Diversification is good - to a point. Maintain a focussed portfolio that includes enough stocks to limit stock-specific risk, but don't hold so many that you end up simply mirroring the market's returns.
In a rigid fundamental-based investing system, portfolios as small as 10 stocks can significantly beat the market over the long haul.
While you don't need to hold stocks in every sector or industry, set guidelines to make sure you maintain at least some diversification across those areas within your portfolio.
Thursday 23 July 2009
Investing Principle 3: Stay Disciplined Over the Long Haul
It is essential to stick to your strategy for the long term. Even the best strategies have down periods, and it can sometimes take over a year to reap the benefits of a good method. If you try to time your use of a strategy, you'll likely miss out on some big gains.
Expectations shape reactions: be prepared for short-term 10 to 20% downturns that are inevitable in the stock market - and the less frequent but also inevitable 35 to 50% downturns you'll occasionally experience. You can't predict when they will happen, so you just have to roll with them if you want to reap the market's long-term benefits.
Give the Internet a rest. Checking your portfolio every day, let alone every 10 minutes, can make you want to jump in and out of the market, which hurts your long-term performance.
Expectations shape reactions: be prepared for short-term 10 to 20% downturns that are inevitable in the stock market - and the less frequent but also inevitable 35 to 50% downturns you'll occasionally experience. You can't predict when they will happen, so you just have to roll with them if you want to reap the market's long-term benefits.
Give the Internet a rest. Checking your portfolio every day, let alone every 10 minutes, can make you want to jump in and out of the market, which hurts your long-term performance.
Investing Principle 2: Stick to the Numbers
Human emotions cloud decision-making, hampering human beings' forecasting abilities.
Using proven, quantitative strategies allows you to make buy and sell decisions solely on the numbers - a stock's fundamentals - helping to remove emotion from the process.
It is best to stick firmly to strategies that are backed up by long, proven track records.
Using proven, quantitative strategies allows you to make buy and sell decisions solely on the numbers - a stock's fundamentals - helping to remove emotion from the process.
It is best to stick firmly to strategies that are backed up by long, proven track records.
Investing Principle 1: Combining Strategies
Because of compounding, downside volatility costs you money.
If you are looking to smooth out returns, pick stocks with lower degrees of correlation (those that perform differently in the same type of market conditions).
Learn how to combine strategies to limit risk or enhance returns.
To maximise returns, give more weight to those strategies with the best historical track records.
If you are looking to smooth out returns, pick stocks with lower degrees of correlation (those that perform differently in the same type of market conditions).
Learn how to combine strategies to limit risk or enhance returns.
To maximise returns, give more weight to those strategies with the best historical track records.
How can investment returns be improved?
How to improve on my returns on my investing?
Always keep cash for emergency use. Also, always have cash for opportunistic investing. This is not a problem for those who have constant stream of cash incomes. For others, keeping cash:stock in the ratio of 25:75, gives a return quite close to those who are 100% invested into stocks.
Next, would be selecting the right stocks. Using my QVM method, we aim to select stocks that will give us good sustainable returns for a long time. We should aim for a return of 15% per year, if possible, and always going for high probability events that give high returns at low risks. Returns can also be sought from badly beaten down stocks (undervalued stocks) that will give great returns when they are repriced at fair values.
Maintain a concentrated portfolio. Bet big on those stocks you have conviction in. Do not over-diversify. The company specific risks are fully diversified when you have 6 stocks in your portfolio. An additional stock added to the portfolio after the sixth may lead to lower returns without the benefit of reducing further the risks. The market risks cannot be diversified, but can be partially managed through asset allocation.
It is important to manage the portfolio actively. This also incorporates asset allocation. There will be time when the market is bubbly, when one may need to pare down exposure to stocks, though, never completely. There will be times, when one's exposure to stock will be relatively high, especially at the end of a severe and prolonged bear market.
Always monitor the business of the stocks in the portfolio in your readings of the papers, business magazines, etc. Track their business performance every quarter through their regular financial releases.
Two active strategies are employed to improve on the returns of our portfolio. Firstly, the defensive strategy. This is to prevent harm to our portfolio. This occurs when the fundamentals of the business of the stock have deteriorated, sometimes suddenly, for various reasons. Another reason maybe "creative" accounting. In these situations, sell the related stocks quickly. Do not hesistate. Speed in selling is important in reducing severe damage to your portfolio, by limiting the losses.
The next is termed offensive strategy. Of 5 stocks one invest into, expect 1 to perform exceptionally well, 3 to be fairly well and 1 to do "not so well or badly". You have time to apply this strategy leisurely. There is no urgency as like the situation previously described.
Review and rebalance your portfolio at regular intervals. Perhaps, once per month or even less frequent than this. You may wish to sell or trim the stocks where the prices are too high, reducing the upside potential and increasing the downside risk. You may also wish to sell or trim those stocks where the potential for upside gain is assessed to be low. (Remember you aim for 15% return on an annual basis.) The cash derived from their disposals should be re-deployed into those stocks which have a higher potential for gain.
Sounds simple, but trust me, active investing and active management of portfolio are both challenging and take effort. However, the returns can be good for those employing a disciplined investing philosophy and strategy.
Always keep cash for emergency use. Also, always have cash for opportunistic investing. This is not a problem for those who have constant stream of cash incomes. For others, keeping cash:stock in the ratio of 25:75, gives a return quite close to those who are 100% invested into stocks.
Next, would be selecting the right stocks. Using my QVM method, we aim to select stocks that will give us good sustainable returns for a long time. We should aim for a return of 15% per year, if possible, and always going for high probability events that give high returns at low risks. Returns can also be sought from badly beaten down stocks (undervalued stocks) that will give great returns when they are repriced at fair values.
Maintain a concentrated portfolio. Bet big on those stocks you have conviction in. Do not over-diversify. The company specific risks are fully diversified when you have 6 stocks in your portfolio. An additional stock added to the portfolio after the sixth may lead to lower returns without the benefit of reducing further the risks. The market risks cannot be diversified, but can be partially managed through asset allocation.
It is important to manage the portfolio actively. This also incorporates asset allocation. There will be time when the market is bubbly, when one may need to pare down exposure to stocks, though, never completely. There will be times, when one's exposure to stock will be relatively high, especially at the end of a severe and prolonged bear market.
Always monitor the business of the stocks in the portfolio in your readings of the papers, business magazines, etc. Track their business performance every quarter through their regular financial releases.
Two active strategies are employed to improve on the returns of our portfolio. Firstly, the defensive strategy. This is to prevent harm to our portfolio. This occurs when the fundamentals of the business of the stock have deteriorated, sometimes suddenly, for various reasons. Another reason maybe "creative" accounting. In these situations, sell the related stocks quickly. Do not hesistate. Speed in selling is important in reducing severe damage to your portfolio, by limiting the losses.
The next is termed offensive strategy. Of 5 stocks one invest into, expect 1 to perform exceptionally well, 3 to be fairly well and 1 to do "not so well or badly". You have time to apply this strategy leisurely. There is no urgency as like the situation previously described.
Review and rebalance your portfolio at regular intervals. Perhaps, once per month or even less frequent than this. You may wish to sell or trim the stocks where the prices are too high, reducing the upside potential and increasing the downside risk. You may also wish to sell or trim those stocks where the potential for upside gain is assessed to be low. (Remember you aim for 15% return on an annual basis.) The cash derived from their disposals should be re-deployed into those stocks which have a higher potential for gain.
Sounds simple, but trust me, active investing and active management of portfolio are both challenging and take effort. However, the returns can be good for those employing a disciplined investing philosophy and strategy.
Risk comes from misjudgement of a company's prospects, not price volatility
Academics define risk as price volatility, and to counter that risk, they recommend holding a diversified portfolio.
But to value investors, like Warren Buffett, risk is the intrinsic value risk of a business, not the price behaviour of its stock. And intrinsic value risk, he says, comes from misjudgement of a company's prospects. He has extreme confidence in his ability to pick fundamentally strong companies which are trading at prices below their intrinsic value, and thus favours placing big bets on these companies.
You should have the courage and conviction to put at least 10 percent of your net worth into each investment you make, he says. "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," he explains.
Ptui
MCA: Dr M’s remarks not helping racial unity
PETALING JAYA: Tun Dr Mahathir Moha-mad’s claim that the Chinese are the masters in the country will not help foster racial harmony, said the MCA.
Thursday July 23, 2009
http://thestar.com.my/news/story.asp?file=/2009/7/23/nation/4375350&sec=nation
PETALING JAYA: Tun Dr Mahathir Moha-mad’s claim that the Chinese are the masters in the country will not help foster racial harmony, said the MCA.
Thursday July 23, 2009
http://thestar.com.my/news/story.asp?file=/2009/7/23/nation/4375350&sec=nation
Wednesday 22 July 2009
iCap Portfolios of 2008 and 2009
http://spreadsheets.google.com/pub?key=tC9bD59Bg2AKPA3Bgfyo8qA&output=html
There are 17 stocks in iCap Portfolio for the financial year ended 31 May 2009. This is the same number of stocks as for the previous financial year ended 31 May 2008.
iCap sold:
- AirAsia,
- Axiata and
- VADS.
2 new stocks were included in the present portfolio at the cost of $ 42.95 million, namely,
- Astro (31% gain), and,
- KLKepong (30.16% gain).
During the last financial year, iCap added more shares at the cost of $ 6.1 million, in 4 pre-existing stocks:
- Boustead (average cost of newly bought shares 3.64, giving 8.17% gain)
- Parkson (average cost of newly bought shares 4.84, giving 13.62% gain)
- PohKong (average cost of newly bought shares 0.36, giving 6.73% gain)
- HaiO (HaiO shares are probably from share dividends).
iCap NAV fell from $1.95 per share on 31 May 2008 to RM 1.77 per share by 31 May 2009 or a loss of 9%. The KLCI declined 18% in the same period.
Tuesday 21 July 2009
How best to allocate your funds?
To a certain extent, that depends on your risk appetite, which in turn hinges on your individual circumstances.
A risk-averse investor may hold more cash, and a risk-tolerant investor vice-versa.
Allocation will also depend on market conditions.
Equity risk premium can be a good guiding principle for asset allocation decisions, i.e., when to hold cash and when to hold stocks if you are looking at just 2 asset classes.
Even if you have high tolerance for risks, it would be foolish to allocate 80% of your portfolio to equities during a stockmarket bubble.
And even, if the market was "normal" when you allocated your assets, prices will move, leaving you holding more of one asset class than you desire. In which case, you might want to rebalance your portfolio.
Stocks, bonds or cash? How much you hold of each asset class - or asset allocation - is the most important decision in an investment process. Studies have shown that about 95% of variations in returns on portfolios are explained by asset allocation decisions. Only about 5% are due to other causes, such as security selection.
Ref: Show Me the Money by Teh Hooi Ling
A risk-averse investor may hold more cash, and a risk-tolerant investor vice-versa.
Allocation will also depend on market conditions.
Equity risk premium can be a good guiding principle for asset allocation decisions, i.e., when to hold cash and when to hold stocks if you are looking at just 2 asset classes.
Even if you have high tolerance for risks, it would be foolish to allocate 80% of your portfolio to equities during a stockmarket bubble.
And even, if the market was "normal" when you allocated your assets, prices will move, leaving you holding more of one asset class than you desire. In which case, you might want to rebalance your portfolio.
Stocks, bonds or cash? How much you hold of each asset class - or asset allocation - is the most important decision in an investment process. Studies have shown that about 95% of variations in returns on portfolios are explained by asset allocation decisions. Only about 5% are due to other causes, such as security selection.
Ref: Show Me the Money by Teh Hooi Ling
When is the market over-valued?
The stock market moves in a cycle - from extreme optimism to extreme pessimism. How can you tell when stocks are under or over-valued vis-a-vis bonds or cash? Taking advantage of perceived over or under-valuation of securities in different asset classes can yield spectacular results.
Equity risk premium:
> 3.5%, market is undervalued
< 0.6%, market is overvalued.
0.6% to 3.5%, market is fairly valued.
Equity risk premium is the compensation investors require for holding stocks.
When the economic outlook is bad, or in the aftermath of a catastrophe, the equity risk premium will be high because fear grips investors and they can only be enticed to hold "risky" stocks if the promised returns are good.
Conversely, in good times everyone become over-confident of the continued good performance of stocks and will demand very little compensation to hold them.
Equity risk premium
= earnings yield (1/market PE) - the risk free rate.
Market PE ratios were obtained from Thomson Financial Datastream.
One-year deposit rates were taken as risk-free rates.
Ref: Show Me the Money by Teh Hooi Ling
Equity risk premium:
> 3.5%, market is undervalued
< 0.6%, market is overvalued.
0.6% to 3.5%, market is fairly valued.
Equity risk premium is the compensation investors require for holding stocks.
When the economic outlook is bad, or in the aftermath of a catastrophe, the equity risk premium will be high because fear grips investors and they can only be enticed to hold "risky" stocks if the promised returns are good.
Conversely, in good times everyone become over-confident of the continued good performance of stocks and will demand very little compensation to hold them.
Equity risk premium
= earnings yield (1/market PE) - the risk free rate.
Market PE ratios were obtained from Thomson Financial Datastream.
One-year deposit rates were taken as risk-free rates.
Ref: Show Me the Money by Teh Hooi Ling
My investment horizon is 10 or 20 years
Those with investment horizons of 10 or 20 years should be ever ready to embrace out-of-favour asset classes.
Time and again, the market has handsomely rewarded those willing to bear equity risk in uncertain times. Extreme pessimism - which leads to swings from the equilibrium - compresses a proverbial spring that will eventually bounce back into equilibrium. The more share price falls, the more return it promises a prospective buyer.
Stocks - short of the company going bankrupt - will very often produce their promised returns eventually; it is the timing that will elude us. So for those with time on their side, they have nothing to lose. In short, having an explicit investment plan supports discipline and helps ensure that an investor is not swayed by panic or overconfidence.
If one is investing for financial independence 20 or 30 years down the road, opportunities that came with Sept 11's after-shocks, the Asian financial crisis, or the recent Lehman crash, are not to be missed.
Ref: Show Me the Money by Teh Hooi Ling
Time and again, the market has handsomely rewarded those willing to bear equity risk in uncertain times. Extreme pessimism - which leads to swings from the equilibrium - compresses a proverbial spring that will eventually bounce back into equilibrium. The more share price falls, the more return it promises a prospective buyer.
Stocks - short of the company going bankrupt - will very often produce their promised returns eventually; it is the timing that will elude us. So for those with time on their side, they have nothing to lose. In short, having an explicit investment plan supports discipline and helps ensure that an investor is not swayed by panic or overconfidence.
If one is investing for financial independence 20 or 30 years down the road, opportunities that came with Sept 11's after-shocks, the Asian financial crisis, or the recent Lehman crash, are not to be missed.
Ref: Show Me the Money by Teh Hooi Ling
Bursa Malaysia Aims for 40 Listings a Year, CEO Yusli Says
Bursa Malaysia Aims for 40 Listings a Year, CEO Yusli Says
By Chan Tien Hin
July 21 (Bloomberg) -- Bursa Malaysia Bhd., operator of the nation’s exchange, said it aims to attract as many as 40 new listings a year as the easing of investment rules in the country helps draw foreign investors.
Bursa attracted 23 listings last year and 26 in 2007, down from 40 three years ago, according to its Web site. Only one sold shares for the first time in the first half, it added.
“Over the next six months, if we get the same number as last year, that will be good,” Yusli Yusoff, Bursa’s chief executive officer, said in an interview in Kuala Lumpur. “I don’t see why we can’t continue the momentum, I’ve always said that in any year, we should be looking at 30 to 40 companies.”
Malaysian Prime Minister Najib Razak last month eased investment rules governing initial public offerings and takeovers, scrapping the need for overseas companies and publicly traded Malaysian businesses to set aside 30 percent of their equity to local ethnic Malay investors.
Najib, who took office in April, is overhauling the Southeast Asian nation’s financial markets to attract investors and revive an economy that’s facing its first contraction in a decade. The benchmark FTSE Bursa Malaysia KLCI has risen 30 percent this year, lagging behind regional markets.
The measure’s gap with Southeast Asian indexes may widen. Macquarie Group Ltd. said in a report today that investors should “take profit” in Malaysian stocks as “liquidity and earnings upgrades are showing signs of fatigue.”
‘Big Ones’
Bursa said more than 20 companies are already in the “pipeline” for initial share sales, including a handful of businesses from China, with more expected following the easing of investment rules.
“We expect companies who previously may not have wanted to come to the market because of this condition to now come forward,” Yusli said today. “I want some big ones this year.”
The bourse said discussions with Southeast Asia’s stock exchanges to develop an electronic trading link connecting five markets in the next two to three years are at a “fairly advanced stage.”
Southeast Asia’s stock exchanges signed a preliminary agreement on Feb. 23 to develop a trading link to boost competitiveness and lure more overseas funds into the region.
To contact the reporter on this story: Chan Tien Hin in Kuala Lumpur at thchan@bloomberg.net
Last Updated: July 20, 2009 23:12 EDT
By Chan Tien Hin
July 21 (Bloomberg) -- Bursa Malaysia Bhd., operator of the nation’s exchange, said it aims to attract as many as 40 new listings a year as the easing of investment rules in the country helps draw foreign investors.
Bursa attracted 23 listings last year and 26 in 2007, down from 40 three years ago, according to its Web site. Only one sold shares for the first time in the first half, it added.
“Over the next six months, if we get the same number as last year, that will be good,” Yusli Yusoff, Bursa’s chief executive officer, said in an interview in Kuala Lumpur. “I don’t see why we can’t continue the momentum, I’ve always said that in any year, we should be looking at 30 to 40 companies.”
Malaysian Prime Minister Najib Razak last month eased investment rules governing initial public offerings and takeovers, scrapping the need for overseas companies and publicly traded Malaysian businesses to set aside 30 percent of their equity to local ethnic Malay investors.
Najib, who took office in April, is overhauling the Southeast Asian nation’s financial markets to attract investors and revive an economy that’s facing its first contraction in a decade. The benchmark FTSE Bursa Malaysia KLCI has risen 30 percent this year, lagging behind regional markets.
The measure’s gap with Southeast Asian indexes may widen. Macquarie Group Ltd. said in a report today that investors should “take profit” in Malaysian stocks as “liquidity and earnings upgrades are showing signs of fatigue.”
‘Big Ones’
Bursa said more than 20 companies are already in the “pipeline” for initial share sales, including a handful of businesses from China, with more expected following the easing of investment rules.
“We expect companies who previously may not have wanted to come to the market because of this condition to now come forward,” Yusli said today. “I want some big ones this year.”
The bourse said discussions with Southeast Asia’s stock exchanges to develop an electronic trading link connecting five markets in the next two to three years are at a “fairly advanced stage.”
Southeast Asia’s stock exchanges signed a preliminary agreement on Feb. 23 to develop a trading link to boost competitiveness and lure more overseas funds into the region.
To contact the reporter on this story: Chan Tien Hin in Kuala Lumpur at thchan@bloomberg.net
Last Updated: July 20, 2009 23:12 EDT
Warren Buffett's Priceless Investment Advice
Warren Buffett's Priceless Investment Advice
By John Reeves
July 19, 2009
"It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."
If you can grasp this simple advice from Warren Buffett, you should do well as an investor. Sure, there are other investment strategies out there, but Buffett's approach is both easy to follow and demonstrably successful over more than 50 years. Why try anything else?
Two words for the efficient market hypothesis: Warren Buffett
An interesting academic study (PDF file) illustrates Buffett's amazing investment genius. From 1980 to 2003, the stock portfolio of Berkshire Hathaway (NYSE: BRK-B) beat the S&P 500 index in 20 out of 24 years. During that same period, Berkshire's average annual return from its stock portfolio outperformed the index by 12 percentage points. The efficient market theory predicts that this is impossible, but the theory is clearly wrong in this case.
Buffett has delivered these outstanding returns by buying undervalued shares in great companies such as Gillette, now owned by Procter & Gamble. Over the years, Berkshire has owned household names such as UPS (NYSE: UPS), Iron Mountain (NYSE: IRM), and Wal-Mart (NYSE: WMT).
Although not every pick worked out, for the most part Buffett and Berkshire have made a mint. Indeed, Buffett's investment in Gillette increased threefold during the 1990s. Who'd have guessed you could get such stratospheric returns from razors?
The devil is in the details
So buying great companies at reasonable prices can deliver solid returns for long-term investors. The challenge, of course, is identifying great companies and determining what constitutes a reasonable price.
Buffett recommends that investors look for companies that deliver outstanding returns on capital and produce substantial cash profits. He also suggests that you look for companies with a huge economic moat to protect them from competitors. You can identify companies with moats by looking for strong brands that stand alongside consistent or improving profit margins and returns on capital.
How do you determine the right buy price for shares in such companies? Buffett advises that you wait patiently for opportunities to purchase stocks at a significant discount to their intrinsic values -- as calculated by taking the present value of all future cash flows. Ultimately, he believes that "value will in time always be reflected in market price." When the market finally recognizes the true worth of your undervalued shares, you begin to earn solid returns.
Do-it-yourself outperformance
Before they can capture Buffett-like returns, beginning investors will need to develop their skills in identifying profitable companies and determining intrinsic values. In the meantime, consider looking for stock ideas among Berkshire's own holdings.
In the Form 13-F that Berkshire filed recently, we learned that Buffett has boosted his stake in financials, adding to existing positions Wells Fargo (NYSE: WFC) and U.S. Bank (NYSE: USB).
It's pretty clear that Buffett thinks these conservatively run banks represent compelling investment opportunities at the moment. In fact, Buffett claimed in May that if he had to put all of his net worth into a single stock, it would be Wells Fargo.
Despite Buffett's confidence, it's clear that many individual investors are still afraid of financial stocks. If you fall into that camp, another place to find great value-stock ideas is Motley Fool Inside Value. Philip Durell, the advisor for the service, follows an investment strategy very similar to Buffett's.
He looks for undervalued companies that also have strong financials and competitive positions. This approach has allowed Philip to outperform the market since Inside Value's inception in 2004. To see his most recent stock picks, as well as the entire archive of past selections, sign up for a free 30-day trial today.
If investing in wonderful companies at fair prices is good enough for Warren Buffett -- arguably the finest investor on the planet -- it should be good enough for the rest of us.
Already subscribe to Inside Value? Log in at the top of this page.
This article was originally published on April 7, 2007. It has been updated.
John Reeves can't remember the last time he used a razor made by someone other than Gillette, and he wishes he'd owned shares in that company before P&G acquired it. John does not own shares of any companies mentioned. The Motley Fool owns shares of Berkshire Hathaway and Procter & Gamble. Berkshire and Wal-Mart are Inside Value recommendations. Berkshire is also a Stock Advisor selection. UPS and P&G are Income Investor picks. The Fool has a disclosure policy.
By John Reeves
July 19, 2009
"It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."
If you can grasp this simple advice from Warren Buffett, you should do well as an investor. Sure, there are other investment strategies out there, but Buffett's approach is both easy to follow and demonstrably successful over more than 50 years. Why try anything else?
Two words for the efficient market hypothesis: Warren Buffett
An interesting academic study (PDF file) illustrates Buffett's amazing investment genius. From 1980 to 2003, the stock portfolio of Berkshire Hathaway (NYSE: BRK-B) beat the S&P 500 index in 20 out of 24 years. During that same period, Berkshire's average annual return from its stock portfolio outperformed the index by 12 percentage points. The efficient market theory predicts that this is impossible, but the theory is clearly wrong in this case.
Buffett has delivered these outstanding returns by buying undervalued shares in great companies such as Gillette, now owned by Procter & Gamble. Over the years, Berkshire has owned household names such as UPS (NYSE: UPS), Iron Mountain (NYSE: IRM), and Wal-Mart (NYSE: WMT).
Although not every pick worked out, for the most part Buffett and Berkshire have made a mint. Indeed, Buffett's investment in Gillette increased threefold during the 1990s. Who'd have guessed you could get such stratospheric returns from razors?
The devil is in the details
So buying great companies at reasonable prices can deliver solid returns for long-term investors. The challenge, of course, is identifying great companies and determining what constitutes a reasonable price.
Buffett recommends that investors look for companies that deliver outstanding returns on capital and produce substantial cash profits. He also suggests that you look for companies with a huge economic moat to protect them from competitors. You can identify companies with moats by looking for strong brands that stand alongside consistent or improving profit margins and returns on capital.
How do you determine the right buy price for shares in such companies? Buffett advises that you wait patiently for opportunities to purchase stocks at a significant discount to their intrinsic values -- as calculated by taking the present value of all future cash flows. Ultimately, he believes that "value will in time always be reflected in market price." When the market finally recognizes the true worth of your undervalued shares, you begin to earn solid returns.
Do-it-yourself outperformance
Before they can capture Buffett-like returns, beginning investors will need to develop their skills in identifying profitable companies and determining intrinsic values. In the meantime, consider looking for stock ideas among Berkshire's own holdings.
In the Form 13-F that Berkshire filed recently, we learned that Buffett has boosted his stake in financials, adding to existing positions Wells Fargo (NYSE: WFC) and U.S. Bank (NYSE: USB).
It's pretty clear that Buffett thinks these conservatively run banks represent compelling investment opportunities at the moment. In fact, Buffett claimed in May that if he had to put all of his net worth into a single stock, it would be Wells Fargo.
Despite Buffett's confidence, it's clear that many individual investors are still afraid of financial stocks. If you fall into that camp, another place to find great value-stock ideas is Motley Fool Inside Value. Philip Durell, the advisor for the service, follows an investment strategy very similar to Buffett's.
He looks for undervalued companies that also have strong financials and competitive positions. This approach has allowed Philip to outperform the market since Inside Value's inception in 2004. To see his most recent stock picks, as well as the entire archive of past selections, sign up for a free 30-day trial today.
If investing in wonderful companies at fair prices is good enough for Warren Buffett -- arguably the finest investor on the planet -- it should be good enough for the rest of us.
Already subscribe to Inside Value? Log in at the top of this page.
This article was originally published on April 7, 2007. It has been updated.
John Reeves can't remember the last time he used a razor made by someone other than Gillette, and he wishes he'd owned shares in that company before P&G acquired it. John does not own shares of any companies mentioned. The Motley Fool owns shares of Berkshire Hathaway and Procter & Gamble. Berkshire and Wal-Mart are Inside Value recommendations. Berkshire is also a Stock Advisor selection. UPS and P&G are Income Investor picks. The Fool has a disclosure policy.
Marc Faber: The next bubble being inflated right now
Faber: Next Stimulus Will Be Worse
Wednesday, July 15, 2009 3:46 PM
By: Julie Crawshaw Article Font Size
Some economists think that another bubble is what’s needed to get the economy moving again.
Gloom, Boom and Doom publisher Marc Faber said this is ridiculous, and that the Federal Reserve — which he holds responsible for creating the housing bubble — wants to do it all over again.
The central bank should not encourage excessive credit growth, Faber tells Moneynews.com's Dan Mangru in an exclusive interview.
Between 2000 and 2007 the total U.S. credit market debt increased at five times the rate of nominal gross domestic product.
Unfortunately, Faber said, the next bubble is already here. This time it’s government spending and fiscal deficits that Faber thinks will double the government’s debt during the next six years or less.
“The U.S. government is largely deranged,” he said. “The private sector is the dynamic one, and that’s why I object tremendously against building up fiscal deficits because (they) shift economic activity into unproductive government instead of leaving it in the private sector.”
Another stimulus package would only make matters worse.
“In the Depression, they had one stimulus after another and it didn’t help,” Faber said. “What helped was World War II.”
The problem with bubbles, Faber said, is that they only temporarily stimulate the economy.
“The whole economic expansion driven by a bubble in America has been a total disaster and has shifted wealth from the ordinary people who work … to the Wall Street elite,” he said.
Nor does the government score any higher when it comes to managing inflation, which Faber thinks will reach Zimbabwe-like levels in the U.S. courtesy of the Fed’s policy of keeping interest rates too low.
“The Fed, in my opinion, has zilch idea about monetary policy,” Faber said.
“What they focus upon is basically core inflation, which does not include energy and food prices and the way the Fed measures inflation is highly questionable in the first place because when you measure inflation it’s a basket of goods and services.”
When the economy recovers, interest rates should go up because of inflationary pressures, something Faber expects the Fed won’t let happen because it could cause interest payments on the government’s debt to double. Those payments today are slightly below $500 billion annually.
If the global economy collapses in a deflationary spiral, those government deficits actually expand, leading to more central bank-driven monetization, Faber said. And keeping interest rates artificially low will lead to more and more inflation.
Add to all of this the expectation that health care costs will soar and jobless rates will probably continue to be high, and the economic picture becomes even gloomier.
“I think we’ve just gone … to the beginning of the realization that the economy may be bottoming out but not much recovery is forthcoming,” Faber said.
© 2009 Newsmax. All rights reserved.
http://www.thedailycrux.com/content/2349/Economy/eml
http://moneynews.newsmax.com/streettalk/federal_reserve/2009/07/15/235992.html
Wednesday, July 15, 2009 3:46 PM
By: Julie Crawshaw Article Font Size
Some economists think that another bubble is what’s needed to get the economy moving again.
Gloom, Boom and Doom publisher Marc Faber said this is ridiculous, and that the Federal Reserve — which he holds responsible for creating the housing bubble — wants to do it all over again.
The central bank should not encourage excessive credit growth, Faber tells Moneynews.com's Dan Mangru in an exclusive interview.
Between 2000 and 2007 the total U.S. credit market debt increased at five times the rate of nominal gross domestic product.
Unfortunately, Faber said, the next bubble is already here. This time it’s government spending and fiscal deficits that Faber thinks will double the government’s debt during the next six years or less.
“The U.S. government is largely deranged,” he said. “The private sector is the dynamic one, and that’s why I object tremendously against building up fiscal deficits because (they) shift economic activity into unproductive government instead of leaving it in the private sector.”
Another stimulus package would only make matters worse.
“In the Depression, they had one stimulus after another and it didn’t help,” Faber said. “What helped was World War II.”
The problem with bubbles, Faber said, is that they only temporarily stimulate the economy.
“The whole economic expansion driven by a bubble in America has been a total disaster and has shifted wealth from the ordinary people who work … to the Wall Street elite,” he said.
Nor does the government score any higher when it comes to managing inflation, which Faber thinks will reach Zimbabwe-like levels in the U.S. courtesy of the Fed’s policy of keeping interest rates too low.
“The Fed, in my opinion, has zilch idea about monetary policy,” Faber said.
“What they focus upon is basically core inflation, which does not include energy and food prices and the way the Fed measures inflation is highly questionable in the first place because when you measure inflation it’s a basket of goods and services.”
When the economy recovers, interest rates should go up because of inflationary pressures, something Faber expects the Fed won’t let happen because it could cause interest payments on the government’s debt to double. Those payments today are slightly below $500 billion annually.
If the global economy collapses in a deflationary spiral, those government deficits actually expand, leading to more central bank-driven monetization, Faber said. And keeping interest rates artificially low will lead to more and more inflation.
Add to all of this the expectation that health care costs will soar and jobless rates will probably continue to be high, and the economic picture becomes even gloomier.
“I think we’ve just gone … to the beginning of the realization that the economy may be bottoming out but not much recovery is forthcoming,” Faber said.
© 2009 Newsmax. All rights reserved.
http://www.thedailycrux.com/content/2349/Economy/eml
http://moneynews.newsmax.com/streettalk/federal_reserve/2009/07/15/235992.html
Monday 20 July 2009
The biggest assumption and risk for investors: Earning Forecast
The biggest assumption in any valuation model is the earning forecast.
We have assumed that the earning forecasts by various analysts are good and accurate. This is the biggest risk investors have to face.
In general, investors can use consensus earning forecasts for computing the valuation, however, through experience, investors can identify good analysts from not so good ones, and hence, can be selective in using the earning forecast data.
Bear in mind that a way-off-earning forecast (especially over-bullish) could have disastrous effects on the stock price once the actual result is announced.
A good practice is to compare the forecast EPS growth rate with the averge EPS growth rate in the past three years and see whether the forecast EPS growth rate is in line with the historical numbers.
In short, what investors are looking for is an accurate EPS growth forecast.
We have assumed that the earning forecasts by various analysts are good and accurate. This is the biggest risk investors have to face.
In general, investors can use consensus earning forecasts for computing the valuation, however, through experience, investors can identify good analysts from not so good ones, and hence, can be selective in using the earning forecast data.
Bear in mind that a way-off-earning forecast (especially over-bullish) could have disastrous effects on the stock price once the actual result is announced.
A good practice is to compare the forecast EPS growth rate with the averge EPS growth rate in the past three years and see whether the forecast EPS growth rate is in line with the historical numbers.
In short, what investors are looking for is an accurate EPS growth forecast.
Analysts' earnings forecasts
Investors should be aware that in an up cycle, analysts would do two things:
1. to upgrade the earning forecast almost on a regular basis, and,
2. to accord the stock on a higher valuation (i.e. stock is now valued at a higher PE ratio).
This, we call, earning expansion and PE ratio expansion.
Normally, the analysts would do this a couple of times during a complete up cycle.
In a down cycle, the reverse happens. That is, earning and PE ratio (valuation) contract.
For those who have been investing over the last 4 years, they would have observed these in the analysts reports during the bull and the bear phases of the market.
What lessons should we learn from this?
We should not be sucked into this as we know that a very high EPS forecast is not sustainable (as compared to its historical records), and hence disappointment or downgrade would ahve to occur and we need to get out of this before it happens.
Thus, it is very important to know the big picture to gain an inkling of which stage of the economic cycle we are in now and how it is going to move looking forward.
Hence, when we look at EPS growth, we should ask ourselves whether it is sustainable in the next few years.
1. to upgrade the earning forecast almost on a regular basis, and,
2. to accord the stock on a higher valuation (i.e. stock is now valued at a higher PE ratio).
This, we call, earning expansion and PE ratio expansion.
Normally, the analysts would do this a couple of times during a complete up cycle.
In a down cycle, the reverse happens. That is, earning and PE ratio (valuation) contract.
For those who have been investing over the last 4 years, they would have observed these in the analysts reports during the bull and the bear phases of the market.
What lessons should we learn from this?
We should not be sucked into this as we know that a very high EPS forecast is not sustainable (as compared to its historical records), and hence disappointment or downgrade would ahve to occur and we need to get out of this before it happens.
Thus, it is very important to know the big picture to gain an inkling of which stage of the economic cycle we are in now and how it is going to move looking forward.
Hence, when we look at EPS growth, we should ask ourselves whether it is sustainable in the next few years.
PE ratio, PEG and EPS Growth rates
A high PE ratio by itself means that either
For high growth stocks, we also look at the PEG ratio (PE ratio/ EPS Growth rate). For high growth stocks, their PE ratio if viewed on absolute basis is usually very high. How do we then decide if it is still "cheap" enough for us to hold or even buy? We use the PEG ratio to see whether its growth is at a faster rate as compared to its appreciation in value (i.e. high PE ratio). If PEG is low despite a high PE ratio, this would indicate the growth in earning (higher EPS growth) is much faster than the increase in its valuation (higher PER), and hence could justify our holding or even buying the stock.
- the valuation is very expensive (where the stock price is high as compared to its EPS) or
- it has such great potential for growth that investors are willing to accord it with a high PE ratio.
In general, the lower the PE ratio, the better it is.
For high growth stocks, we also look at the PEG ratio (PE ratio/ EPS Growth rate). For high growth stocks, their PE ratio if viewed on absolute basis is usually very high. How do we then decide if it is still "cheap" enough for us to hold or even buy? We use the PEG ratio to see whether its growth is at a faster rate as compared to its appreciation in value (i.e. high PE ratio). If PEG is low despite a high PE ratio, this would indicate the growth in earning (higher EPS growth) is much faster than the increase in its valuation (higher PER), and hence could justify our holding or even buying the stock.
Public Bank records RM1.54b pre-tax profit in H1
Monday July 20 2009.
KUALA LUMPUR, July 20 — Public Bank Bhd posted a pre-tax profit of RM1.564 billion in the first half of the year year ended June 30, 2009 compared with RM1.76 billion in the same period last year.
Revenue declined to RM4.78 billion from RM5.15 billion previously.
In a statement today, the bank said net interest and financing income grew by nine per cent to RM180 million, driven by its expanding loan and deposits businesses and sustained strong assets.
It said total assets crossed the RM200 billion mark for the first time, standing at RM204.0 billion as at end-June 2009.
Total loans and advances grew by RM8.7 billion, or 7.2 per cent, in the first six months of 2009, to RM129.4 billion, significantly above the banking industry’s 1.2 per cent for the first five months of 2009, it said.
Public Bank said core customer deposits grew by 11.5 per cent in the first six months of 2009 to RM125.3 billion compared with the industry’s 2.9 per cent during the first five months of 2009.
As at the end-May 2009, Public Bank’s domestic market share of total loans and core customer deposits rose to 15.5 per cent and 15.2 per cent respectively compared with 14.8 per cent and 14.7 per cent respectively as at Dec 31, 2008, it said.
It said the group's net non-performing loan ratio was below one per cent as at end-June 2009, significantly lower than the industry’s 2.2 per cent in May 2009.
The group’s loan loss coverage of 173 per cent was about twice the banking industry’s ratio of 87 per cent, and continued to be the highest and most prudent in the Malaysian banking industry, it said.
On outlook, it said, despite the slowing economy, the banking industry in Malaysia remained resilient, supported by its strong capitalisation, stable asset quality and improved risk management practices.
Hence, it said, the group would continue to pursue its strategy of strong organic business growth, as well as maintain a high quality loan portfolio and improved productivity.
"Barring unforeseen circumstances, the group is expected to continue to record satisfactory performance for the rest of 2009," it said. — Bernama
KUALA LUMPUR, July 20 — Public Bank Bhd posted a pre-tax profit of RM1.564 billion in the first half of the year year ended June 30, 2009 compared with RM1.76 billion in the same period last year.
Revenue declined to RM4.78 billion from RM5.15 billion previously.
In a statement today, the bank said net interest and financing income grew by nine per cent to RM180 million, driven by its expanding loan and deposits businesses and sustained strong assets.
It said total assets crossed the RM200 billion mark for the first time, standing at RM204.0 billion as at end-June 2009.
Total loans and advances grew by RM8.7 billion, or 7.2 per cent, in the first six months of 2009, to RM129.4 billion, significantly above the banking industry’s 1.2 per cent for the first five months of 2009, it said.
Public Bank said core customer deposits grew by 11.5 per cent in the first six months of 2009 to RM125.3 billion compared with the industry’s 2.9 per cent during the first five months of 2009.
As at the end-May 2009, Public Bank’s domestic market share of total loans and core customer deposits rose to 15.5 per cent and 15.2 per cent respectively compared with 14.8 per cent and 14.7 per cent respectively as at Dec 31, 2008, it said.
It said the group's net non-performing loan ratio was below one per cent as at end-June 2009, significantly lower than the industry’s 2.2 per cent in May 2009.
The group’s loan loss coverage of 173 per cent was about twice the banking industry’s ratio of 87 per cent, and continued to be the highest and most prudent in the Malaysian banking industry, it said.
On outlook, it said, despite the slowing economy, the banking industry in Malaysia remained resilient, supported by its strong capitalisation, stable asset quality and improved risk management practices.
Hence, it said, the group would continue to pursue its strategy of strong organic business growth, as well as maintain a high quality loan portfolio and improved productivity.
"Barring unforeseen circumstances, the group is expected to continue to record satisfactory performance for the rest of 2009," it said. — Bernama
Wake up Malaysians. “What has this country come to?”
What has this country come to?
There had been so many unexplained and unresolved incidences. Altantunya, Kugan, and now Teoh. There are also many issues, like Lingam tapes, alleged corruptions in high places, abuses of public offices and others.
When some lawyers mentioned in 1998 that if such an "event" can happen to Anwar, then the deputy PM, it may happen to anyone. They were not mincing their words.
Politics in this country is very partisan. Even the recent tragedy of Teoh, which should have provoked a bipartisan response, was debated by some "significant" politicians in a partisan manner. Surprisingly, too many remain silent on this important issue. This is truly saddening.
Where is the sense of right and wrong in these politicians and certain national papers.
Wake up Malaysians.
There had been so many unexplained and unresolved incidences. Altantunya, Kugan, and now Teoh. There are also many issues, like Lingam tapes, alleged corruptions in high places, abuses of public offices and others.
When some lawyers mentioned in 1998 that if such an "event" can happen to Anwar, then the deputy PM, it may happen to anyone. They were not mincing their words.
Politics in this country is very partisan. Even the recent tragedy of Teoh, which should have provoked a bipartisan response, was debated by some "significant" politicians in a partisan manner. Surprisingly, too many remain silent on this important issue. This is truly saddening.
Where is the sense of right and wrong in these politicians and certain national papers.
Wake up Malaysians.
Sunday 19 July 2009
Market risk or systemic risk
This risk cannot be eliminated by diversifying one's portfolio.
Definitions of Market risk on the Web:
Market risk is the risk that the value of an investment will decrease due to moves in market factors. The four standard market risk factors are: * Equity risk, the risk that stock prices will change. * Interest rate risk, the risk that interest rates will change. ...en.wikipedia.org/wiki/Market_risk
The possibility that the value of an investment will fall because of a general decline in the financial markets.www.waddell.com/jsp/index.jsp
The chance that a security's value will decline. With fixed income securities, market risk is closely tied to interest rate risk--as interest rates rise, prices decline and vice versa.www.netxclientdemo.com/invest_glosry_MMa.htm
Exposure to changes in market prices.www.info-forex.com/glossary.htm
Also called systematic risk. The portion of a security’s risk common to all securities in the same asset class, and that cannot be eliminated through diversification.www.manealfinancial.com/Glossary-MtoZ.htm
One of six risks defined by the Federal Reserve. The risk of an increase or decrease in the market value/price of a financial instrument. Market values for debt instruments are affected by actual and anticipated changes in prevailing interest rates. ...www.americanbanker.com/glossary.html
Exposure to a change in the value of some market variable, such as interest rates or foreign exchange rates, equity, or commodity prices.www.fhlb.com/Glossary.html
Market risk refers to the risk of financial loss as a result of adverse market movements. NZDMO specifically measures market risk with regard to movements in interest rates and foreign exchange rates.www.oag.govt.nz/2007/nzdmo/glossary.htm
The value of a security may decline due to general market conditions that are not specifically related to a particular company, such as real or perceived adverse economic conditions, changes in the outlook for corporate earnings, changes in interest or currency rates or adverse investor ...www.dreyfus.com/content/dr/control
Uncertainty in the value of real estate due to market, economic, political or other conditions.www.new-york-new-york-real-estate.com/m2.html
The risk of loss resulting from changes in the prices of financial instruments in the markets in which Chase participates, such as changes in the value of foreign exchange or fixed-income securities.https://www.chase.com/inside/financial/annual/glossary.html
Risk that cannot be diversified away. Related: systematic riskbiz.yahoo.com/glossary/bfglosm.html
Risk relating to the market in general and cannot be diversified away by hedging or holding a variety of securities.charmforex.com/index.php
Risk of loss due to unfavourable price changes on the financial markets.www.ingwholesalebanking.com/smartsite.shtml
risk that comes from customers not wanting to buy a product, the market being smaller than originally estimated, or a competitor launching a competing product. http://www.google.com/url?&q=http://www.epilepsy.com/innovation/entrepreneurs/glossary&ei=FexiSvKmMZWBkQWf1antDw&sa=X&oi=define&ct=&cd=1&usg=AFQjCNFChX-S8PEUc0fWkKKMwHxGc_shwA
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