cycle and the next move is higher, not lower,” said Kevin H. Giddis, the executive managing director and president for fixed-income capital markets at Morgan Keegan & Company.

A growing aversion to risk has produced all manner of investment oddities in the last two years. At the height of the financial crisis, for example, the yield on ordinary short-term Treasury bonds turned negative for a brief time as people flocked to safe investments.

Even now, big investors are buying gold at levels unseen in decades, to protect against fluctuations in the value of currencies. Small investors are fleeing the stock market in droves, favoring bonds and even cash over equities. Companies have managed to sell bonds that do not pay off for 50 or even 100 years.

The remarkable auction occurred as stock indexes on Wall Street edged higher, buoyed by recent strong corporate earnings and a month-to-month rise in housing sales.

Sales of previously owned houses increased 10 percent in September from August, to a seasonally adjusted annual rate of 4.53 million units, above forecasts of 4.30 million, but they were still down 19 percent from September 2009. The National Association of Realtors said about a third of the sales last month were related to foreclosures.

On Monday, the Dow Jones industrial average rose 31.49 points, or 0.28 percent, to 11,164.05. The broader Standard & Poor’s 500-stock index gained 2.54 points, or 0.21 percent, to 1,185.62.

The Nasdaq composite index climbed 11.46 points, or 0.46 percent, to 2,490.85.

Bond prices fell, with the yield on the 10-year Treasury rising to 2.56 percent from 2.55 percent late Friday.

As equities advanced, the dollar declined over the weekend after promises by the world’s 20 biggest economies to avoid a currency war.

It was the latest sign that financial markets are positioning for a rise in inflation. Economists point to the fall in the dollar as a sign of budding inflationary pressures. Another is the recent sharp rise in the price of some assets, including commodities like gold.

Graham Bowley and Sewell Chan contributed reporting.

http://www.nytimes.com/2010/10/26/business/26bond.html?ref=business&src=me&pagewanted=print

Warren Buffett believes that the return that a company gets on its equity is one of the most important factors in making successful stock investments.

Warren Buffett believes that the return that a company gets on its equity is one of the most important factors in making successful stock investments.

DEFINING EQUITY

Benjamin Graham defines stockholders equity as:

‘The interest of the stockholders in a company as measured by the capital and surplus.’

CALCULATING OWNER’S EQUITY

Investors can think of stockholders equity like this. An investor who buys a business for $100,000 has an equity of $100,000 in that investment. This sum represents the total capital provided by the investor.

If the investor then makes a net profit each year from the business of $10,000, the return on equity is 10%:

10,000 x 100
  100,000

If however the investor has borrowed $50,000 from a bank and pays an annual amount of interest to the bank of $3500, the calculations change. The total capital in the business remains at $100,000 but the equity in the business (the capital provided by the investor) is now only $50,000 ($100,000 - $50,000).

The profit figures also change. The net profit now is only $6500 ($10,000 - $3,500).

The return on capital (total capital employed, equity plus debt) remains at 10%. The return on equity is different and higher. It is now 13%:

6,500 x 100
 50,000

The approach to financing its operations by a company can obviously affect the returns on equity shown by that company.

WHY WARREN BUFFETT THINKS THAT RETURN ON EQUITY IS IMPORTANT

Just as a 10% return on a business is, all other things being equal, better than a 5% return, so too with corporate rates of returns on equity. Also, a higher return on equity means that surplus funds can be invested to improve business operations without the owners of the business (stockholders) having to invest more capital. It also means that there is less need to borrow.

WHAT RATE OF RETURN ON EQUITY DOES WARREN BUFFETT LOOK FOR?

This is a fluctuating requirement. The benchmarks are the return on prime quality bonds and the average rate of returns of companies in the market. In 1981, Buffett identified the average rate of return on equity of American companies at 11%, so an intelligent investor would like more than that, substantially more, preferably. Bond rates change, so the long-term average bond rate must be considered, when viewing a long-term investment.

In 1972, Buffett implied that a rate of return on equity of at least 14% was desirable. Although, at times, Warren Buffett has appeared to downplay the importance of Return on Equity, he constantly refers to a high rate of return as a basic investment principle.

COMPANY RATES OF RETURN ON EQUITY

It is significant that the majority of companies in the Berkshire Hathaway portfolio in 2002 all had higher than average returns on equity over a ten-year period. For example:

Coca Cola	45.05
American Express	20.19
Gillette	40.43

INVESTMENT DANGERS

There can be dangers in averaging returns over a long period. A company might start with high rates which then fall away, but still have a healthy average. Conversely, a company might be going in the opposite direction. As Warren Buffett looks for predictability in a company’s earnings, one would imagine that he would favour companies who increase their ROE or which have consistent levels.

COMPANY ANNUAL RATES OF RETURN

Compare the annual rates of return on equity of the following companies, using summary figures provided by Value Line.

Year	Coca Cola	Gap Inc	Wal-Mart Stores
1993	47.7	22.9	21.7
1994	48.8	23.3	21.1
1995	55.4	21.6	18.6
1996	56.7	27.4	17.8
1997	56.5	33.7	19.1
1998	42	52.4	21
1999	34	50.5	22.1
2000	39.4	30	20.1
2001	35	4.3	19.1
2002	35	13.1	20.4

RETURN ON CAPITAL IS VERY IMPORTANT

The example early on this page shows that debt financing can be used to increase the rate of return on equity. This can be misleading and also problematical if interest rates rise or fall. This is probably one reason why Warren Buffett prefers companies with little or no debt. The rate of return on equity is a true one and future earnings are less unpredictable. A careful investor like Buffett would always take rates of return on total capital into account. The average rates of return of capital in the companies referred to above in Berkshire Hathaway portfolio are:

Coca Cola	39.12
American Express	13.68
Gillette	25.93

A comparison of the rates of return on equity and capital for these three companies is significant and the reader can make their own calculations.

http://www.buffettsecrets.com/return-on-equity.htm

Filial tradition in China withering

Filial tradition in China withering
By Zhang Yuchen (China Daily)
Updated: 2010-10-25


Elderly entering old age without support of kids

GUANGZHOU - A recent study of the elderly in parts of Guangdong province, in southern China, has shown that the tradition of children supporting their aged parents is slowly fading away.

The survey of nearly 1,300 people aged 60 or above, living in urban areas, found that, more and more, the elderly are living by themselves and are instead providing financial support to their adult children.

Two elderly women applaud a performance by young volunteers who come regularly to the Songtang Hospice, in Beijing, to offer care and entertainment for the older patients, on Oct 16. [Wang Jing / China Daily]

The study was done by the Guangdong Academy of Social Sciences' elderly affairs research center, from July to September of this year, and found that more than 10 percent of the people have to give monetary support to their adult children on a monthly basis. A third of them give money to their children from time to time.

Related readings:
Shanghai's elderly enjoy public, private care
Elderly get the world at their doorstep
Mental care for the elderly
High suicide rate haunts Chinese elderly

Some 16 percent of the elderly said they found this hard to bear because giving away a part of their pension had a serious impact on the quality of life in retirement.
Chinese tradition over the centuries, as has been the case in many other countries, has been for people to have as many children as possible so that they can rely on them for support when they get too old to care for themselves.

They often live with their children and help with the housework or take care of grandchildren, when the parents are busy with their work.

The study found more than 40 percent of the elderly comply with tradition and take care of grandchildren, while around 20 percent help with the housework.

But changing social conditions are now forcing more of the urban elderly to fend for themselves and 62 percent of them live apart from their grown-up children.

And, only 48 percent of these "empty nesters" can expect a weekly visit from their children, while around 28 percent can expect a visit once a month. For 24 percent, it's only once every year.

Perhaps surprisingly, even when they live with their children, most of the elderly are confronted with loneliness. The study found that more than 75 percent of the elderly long for greater spiritual support from their children.

One 72-year-old man surnamed Chen, in Guangzhou's Baiyun district, said he felt a lack of communication with his son even though he can see his son's family frequently, since they live in the same community.

"I never have supper with my son' s family because I don't want to disturb the only part of the day when they have time to spend together," Chen said, "And because my son seldom expresses much, we talk less."

Once, he said, he was sick in bed for two months and his son didn't even notice.

According to some doctors, this empty-nester syndrome is becoming a social problem - one that can not be ignored.

"With an increasingly aging society, the number of elderly empty-nesters increases annually," said Zhang Yanchi, a doctor at Guangzhou's Baiyun Psychiatric Hospital.

Li Dandan, of the Guangzhou Volunteers' Union, has suggested that it would be better if the elderly just spoke directly with their children about their feelings and their situation. An alternative is to communicate more with other elderly people in the community.

Guangdong had 10.47 million people aged 60 or above by the end of 2009, Nanfang Daily reported in February.

http://www.chinadaily.com.cn/china/2010-10/25/content_11451440.htm

Top 10 profitable companies in China

Web Exclusive
Top 10 profitable companies in China
(chinadaily.com.cn)
Updated: 2010-03-30 11:26

All but two of China's top 10 most profitable Shanghai- or Shenzhen-listed companies in 2009 are from the energy or financial sector, the Beijing Times reported Tuesday, based on 832 annual financial reports, or more than half of the total that were released by Monday morning.

With a staggering 129.4 billion yuan ($18.95 billion) in after-tax profit, the Industrial and Commercial Bank of China (ICBC), the world's biggest lender by market value, replaced PetroChina Co as the country's most profitable listed company, followed by China Construction Bank with 106.84 billion yuan ($15.65 billion), according to the newspaper citing Wind Info, a financial data provider in China.

PetroChina Co, the country's largest oil and gas producer, came in third with 103.39 billion yuan ($15.14 billion) in net profit last year and Bank of China, the country's third-largest lender by market value, took fourth place with 81.07 billion yuan.

Related full coverage: 2009 Annual Reports of Listed Companies

Related readings: China Construction Bank reports 15% net profit rise in 2009  Net profit of Sinopec more than doubles in 2009  PetroChina FY net profit declines 9.7%  ICBC scores 130B yuan in net profit for 2009  China Unicom FY profit dips 73%  Bank of China FY profit at 81b yuan

Sinopec Corp, Asia's top oil refiner, ranked fifth with 61.76 billion yuan ($9.05 billion), and China Shenhua Energy Co, China's largest coal producer, sixth with 30.28 billion yuan ($4.43 billion).
The other four are Industrial Bank Co (13.3 billion yuan), a mid-sized Chinese lender; China Unicom (9.56 billion yuan), China's No 2 mobile carrier; China Vanke Co (5.33 billion yuan), the country's biggest property developer by market value and Huaneng Power International Co (5.08 billion yuan), China's biggest listed electricity producer.

The total profit of the top 10 companies is 561.14 billion yuan, or 75 percent of the total for the 832 companies combined. The total profit for the 832 companies is 749.55 billion yuan.

Other companies that are likely to make the top 10 list include China Life Insurance Co and China Merchants Bank, which have yet to release their annual reports.

The list excluded Chinese companies that list in Hong Kong, like China Mobile.

http://www.chinadaily.com.cn/business/2010-03/30/content_9661921.htm

Malaysia's PM Najib seeks end to race debate

Malaysia's PM Najib seeks end to race debate
By Melissa Goh | Posted: 21 October 2010

Prime Minister Najib Razak addresses the ruling party's annual general assembly in Kuala Lumpur

Malaysia's PM Najib seeks end to race debate

KUALA LUMPUR : Malaysia's Prime Minister Najib Razak wants an end to debate on the special rights and preferential treatment of Malays.

Speaking at the general assembly of the ruling UMNO party on Thursday, he said the talk on the issue is threatening racial harmony and national stability.

Addressing delegates, Mr Najib also urged the country's Malays to be competitive and stop relying on handouts.

PM Najib seeks to achieve a new era in race relations - one that's based on a shared future for all.

Mr Najib took over as UMNO president last March and since then, he has set in motion a transformation programme to shed the party's corrupt and arrogant image, to one that's more inclusive and relevant.

He also urged all sides to stop the debate over the Malay's special rights and privileges, as they have a historical context and cannot be withdrawn without first obtaining the consent of the traditional rulers.

"Whether we like it or not, we have to respect the consensus, because it is key to our continued survival. If it is open to debate, we are worried it will cause uneasiness and instigate the primordial instincts which exist between ethnic groups," said PM Najib.

Similarly, he said that the non-Malays should not feel threatened, as their citizenship and birthright are guaranteed under the constitution.

While UMNO will continue to defend the special rights, quota, and permits of the Malays, Mr Najib said the Malays should aim to compete globally.

He said: "Malays should be able to compete with the best and the strongest. Malays must become the greatest on the world stage."

Mr Najib's presidential address received a rousing response from delegates, including former party president and prime minister Mahathir Mohamad.

"I think this speech would have cleared the air quite a bit for all communities - that there are certain things we can discuss, that there are certain things we can change, but there are also certain things that we cannot change. Whether there is an election or not, I think it is good that everybody understands the real position," said Dr Mahathir.

But other Barisan Nasional (BN) component parties feel differently.

Chua Soi Lek, President of the Malaysia Chinese Association said: "We are aware of the sensitivity of the issues involved, but there should be room for discussion, especially on its implementation."

Samy Vellu, President of the Malaysia Indian Congress said: "It's not question of questioning; it's a question of living together, it's a question of understanding each other, and also it's a question of feeling for each other."

While Mr Najib is keeping the people guessing when the next general election is going to be, analysts said the speech was aimed at consolidating his support within the party.

But many find it difficult to reconcile it with his 1Malaysia principle - which is to ensure equal opportunities for all, regardless of race or religion. - CNA /ls

http://www.channelnewsasia.com/stories/southeastasia/view/1088541/1/.html

Glovemakers upbeat despite rising costs

Glovemakers upbeat despite rising costs

Tags: Datuk Seri Stanley Thai | Hartalega Holdings Bhd | Kuan Mun Keng | Low Bok Tek | Supermax Corp Bhd

Written by Chong Jin Hun
Monday, 25 October 2010 11:45

TEFD: How is the company coping with the headwinds in the form of costlier latex and the weakening US dollar?
Hartalega executive director Kuan Mun Keng: Hartalega is primarily focused on nitrile gloves, so we are largely not affected by the impact of rising natural rubber costs. Nitrile material, which is purchased in US dollar, provides a natural hedge to our US dollar-denominated sales. Moreover, improving productivity allows us to provide better pricing support to our customers.

Latexx Partners executive chairman and chief executive Low Bok Tek:
Although not new to the glove industry, the sustained high level of latex prices is still the biggest challenge faced by glovemakers like Latexx. Thus, the company is focusing on the premium products segment that is relatively more resilient, for example the nitrile gloves segment. Through the advancing of in-house nitrile production technology and intensified marketing efforts, a thinner and more cost-effective high quality nitrile glove has been developed and introduced to the market.

The company also strategically positioned itself in the premium natural rubber (NR) gloves segment, with the launching of the first-in-the world NR powder-free gloves with unquantifiable protein level. This premium product range is currently the most effective solution to the threats of protein allergy for glove users.

In summary, we strongly believe that with the company’s ability to pass-on costs to customers, coupled with our strategies to focus on the premium segments in both nitrile and natural rubber, we are able to cope with the temporary headwinds and move on to advance our market presence.

Supermax Corps executive chairman and group managing director Datuk Seri Stanley Thai: Volatility in commodity prices and foreign exchange are not new to us. They are part of our ongoing day-to-day business that we need to monitor closely, especially when the volatility is high. All glove manufacturers adjust their product pricing. In fact, the higher the volatility, the more frequently glove manufacturers and exporters have to adjust glove prices upwards. With the current high volatility, glove makers are adjusting prices at least once or twice a month. We are also seeing that manufacturers are switching more production lines to produce synthetic nitrile gloves since the pace of price increases in nitrile latex is slower.

How has the demand for gloves been?
Kuan: During the H1N1 outbreak, every manufacturer was very bullish as demand was high and supply was tight. Recently, the World Health Organisation announced that H1N1 had moved into the post pandemic stage. However, the impact on Hartalega is reduced because users are still switching to nitrile gloves due to high natural rubber prices. Nitrile gloves are actually cheaper than natural rubber gloves now. In the absence of any health epidemic, demand will still grow due to healthcare reform, population growth and the expansion of the healthcare industry. But we are bracing ourselves for more competition as our peers are looking into or have started producing nitrile gloves.

Low: The demand growth for gloves has remained healthy although the concern for H1N1 has faded.  Upon normalising, the demand for gloves still grows at 10% to 12% annually which indicates a remarkable upside for any industry. Over the years, growing hygiene awareness and increased healthcare spending have made gloves a necessity in the healthcare sector, especially, in developed economies, thus making the industry resilient even when economy is slowing down.

Thai: The demand for gloves remains strong particularly in the healthcare industry. I have found demand and consumption to be stable, as evidenced by the outbound sales of gloves from our customers’ distribution warehouses. However, due to the high volatility of foreign exchange and increasing glove prices, the majority of customers are ordering or replenishing their stocks on a just-in-time basis. There are no back orders problems now for regular glove products. We have also seen the delivery lead time reduced from 90 to 120 days at the height of the HIN1 outbreak to 45 to 60 days at present. That means it is now back to normal delivery lead time.

How will the price hike help to sustain the company’s earnings?
Kuan: Hartalega has already increased the prices of rubber gloves in accordance with the advice from The Malaysian Rubber Glove Manufacturers’ Association (Margma) and the rising costs of natural latex. As for nitrile, prices have remained the same over this period. Our earnings are sustainable because customers continue to switch from natural rubber to nitrile gloves.

Low: Latexx has increased its glove prices in accordance with rising raw material costs and the weak US dollar. Latexx has a mechanism to adjust its prices to pass on the higher latex costs and weakening exchange rates of US dollars to the customers, otherwise we would have to bear the cost. The customers understand the situation.

Thai: Supermax has increased glove prices in tandem with the increase in latex prices and the soft US dollar. However, margins will be squeezed due to the time lag in executing the orders. Supermax remains confident of meeting the FY10 profit guidance of at least RM168 million in profit after tax. We have taken into account of the strong ringgit and higher latex prices.

This article appeared in The Edge Financial Daily, October 25, 2010.

Learn from the mistakes of other investors

Learn from the mistakes of other investors
Tags: Ang Kok Heng

Written by Ang Kok Heng
Monday, 25 October 2010 11:43

Serious investors who want to make money from investing in the stock market often pick up some books written by or written about investment experts or gurus such as Warren Buffett and Peter Lynch.

The lessons learnt from investment legends will definitely help one to avoid some of the common investment mistakes. So, learning the right investment tactics and strategies is definitely a shortcut to successful investment.

Other than acquiring the right investment approaches from the masters, one can also study the common mistakes made by other investors, especially retail investors. After learning the types of mistakes commonly made by other investors and why they continue to lose money, we can avoid these mistakes so that we do not fall into the same traps again. Perhaps we can even adopt a completely different strategy in order to make money.

A reluctance to cut losses
The single biggest mistake of local investors is their reluctance to take losses. This is not unique among local investors. In fact, this phenomenon also happens in other countries, including developed market like the US where investors are believed to be more savvy than those in emerging markets.  People have a tendency to feel more pain when taking a loss. Research shows that the quantum of pain from suffering a 30% loss is about 2.5 times more than the joy from making a 30% gain. To avoid the pain, investors tend to keep loss-making stocks year after year. So long as the loss-making stocks are not sold, the pain is not felt.

It is not uncommon to see an investor having a long list of loss-making, poorer quality stocks in his or her Malaysian Central Depository (MCD) statement. The excuse given by investors for not selling these stocks is that they are waiting for the stock to recover. Psychologically, it is believed that so, long as a loss-making stock is not sold, there is still hope that one day the price may recover, but if the stock is sold, the loss is realised.

It is normal to hear that “I am stuck with the stock due to losses”, “how can I sell now, the price is lower than my cost”, “I can’t do anything now as the price has gone down.” As the market does not set traps for punters, it is the punters who voluntarily tie themselves up by refusing to get out of a sticky situation. Stocks do not recognise who gets “stuck” with losses, neither do they feel sympathy for loyal punters who endure financial pain.

For whatever reason, when a loss-making stock is purchased, the only rationale to continue holding on to the stock is hope. Most of the time there is no specific fundamental reason nor news to justify holding the stock. Hope is a bad reason for holding a stock as its fate often purely determined by chance.

Unfortunately, the problem with some of these poor-quality stocks is that if their fundamentals continue to deteriorate, these stocks may fall into PN17 status or be eventually delisted. By then, it will be almost impossible to recover whatever amount invested in the stocks. An 80% deterioration in price can end up as a 100% loss when the final nail is hammered into the coffin.

Quick to take profit
Another reason why a typical investor has a long list of loss-making third liners and little in quality stocks or blue chips in his or her MCD statement is that most of those stocks that made money have been sold. As the probability of making money from investing in quality stocks and blue chips is higher, investors are quick to lock in profit and proclaim a triumphant victory.
Over time, good stocks are sold and poorer-grade stocks are kept in the portfolio. Unknowingly, investors sell the valuables and became collectors of “rubbish”.

It is also common to hear “advice” from fellow investors that one should not be too greedy. If a stock appreciates by 20%, common advice is to lock in the profit before the price comes down. It is not entirely wrong to take profit. But what if the stock price falls by 20%? Should there not be a similar strategy to protect a portfolio when the stock price turns south? Investors make several mistakes by taking early profit:

•    Taking profit early should apply to trading stocks and not on investment-grade stocks;
•    Investors should also set a cut-loss strategy instead of only a profit-taking strategy;
•    Instead of selling quality stocks and keeping speculative stocks, investors should sell speculative stocks acquired based on rumours and keep quality stocks.

Preferring cheap stocks
When it comes to the level of stock price, the common perception is that a RM1 stock is cheaper than a RM10 stock. It may sound logical but it is entirely wrong based on the fundamentals of investment. From an investment approach, a stock is purchased because of its future earnings outlook.  As such, a RM1 stock having negligible earnings is more “expensive” than a RM10 stock yielding RM1 profit per share.

Perhaps a RM1 stock is perceived as easier to be “pushed” by syndicates or easier to move up than a heavyweight. Low-priced stocks are generally considered as retail stocks as they normally lack fundamentals and are not popular among institutional investors. Without the help of so-called syndicates, low-priced stocks are traded among retail investors themselves from the same pool of money.

There is no fresh money to lift the stock price higher. This is unlike investment-grade stocks, where improved fundamentals attract more money including foreign funds, resulting in more demand than supply. Hence, investment-grade stocks benefit from the strong price support, leading to a continuous price appreciation over time.

By the same token, when a company announces a share bonus issue or split, which leads to a lower price level, it is welcomed by retail investors.  On the other hand, when a company calls for a share consolidation the stock price will plunge. Stock consolidation can be due to the changing of par value from, say, RM0.20 to RM1 or due to capital reduction.

When our market was less mature, there were many retail investors who invested based on market rumours and speculation. Now, there are fewer retail investors participating in the local market and syndicates are also less visible. The strategy of relying on trading penny stocks has not brought much reward in recent years. Although there may be some penny stocks which turn into a five-bagger or even a 10-bagger, such incidences are few and far between.

Changing the goal posts
Another common mistake is the lack of a clear investment goal and strategy, whereby investment stocks and trading stocks are mixed together. As these stocks have different characteristics, they should be treated separately in terms of investment strategy.

A trading stock is normally purchased on a piece of news or rumour which may or may not happen. An investment-grade stock, on the other hand, is normally purchased based on fundamental reasons such as earnings outlook, business potential, and growth prospects.

As a trading stock is more speculative in nature, it should be monitored based on the reliability of the source of information. Technical charts are more useful in helping one on timing decisions to sell, hold or buy further.

Sometimes, investors know they are speculating on a stock but when the stock is out-of-the-money (in a loss-making position), they tend to keep the stock as if it is an investment-grade stock. A punt on a trading stock for short-term gain with a timeframe of several months may end up as long-term hold for several years. The initial objective to make some quick gains by speculating on a piece of news or rumour may end up in the hope that the stock price will recover to its cost.

On the other hand, some investors buy an investment-grade stock for long-term investment due to its strong fundamentals or dividends. But when the price starts to show gain, some investors are quick to take profit for fear that the price may come down. The irony is that a long-term investment now becomes a short-term trade when early profit is seen.

So long as investors keep changing their goal posts and confuse themselves between trading and investment stocks, between short-term speculation and long-term investment, their equity investments will be in a mess.

Excited by tips
Many retail investors are still fond of relying on tips to make money from the stock market. Many who depend on tips lose so much that they simply leave the market and vow that they will never touch the stock market again. Trading based on tips may be exciting, but experienced investors will confess that it is difficult to make money purely on tips.

What are tips? Tips could be insider news from those who know what is going to happen. Insiders could be company directors and senior management, professionals like corporate lawyers, auditors and bankers who may have some inside information or even reporters, analysts, fund managers and individuals who have access to the senior management of companies.

Tips that something is brewing could be true, some may be pure speculation but there are also some which are fabricated by syndicates as part of their games. Most of the time when a punter obtains a tip, it is not first-hand information. The tip could have been passed down from several people. In such a case, even if there are changes to the information, punters will be the last to find out. After the share price has plunged, will they only then realise that things have gone sour. By then it would be too late to sell and the stock may be added into their long list of “collector’s items”.

Little homework
Most retail investors do little homework before investing. Even if they do, it is normally very superficial. There is also little follow-up on the subsequent changes to the fundamentals. Many retail investors give the excuse that the accounts are too complicated to understand. If someone like an analyst has analysed a stock and recommended a buy, the investors will probably rely on the call to make their bet. Recommendations appearing in newspapers are also one of the main sources of investment ideas.

A lack of patience
Another common weakness of retail investors is their impatience. Most of them want quick gains. After they buy a stock due to a recommendation or a tip, they will monitor the stock movement closely. If the stock price moves up, they will praise the person who recommends the stock. But if the stock does not move after several weeks, they will become impatient and keep asking when the stock will move.

Most retail investors are not too keen to invest in a stock that makes 10% per year. They are excited with highly volatile stocks or high beta stocks that can potentially double in value or gain 20% within a week or two.

Always buy higher, sell higher
Because retail investors have little patience, they are not keen to buy on market weakness and wait for the market to recover. The tendency to chase a stock is common among retail investors. As they want to make quick money, they prefer to buy high and try to sell higher, a strategy more aptly applied in a bull market. This phenomenon clearly explains why more retail investors appear during a bull market but vanish at the bottom of the market when prices are much cheaper.

The strategy of buy-high-sell-higher is definitely riskier than the buy-low-sell-high strategy. The former is not inappropriate, but investors must get out of the market if they are wrong. Unfortunately, cutting losses is too painful for most people and many retail investors eventually get “caught” again.

The lessons
There are many lessons we can learn from the mistakes of retail investors, some of whom could be someone close to you — one of your family members, colleagues, friends or even yourself. To be a successful investor with an aim to increase wealth, we need to overcome some common human weaknesses.

At the top of the list, one has to learn to be impartial and view a stock objectively. If a mistake is made, the best thing to do is to take the losses and cut the stock. And it should be done without hesitation. If necessary, a short time frame should be given to try to sell at a slightly higher price. After the time frame, the loss-making stock must still be axed. If you do not have the discipline to take losses, then trading is not for you.

Investors should be clear about the investment plan when investing. Buy-and-hold investment stocks should be segregated from buy-and-sell trading stocks. As the two types of stocks have different characteristics, they should be treated separately with different strategies. The worst mistake is to buy a short-term trading stock and eventually keep it as long-term investment stock. In general, investors should learn to cut their losses and let the profits on investment-grade stocks run instead of selling all the good stocks and accumulateing speculative trading stocks in their portfolio.

Investors who like to dabble on tips should always remember that speculative stocks are trading stocks and certain time frames should be given for the “tips” to work, otherwise the stocks should be discarded, even at a loss. This is the nature of the game. The bet is either you win or you lose.


Ang Kok Heng has 20 years of experience in research and investment. He is currently the chief  investment officer of Phillip Capital Management Sdn Bhd.

This article appeared in The Edge Financial Daily, October 25, 2010.

Plantation stocks up as CPO climbs

Plantation stocks up as CPO climbs
Tags: Batu Kawan | Boustead | Genting Plantations | IOI Corp | KLK | Kulim | Sime Darby

Written by Surin Murugiah
Monday, 25 October 2010 11:29


KUALA LUMPUR: PLANTATION []-related stocks advanced on Monday, Oct 25 as crude palm oil futures rose Monday morning and was up RM66 per tonne to RM3,071.

At 11.40am, KLK was up 44 sen to RM18.94, Kulim gained 27 sen to RM9.79, Boustead and Batu Kawan were up 24 sen each to RM5.90 and RM15.54 respectively, Genting Plantations rose 14 sen to RM8.58, Sime Darby up eight sen to RM8.88 and IOI Corp added three sen to RM5.82.

http://www.theedgemalaysia.com/business-news/175913-plantation-stocks-up-as-cpo-climbs.html

Intrinsic Value: The Right Price to Pay

A GREAT COMPANY AT A FAIR PRICE’

Nobody really knows the specific principles that Warren Buffett applies when deciding the price he will pay for a share investment. We do know that he has said on several occasions that it is better to buy a ‘great company at a fair price than a fair company at a great price’.

This tends to agree with the view of Benjamin Graham who often referred to primary and secondary stocks. He believed that, although paying too high a price for any stock was foolish, the risk was higher when the stock was of secondary grade.

PATIENCE

The other thing that Warren Buffett counsels, when deciding on investment purchases, is patience. He has said that he is prepared to wait forever to buy a stock at the right price.

 There is a seeming disparity of views between Graham and Buffett on diversification. Benjamin Graham was a firm believer, even in relation to stock purchases at bargain prices, in spreading the risk over a number of share investments. Warren Buffett, on the other hand, appears to take a different view: concentrate on just a few stocks.

WHAT WARREN BUFFETT SAYS ABOUT DIVERSIFICATION

In 1992, Buffett said that his investment strategy did not rely upon spreading his risk over a large number of stocks; he preferred to have his investments in a limited number of companies.

‘Many pundits would therefore say the [this] strategy must be riskier than that employed by more conventional investors. We disagree. We believe that a policy of portfolio concentration may well decrease risk if it raises, as it should, both the intensity with which an investor thinks about a business and the comfort-level he must feel with its economic characteristics before buying into it.’

NO REAL DIFFERENCE BETWEEN BENJAMIN GRAHAM AND WARREN BUFFETT

The differences between Graham and Buffett on stock diversification are perhaps not as wide as they might seem. Graham spoke of diversification primarily in relation to second grade stocks and it is arguable that the Buffett approach to stock selection results in the purchase of quality stocks only.

BERKSHIRE HATHAWAY HOLDINGS

In addition, consideration of Berkshire Hathaway holdings in 2002 suggests that although Buffett may not necessarily believe in diversification in the number of companies that it owns, its investments certainly cross a broad spectrum of industry areas. They include:

• Manufacturing and distribution – underwear, children’s clothing, farm equipment, shoes, razor blades, soft drinks;
• Retail – furniture, kitchenware
• Insurance
• Financial and accounting products and services
• Flight operations
• Gas pipelines
• Real estate brokerage
• Construction related industries
• Media

INTRINSIC VALUE

Both Warren Buffett and Benjamin Graham talk about the intrinsic value of a business, or a share in it.  That is, to buy a business, or a share in it, at a fair price. But, having regard to the possibility of error in calculating intrinsic value, the careful of investor should provide a margin of error by only buying the business, or shares, at a substantial discount to the intrinsic value.

Buffett is said to look for a 25 per cent discount, but who really knows?

DEFINING INTRINSIC VALUE

Buffett’s concept, in looking at intrinsic value, is that it values what can be taken out of the business. He has quoted investment guru John Burr Williams who defined value like this:

‘The value of any stock, bond or business today is determined by the cash inflows and outflows – discounted at an appropriate interest rate – that can be expected to occur during the remaining life of the asset.’ – The Theory of Investment Value.

The difference for Buffett in calculating the value of bonds and shares is that the investor knows the eventual price of the bond when it matures but has to guess the price of the share at some future date.

DISCOUNTED CASH FLOW (DCF)

This method of valuation is often referred to as the Discounted Cash Flow (DCF) valuation method, but, as Buffett has said in relation to shares, it is not easy to predict future cash flows and this is why he sticks to investment in companies that are consistent, well managed, and simple to understand. A company that is hard to understand or that changes frequently does not allow for easy prediction of future earnings and outgoings.

WHAT WARREN BUFFETT SAYS ABOUT PREDICTING FUTURE CASH FLOWS

In 1992, Warren Buffett said that:

‘Leaving question of price aside, the best business to own is one that over an extended period can employ large amounts of capital at very high rates of return. The worst company to own is one that must, or will, do the opposite – that is, consistently employ ever-greater amounts of capital at very low rates of return.’

It is well worth reading Buffet’s analogy relating DCF to a university education in his 1994 Letter to Shareholders.

So, it would seem that the intrinsic value of a share in a company relates to the DCF that can be expected from the investment. There are formulas for working out discounted cash flows and they can be complex but they give a result.

EXPLANATIONS OF DCF

The best explanation that we have read of DCF is by Lawrence A Cunningham in his outstanding book How to think like Benjamin Graham and invest like Warren Buffett.

A good online explanation is available here.

HOW WARREN BUFFET DETERMINES A FAIR PRICE

The real secret of Warren Buffett is the methods that he uses, some of which are known from his remarks, and some of which are not, that allow him to predict cash flows with some probability.

Various books about Warren Buffett give their explanations as to how he calculates the price that he is prepared to pay for a share with the desired margin of safety.

Mary Buffett and David Clarke pose a series of tests, based on past growth rates, returns on equity, book value and government bond price averages.

Robert G Hagstrom Jnr in The Warren Buffet Way gives explanatory tables of past Berkshire Hathaway purchases using a DCF model and owner earnings.

Ultimately, the investor must decide upon their own methods of arriving at the intrinsic value of a share and the margin of error that they want for themselves

www.buffettsecrets.com/price-to-pay.htm

BUFFETT’S 'EQUITY BOND' STRATEGY.

BUFFETT’S 'EQUITY BOND' STRATEGY.

(A) THE THEORY.

Warren Buffett has determined that companies which show great Strength and Predictability in Earnings Growth, especially those with Durable Competitive Advantage (DCA), can be seen as a kind of EQUITY BOND with aCOUPON.

The company’s SHARE PRICE equates with the EQUITY BOND, and their PRETAX EARNINGS/SHARE equates with a Bond’s COUPON or INTEREST PAYMENT.
Therefore ....

EQUITY BOND = SHARE PRICE
BOND COUPON = PRETAX EARNINGS/SHARE

The DIFFERENCE between a normal Bond’s Coupon Rate and an EQUITY BOND’s Coupon Rate is that the former’s rate remains static while the latter’s rate can increase yearly due to the inherent Positive Performance of a DCA company.

This is how Buffett buys an Entire Business or a Partial Interest in a company via the Stock Market.

He interrogates its PRETAX EARNINGS and then determines if the purchase is a Good Deal relative to the ECONOMIC STRENGTH of the company’s underlying Economics and its ASKING PRICE.

The strong underlying Economics of DCA companies ensures a CONTINUING INCREASE in the company’s PRETAX EARNINGS which gives an Ongoing Increase in the EQUITY BOND’s COUPON RATE.
This results in the INCREASE in the VALUE of the EQUITY BOND and hence its SHARE PRICE.

Here’s how Buffett’s Theory works ....

In the 1980’s Buffett bought Coca Cola shares for $6.50c against PRETAX EARNINGS of $0.70c/share.
Buffett saw this as buying an EQUITY BOND paying an INTEREST RATE of 10.7% (0.70/6.50) on his $6.50 investment.
Historically, Coca Cola’s Earnings had been increasing at an annual rate of about 15%.
Therefore he could argue that his 10.7% Yield would increase at a projected Annual Rate of 15%.

By 2007 Coca Cola’s PRETAX EARNINGS had grown at about 9.35%/annum to $3.96c/share.
Buffett now had an EQUITY BOND with a Pretax Yield of 61% (3.96/6.50) which could really only increase with time due to Coca Cola’s DCA “status”.

(B) DETERMINE SHARE PRICE.

From his own experience Buffett has determined that the Stock Market will price a DCA company’s EQUITY BOND at a level that approximately reflects the VALUE OF ITS EARNINGS RELATIVE TO THE YIELD ON LONG TERM CORPORATE BONDS.

This can be written as the following equation ....

EQUITY BOND = SHARE PRICE = COUPON RATE/LONG TERM CORPORATE BOND RATE (L.T.C.B.R.)

and .... COUPON RATE/(L.T.C.B.R.) = PRETAX EARNINGS/( L.T.C.B.R.)

Examples :-

(1) In 2007 The Washington Post had Pretax Earnings of $54/share = Coupon Rate.
The L.T.C.B.R. was about 6.5%.

EQUITY BOND = Coupon Rate/L.T.C.B.R. = $54/6.5% = $830/share.

In 2007 The Washington Post shares traded between $726 and $885 a share.

(2) In 2007 Coca Cola had Pretax Earnings of $3.96/share = Coupon Rate.
The L.T.C.B.R. was about 6.5%.

EQUITY BOND = Coupon Rate/L.T.C.B.R. = $3.96/6.5% = $61/share.

In 2007 Coca Cola shares traded between $45 and $64 a share.

(The following web site will give you values for Corporate Bond rates :-
http://finance.yahoo.com/bonds/composite_bond_rates )

The stock market, seeing this ongoing return, will eventually revalue these EQUITY BONDS to reflect this increase in Value.

Because the Earnings of these companies are so consistent, they are also open to a LEVERAGED BUYOUT.

If a company carries little debt and has ongoing strong earnings, and its stock price falls low enough, another company will come in and buy it, financing the purchase with the acquired company’s earnings.

Therefore, WHEN INTEREST RATES FALL, the company’s EARNINGS ARE WORTH MORE because they will SUPPORT MORE DEBT, which makes the company’s shares worth more.

Conversely, WHEN INTEREST RATES RISE, EARNINGS ARE WORTH LESS because they will SUPPORT LESS DEBT, making the company’s shares worth less.

In the end it is LONG-TERM INTEREST RATES that determines the Economic Reality of what Long-Term investments are worth.

(C) WHEN TO BUY.

In Buffett’s world the PRICE you pay directly affects the RETURN on your INVESTMENT.

Therefore the MORE one pays for an EQUITY BOND the LOWER will be the INITIAL Rate of Return and also the LOWER the RATE OF RETURN on the company’s EARNINGS in, say, 10 years time.

Example :-

In the late 1980’s Buffett bought Coca Cola for about $6.50c/share.
The company was earning about $0.46c/share after tax.
Initial Rate of Return = 0.46/6.50 = 7%.

By 2007 Coca Cola was earning $2.57c/share, after tax.
Rate of Return = 2.57/6.50 = 40%.

If he had originally paid, say, $21/share back in the 1980’s his Initial Rate of Return would only have been 2.2%, and this would have only grown to about 12% ($2.57/$21) 20 years later in 2007, which is a lot less than 40% !

Therefore the LOWER THE PRICE one pays for a DCA company the BETTER one will do OVER THE LONGER TERM.

SO WHEN DO YOU BUY INTO DCA TYPE COMPANIES ?

One of the best times to buy into these companies is during BEAR MARKETS when the price of shares are generally depressed, in some cases due to no fault of a DCA type company but due to adverse Market conditions.

This is in line with Buffett’s creed that one should “Be Greedy When Others Are Fearful”.

In addition, one can also buy into a DCA type company when its price is at a discount to the price obtained from the formula in (B) above ....

Once again, referring to Coca Cola, we see that ...

Pretax Earnings per Shares in the late 1980’s = $0.70c.
At that time the L.T.C.B.R. was about 7%.
That would give a “Market Valuation” = $0.70/7% = $10 per share.
Buffett bought it at $6.50c/share, a “discount” of 35%.

(D) WHEN TO SELL, OR NOT TO BUY.

There are at least THREE occasions ...

(1) One can SELL when one needs the money to invest in an even BETTER company at a BETTER PRICE.

(2) One can SELL when, what was a DCA type company, is now losing its Durable Competitive Advantage.
Examples could be Newspapers and Television Stations which were great businesses until the advent of the Internet and the Durability of their Competitive Advantage could be called into question.

(3) One can SELL, or NOT BUY, during BULL MARKETS when the stock market often sends share prices through the ceiling. At these times the current selling price of a DCA’s stock often far EXCEEDS the long-term ECONOMIC REALITIES of the business.

Eventually, these Economic Realities will pull the share price back down to earth.

In fact, it may be time to SELL when one sees P/E ratios of 40, or more, in these great companies.

To once again quote Buffett ... at these times, “Be Fearful When Others Are Greedy”.

http://siliconinvestor.advfn.com/readmsg.aspx?msgid=26421355