Cashflow Quadrant of Rich Dad, Poor Dad - Robert Kiyosaki

Compounding

Asset Allocation

UP or DOWN

Price versus Value

Grow your networth.

The RATIONAL view versus the STORY view.

Buy and Hold (Return vs Risk)

Rule of 72

In less than 4 years, your initialinvestment has doubled in value!

Hong Leong Bhd : Compelling mid-cap exposure buy

Hong Leong Bhd : Compelling mid-cap exposure buy

From AmResearch

June 29, 2011

JUNE 29 — We maintain our BUY rating on Hong Leong Bank Bhd (HLBB), with an upgraded fair value of RM15.30/share (previously RM14.70/share). This is based on an  adjusted (for rights) ROE of 16.2 per cent for FY12F, leading to a fair P/BV of 2.4x. HLBB has now provided further details of the revenue synergies arising from the merger with EON Cap.

The first would be the potential revenue synergies from its much stronger position in credit cards. We estimate that the merged entity’s market share will jump to 13.7 per cent, from HLBB’s current 8.2 per cent. Secondly, HLBB envisages better forex and treasury fees arising from a larger SME customer base. HLBB’s total loans from SMEs currently make up about 9 per cent of its overall total loan base, but this will rise to 14 per cent of the merged entity’s overall loans.

The other revenue synergies that have been identified are related to cross-selling and other opportunities to fill selected market gaps in terms of branch network. HLBB also intends to raise transactional and payments systems fees over a larger customer base, as well as expand its priority banking services platform.

Besides adding earnings for EON Cap, our forecasts are now adjusted for three main items. Even with these adjustments, we derive an adjusted ROE of 16.2 per cent FY12F. We believe HLBB is now positioned as a compelling mid-cap banking stock, with a meaningful exposure to China.

Key catalysts for HLBB are: (a) stronger-than-expected top line growth; (b) sustained asset quality, (c) better-than-expected contribution from Bank of Chengdu, and (c) a seamless integration of its merger with EON Cap.

* These recommendations are solely the opinion of the respective research firms and not endorsed by The Malaysian Insider. The Malaysian Insider shall not be liable for any loss arising from any investment based on any recommendation, forecast or other information contained here.

Safety of Capital. Rule No. 1: Do not lose your Money

 

Be fearful when others are greedy and Greedy when others are fearful.

Warren Buffett's Quotes

Asset Allocation and Diversification

Visual Analysis of Sales, PTP and EPS lines in Take Stock (Ellis Traub).

It might make it easier if you consider the Visual Analysis one piece at a time.

Does the Sales line look straight? That means Sales growth is pretty consistent; usually what we'd prefer to see.

Is the Sales line getting steeper recently? That indicates more rapid Sales growth, but is unusual. Generally Sales growth slows as a company gets older and bigger. If there is a sudden large upward "jag" in Sales that often indicates a large acquisition. A large acquisition is a situation that tends to make the rest of the Visual Analysis harder to interpret and the future harder to project.

Is the Sales line getting less steep recently? That indicates slowing Sales growth. Slowing Sales growth is "normal" as a company gets larger. However, as an investor, too much slowing that persists over time is not a good sign. BBBY is a classic example of this.

The gap between the PTP and Sales lines shows exactly the same thing as SSG section 2A (pre-tax profit margins). If the gap changes enough that you notice it on the Visual Analysis, then PTP margins probably changed significantly.

With Sales above PTP on the graph, a smaller gap is the same thing as higher PTP margins, which is a good thing. More of every dollar of Sales is being kept as profit (less of every dollar of Sales is being spent on expenses). A larger gap is the same as lower PTP margins (not so good).

Variation in PTP margins is normal so look for a trend. Seeing changes in PTP margins before they show up on the Visual Analysis or SSG section 2A is perhaps the primary reason for looking at PERT-A. Remember that PERT-A tells you the same story as the Visual Analysis, just from a different point of view. If you think they're telling different stories, you're reading at least one of them wrong (or there is a data error).

The gap between the EPS and PTP lines shows the combined effect of changes in tax rate and shares. Anything that changes the size of this gap is unsustainable. If the gap changes enough that you notice it on the Visual Analysis, the underlying change (taxes and/or shares and/or other things) is probably significant. So, if the EPS line is getting steeper but the PTP line isn't following suit, don't expect that situation to continue. Without further investigation, It's generally not possible to know just what things caused a change in the size of this gap (and just how good or bad those things might be).

Remember that when the Sales line changes direction (i.e., isn't straight), the PTP and EPS lines generally also change direction in about the same way. If they don't, that's a warning that you should investigate the cause. If the gap between Sales and PTP lines changes noticably, investigate why PTP margins changed. If the gap between PTP and EPS lines changes noticably, investigate why taxes and/or shares (and/or something else below PTP on the income statement) changed

-Jim Thomas


----

I have an article in my BI binder from BI magazine, dated May 2006.  The title is, "Introduction to the income statement" and it is written by Ann Cuneaz.  In it, she talks about "reading the graph" from SSG section I, visual analysis.  Most people align the graphs in the same order as on an income statement: Sales on top, followed by pre-tax profit (PTP)and earnings per share (EPS). The gap between Sales and PTP represents expenses; the gap between PTP and EPS represents both taxes & number of shares.  If we only concern ourselves with graphs that have fairly straight lines for each of these three items, then we have seven different scenarios to consider: All three lines are parallel (preferably rising to the right or curving upwards to the right). This means expenses are under control and taxes & shares outstanding are holding steady.  This is an excellent situation. Sales and PTP are rising and parallel but EPS is diverging. This means expenses are under control but tax rate and/or # shares are increasing. Taxes cannot be controlled (much) so this is ok. However, an increase in shares indicates dilution and that's not good. PTP and EPS are parallel but flat; Sales are increasing.  This means profit margins are declining. This is not good. PTP and EPS are parallel and rising but Sales are flat. This means there has been an increase in efficiency (expenses are under control).  This is ok. Sales and PTP are parallel but flat; EPS is increasing. This means expenses are under control, and either or both taxes are being reduced (good) and/or # shares is being reduced. It was discussed here on the forum recently that although most people consider a share buyback to be a good thing, historically these stocks have not appreciated very well. Sales are flat, PTP is increasing, EPS is flat. This means expenses are decreasing (good) but taxes and/or shares outstanding are increasing. Again, taxes cannot be controlled and an increase in shares indicates dilution and that's not good. Sales are increasing, PTP is flat, EPS is increasing. This means expenses are increasing (not good), but taxes are declining (good) and/or # shares is decreasing (good). Bob Mann

http://community.compuserve.com/n/pfx/forum.aspx?msg=32627.1&nav=messages&webtag=ws-naic

How to forecast a stock-market top

4/19/2011 2:43 PM ET.
By Mark Hulbert, MarketWatch.

How to forecast a stock-market top

A Wall Street research firm is tracking four key indicators for signs that the bull market is on its last legs. Here's what to look for.


How will we know when the bull market is coming to an end?

This is a timely question, given the extraordinary crosscurrents buffeting the market. Some advisers contend that the bull is alive and well, while others assert that the bull is living on borrowed time.

For insight, I turned to Ned Davis Research, the quantitative research firm, which monitors a basket of indicators to help determine when a market top is imminent.

Nearly two years ago I turned to the company for help in answering this very question. At the time, many were convinced the rally was but a bear-market correction. But Ned Davis, upon analyzing various indicators of a potential top, concluded that the bull market had further to go.

What does Davis' firm say now?

Ed Clissold, the global equity strategist at the company, said there are worrisome signs on the horizon, but the company is giving the bull the benefit of the doubt.

In assessing when the bull might end, Clissold said, the company has identified four major categories:


Valuation
Though stock valuations aren't at such an extreme as to cause this category of indicators to flash a sell signal, there are causes for concern, Clissold said.

One of these, according to a letter Ned Davis sent last week to institutional clients, is that "profit margins on the S&P are at record highs. . . . Using data back to 1954, very high profit margins, on average, have not been bullish for stocks, because the series is very mean-reverting."

Davis also was concerned with the cyclically adjusted P/E ratio made famous by Yale professor Robert Shiller.

At the same time, however, Clissold referred to other valuation measures that suggest stocks are not particularly expensive, such as the P/E ratio based on 12-month earnings (as opposed to the 10-year average Shiller prefers).

All in all, a split decision on valuation. As Davis wrote earlier this week: "I can certainly understand the bullish stance of those who argue stocks are still reasonably priced, based upon current earnings. Yet, I don't think that presents a complete picture of potential risks. I am just providing the evidence for clients to make their own decisions."

Sentiment
This is the one category of the four that, in Davis' opinion, comes closest to yelling "sell."

Davis maintains two sentiment indices, one of which is well into the zone of excessive optimism; the other borders on that zone.

On contrarian grounds, that is worrisome.

Market breadth
This category is perhaps the most bullish, according to Davis.

"One of the key characteristics of a major top in the stock market is considerable divergences," Davis wrote, and there are few signs of that.

Davis tracks the "High Low Logic Index," which represents the lesser of new 52-week highs or new 52-week lows as a percentage of all issues traded. The index traces its roots to a metric created three decades ago by Norman Fosback.

In his book "Stock Market Logic," Fosback describes the rationale behind the metric: "Under normal conditions, either a substantial number of stocks establish new annual highs or a large number set new lows -- but not both.

"As the (High Low) Logic Index is the lesser of the two percentages, high readings are therefore difficult to achieve," Fosback continued. "When the Index attains a high level, it indicates that the market is undergoing a period of extreme divergence. . . . Such divergence is not usually conducive to future rising stock prices."

Currently, according to Davis, the index is bullish, at 2.4%. At the stock market top prior to the 2007-2009 bear market, it rose to close to 6%. The only other time in recent decades the index got this high was in early 2000, right before the popping of the Internet bubble.

Interest rates
This category, like valuation, is providing some causes for concern, according to Clissold, but is not yet bearish.

The concerns derive from higher rates, which have caused some of the firm's interest-rate-trend indicators to enter bearish territory. However, Clissold said he doesn't think that these concerns yet amount to a "screaming sell signal."

One straw in the wind to look out for, he said, is the 10-year Treasury yield rising to around 4.25% -- three quarters of a percentage point above its current level.

Summing up the situation
The bottom line, according to Davis?

"There are a number of things about this market that concern me as a risk manager," he said. Still, all things considered, for now, he "leans bullish."

7 keys to mistake-free investing

6/15/2011 11:55 AM ET.

By U.S. News & World Report


7 keys to mistake-free investing

In a survey, wealthy investors acknowledge a tendency to let emotions drive investment decisions. Plus: Why women are better at long-term investing.

Overcoming emotional and personality-driven investing mistakes is widely recommended but hard to achieve. One of the keys to success is recognizing that a problem exists and devising mechanisms to control or limit bad decisions.

According to a recent global survey by Barclays Wealth, a large percentage of wealthy investors not only realize their tendency to make decisions based on emotions but would welcome help in dealing with the problem.

The report, "Risk and Rules: The Role of Control in Financial Decision Making," also revealed an extensive set of control strategies that people use to limit bad decisions. The most successful at doing so happen to be the wealthiest, although there could be other factors contributing to high-wealth achievement.


Psychology of successful investors

Perhaps the most interesting finding of the research involved what the report called "the trading paradox," said Greg Davies, who directs Barclays Wealth's work in behavioral and quantitative finance. Many wealthy investors believe they need to trade frequently to maximize investment gains. At the same time, wealthy investors were most likely to believe their overall returns suffered because they traded too much.

"Almost 50% of traders who believe you have to trade often to do well think they overdo it," the report said.

"Failures of rationality," as the report called them, were seen in four types of investment decisions:

1. Failing to see the big picture. Considering decisions in isolation and not including their impact on an entire portfolio was cited as a problem.

Consequence: Investing too much in a single asset class, industry or geographic market because you know a lot about it and are comfortable with such decisions.

2. Using a short-term decision horizon. Ignoring the appropriate goal of long-term wealth accumulation in favor of short-term returns hindered investors.

Consequence: Statistically, losses are more likely in the short run. Because people are twice as sensitive to losses as to gains -- a behavioral phenomenon known as "myopic loss aversion" -- their willingness to take short-term risks is too low and they often make the wrong investment decisions.

3. Buying high and selling low. Investors tend to do what's comfortable amid bullish or bearish market conditions.

Consequence: Buying when markets are high or selling when markets are low is a risky strategy that fails to take advantage of market opportunities. A buy-and-hold strategy is superior.

4. Trading too frequently. Multiple emotional and personality traits produce an irrational bias toward action.

Consequence: Investment costs are higher, and the frequency of other poor decisions is increased.

"This lack of control over our emotions is not an abstract problem," the Barclays study said, and "it can have tangible, detrimental effects on both investor satisfaction and performance."

Over the past two decades, the average equity investor earned 3.8% a year, while the Standard & Poor's 500 Index ($INX) returned 9.1% annually, according to a recent Dalbar study into investor behavior.

The report also found substantial improvement in investment decisions as people aged. Older investors were much less likely to trade too often, try to time the market or base investments on short-term considerations.

They were also more satisfied with their financial situation.

Barclays Wealth also found that women are better long-term investors than men, who tend to take more risks and are more likely to favor frequent trading and efforts to time the market.

"Women tend to have lower composure and a greater desire for financial self-control, which is associated with a desire to use self-control strategies," the report said.

"Women are also more likely to believe that these strategies are effective." As a consequence, women tended to trade less and earn higher returns over time.

Barclays Wealth sponsored surveys of more than 2,000 people from 20 countries who had at least $1.5 million in investment assets, including 200 with at least $15 million. These investors may not have known the details of their emotional flaws as documented by behavioral economists. But they were aware that they were prone to bad decisions and were open to getting help.

The report identified seven self-control strategies to help people counter their tendencies to make bad decisions. The use of these strategies was not limited to investments and often included other behaviors, such as big-ticket purchases or dieting and exercise.

Here are the seven strategies and their application to financial decisions:

1. Limit the options. Purchase illiquid investments to avoid the urge to sell investments when the market is falling.

2. Avoidance. Avoid information about how the market or portfolio is performing in order to stick to a long-term investment strategy.

3. Rules. Establish and use rules to help make better financial decisions, such as spend only out of income and never out of capital.

4. Deadlines. Set financial deadlines. For example, aim to save a certain amount of money by the end of the year.

5. Cool off. Wait a few days after making a big financial decision before executing it.

6. Delegation. Delegate financial decisions to others, such as allowing an investment adviser to manage your portfolio.

7. Other people. Use other people to help reach financial goals. An example would be meeting with a financial adviser to make and execute a financial plan.


This article was reported by Philip Moeller for U.S. News & World Report.