Warren Buffett's Priceless Investment Advice

"It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."

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.

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.


The devil is in the details.

http://myinvestingnotes.blogspot.com/2009/07/warren-buffetts-priceless-investment.html

Is the market over-valued?

9.10.2009
KLCI index 1230.09
Market PE 23.53
EY = 1/PE = 4.25%
Risk free FD interest rate = 2.5%
Equity risk premium = 4.25 - 2.5 = 1.75%


Equity risk premium  = earnings yield (1/market PE) - the risk free rate.

 > 3.5%, market is undervalued
<  0.6%, market is overvalued
0.6% to 3.5%, market is fairly valued.

So, presently, the market is neither undervalued nor overvalued, but trading at fair value.


http://myinvestingnotes.blogspot.com/2009/07/when-is-market-over-valued.html

"SALE! 50% OFF!"

Stocks are crashing, so you turn on the television to catch the latest market news.

"Falling stock prices would be fabulous news for any investor with a very long horizon."

"You Ain't Seen Nothin' Yet."

It is to be expected that the price of a stock can goes down by a third and can goes up by a half, even in normal market situations.


In fact, when the market is being sold down, the long term value investor gets excited and enthused.

The risk is not in the price volatility.

•The risk is in oneself, reacting "stupidly" to price fluctuations.

•The other risk of course is making a wrong assessment of the future earnings and future earnings growth of the business of the company you bought.


http://myinvestingnotes.blogspot.com/2009/07/news-you-could-use.html

Investment Owner's Contract
http://myinvestingnotes.blogspot.com/2009/07/investment-owners.html

Market Price Fluctuations
http://myinvestingnotes.blogspot.com/2009/07/52w-hg-1.html

Glove companies

Valuation
Supermax, Topglove and Kossan

http://spreadsheets.google.com/pub?key=tIzNTWdhdVSJ803HE80Xn8Q&output=html

PBB 15.10.2009

Valuation:
http://spreadsheets.google.com/pub?key=tE7ISnWkuQCAPx-5JJTDp6g&output=html



Published: Thursday October 15, 2009 MYT 1:59:00 PM


Public Bank net profit higher by 3.7%

KUALA LUMPUR: Public Bank Bhd posted a 3.7% rise in net profit for its third quarter ended Sept 30, at RM639.04mil compared with RM616.34mil recorded a year ago on higher loans growth and deposits.

Revenue for the period was RM2.438 billion, compared with the RM2.79 billion a year ago. Earnings per share were 18.52 sen compared with 18.37 sen.

For the nine-months ended Sept 30, 2009, net profit declined to RM1.839 billion compared with RM1.927 billion. Revenue slipped to RM7.22 billion from RM7.94 billion.

Public Bank said excluding the one-off goodwill income from ING in 2008, the group’s underlying operating net profit for the nine-months increased by 3% from a year ago.

http://biz.thestar.com.my/news/story.asp?file=/2009/10/15/business/20091015135755&sec=business

Seven Forehead-Slapping Stock Blunders

Seven Forehead-Slapping Stock Blunders

by Glenn Curtis

Ignorance may be bliss, but not knowing why your stocks are failing and money is disappearing from your pockets is a long way from paradise. In this article, we'll uncover some of the more common investing faux pas, as well as provide you with suggestions on how to avoid them.

1. Ignoring Catalysts
The financial pundits, trade journals and business schools teach that proper valuation is the key to stock selection. This is only half of the picture because calculating P/E ratios and running cash flow spreadsheets can only show where a company is at a given point in time - it cannot tell us where it is heading.

Therefore, in addition to a quantitative evaluation of a company, you must also do a qualitative study so that you can determine which catalysts will drive earnings going forward.

Some good questions to ask yourself include:

•Is the company about to acquire a very profitable enterprise?
•Is a potential blockbuster product about to be launched?
•Are economies of scale being realized at the company's new plant and are margins about to rise dramatically?
•What will drive earnings and the stock price going forward?

2. Catching the Falling Knife
Investors love to buy companies on the cheap, but far too often, investors buy in before all of the bad news is out in the public domain, and/or before the stock stops its free fall. Remember, new lows in a company's share price often beget further new lows as investors see the shares dropping, become disheartened and then sell their shares. Waiting until the selling pressure has subsided is almost always your best bet to avoid getting cut on a falling knife stock. (To learn more, read How Investors Often Cause The Market's Problems.)

3. Failing to Consider Macroeconomic Variables
You have found a company you want to invest in. Its valuation is superior to that of its peers. It has several new products that are about to be launched, and sales could skyrocket. Even the insiders are buying the stock, which bolsters your confidence all the more.

But if you haven't considered the current macroeconomic conditions, such as unemployment and inflation, and how they might impact the sector you are invested in, you've made a fatal mistake!

Keep in mind that a retailer or electronics manufacturer is subject to a number of factors beyond its control that could adversely impact the share price. Things to consider are oil prices, labor costs, scarcity of raw materials, strikes, interest rate fluctuations and consumer spending. (For more on these factors, see Macroeconomic Analysis and Where Top Down Meets Bottom Up.)

4. Forgetting About Dilution
Be on the lookout for companies that are continuously issuing millions of shares and causing dilution, or those that have issued convertible debt. Convertible debt may be converted by the holder into common shares at a set price. Conversion will result in a lower value of holdings for existing shareholders

A better idea is to seek companies that are repurchasing stock and therefore reducing the number of shares outstanding. This process increases earnings per share (EPS) and it tells investors that the company feels that there is no better investment than their own company at the moment. (You can read more about buybacks in A Breakdown Of Stock Buybacks.)

5. Not Recognizing Seasonal Fluctuations
You can't fight the Fed. By that same token, you can't expect that your shares will appreciate even if the company's shares are widely traded in high volumes. The fact is that many companies (such as retailers) go through boom and bust cycles year in and year out. Luckily, these cycles are fairly predictable, so do yourself a favor and look at a five-year chart before buying shares in a company. Does the stock typically wane during a particular part of the year and then pick up during others? If so, consider timing your purchase or sale accordingly. (To learn more, see Capitalizing On Seasonal Effects.)

6. Missing Sector Trends
Some stocks do buck the larger trend; however, this behavior usually occurs because there is some huge catalyst that propels the stock either higher or lower. For the most part, companies trade in relative parity to their peers. This keeps their stock price movements within a trading band or range. Keep this in mind as you consider your entry/exit points in a stock.

Also, if you own stock in a semiconductor company (for example), understand that if other semiconductor companies are experiencing certain problems, your company will too. The same is true if the situation was reversed, and positive news hit the industry.

7. Avoiding Technical Trends
Many people shy away from technical analysis, but you don't have to be a chartist to be able to identify certain technical trends. A simple graph depicting 50-day and 200-day moving averages as well as daily closing prices can give investors a good picture of where a stock is headed. (To learn about this method, read the Basics Of Technical Analysis.)

Be wary of companies that trade and/or close below those averages. It usually means the shares will go lower. The same can be said to the upside. Also remember that as volume trails off, the stock price typically follows suit.

Lastly, look for general trends. Has the stock been under accumulation or distribution over the past year? In other words, is the price gradually moving up, or down? This is simple information that can be gleaned from a chart. It is truly surprising that most investors don't take advantage of these simple and accessible tools.

The Bottom line
There are a myriad of mistakes that investors can and do make. These are simply some of the more common ones. In any case, it pays to think about factors beyond what will propel the stock you own higher. A stock's past and expected performance in comparison to its peers, as well as its performance when subjected to economic conditions that may impact the company, are some other factors to consider.

To read about more investor follies, check out Seven Common Investor Mistakes, Learning From Others' Mistakes and Seven Common Financial Mistakes.

by Glenn Curtis, (Contact Author | Biography)

Glenn Curtis started his career as an equity analyst at Cantone Research, a New Jersey-based regional brokerage firm. He has since worked as an equity analyst and a financial writer at a number of print/web publications and brokerage firms including Registered Representative Magazine, Advanced Trading Magazine, Worldlyinvestor.com, RealMoney.com, TheStreet.com and Prudential Securities. Curtis has also held Series 6,7,24 and 63 securities licenses.

http://www.investopedia.com/articles/basics/08/blunders.asp

LPI 15.10.2009

Valuation:
http://spreadsheets.google.com/pub?key=tsEGbxGIFeKgOmg39MSjr9w&output=html

Hong Leong Bank 15.10.2009

Valuation:
http://spreadsheets.google.com/pub?key=tWGiC7HzTRd_Cpo4XYsejwg&output=html

Investing In A Weakening Dollar Environment

Investing In A Weakening Dollar Environment
Posted: October 13, 2009 12:17PM by Ryan Barnes

You've likely heard of this scenario mentioned in an ominous financial forecast: The U.S. dollar continues to lose value compared to other major world currencies, and any number of very bad things occur, spelling doom for our fragile economic recovery.

But even though a low dollar world has a few deleterious side effects, it also brings benefits, and the latter can be profited on by investors who think ahead about where to place their assets. Today we'll discuss what makes the USD rise and fall, and where to position your investments to take advantage of a low dollar world.

Background
The U.S. Dollar Index is an exchange-traded instrument that measures the value of the USD against a basket of 6 major world currencies, including the Euro, Yen, British Pound and Canadian Dollar.

In the past six months, the U.S. Dollar Index has fallen by roughly 13%. This is a continuation of a longer term trend that has seen USD Index fall by 46% since 2001.

What Causes a Falling Dollar?
There is no single bullet theory as to why the USD has fallen, but most professionals point to several ongoing events. First, the strength of the USD is largely determined by how willing global investors are to hold investments denominated in dollars versus other currencies. The USD is often noted as the "world's reserve currency," meaning that foreign governments around the world often choose to park a good chunk of their reserves in dollar assets like Treasury Bonds rather than holding them in their home currency.

But if investors become skittish about the strength of the U.S. economy and our ability to pay our future bills (via Treasury interest), they will begin to shift assets away from the dollar. The rising budget deficit of the U.S. is one of many caution flags that is beginning to be noticed by global investors.

Another reason why the dollar has weakened this decade is because interest rates have been historically very low. The 10-year Treasury Bond, a benchmark for global fixed income investors, has seen its lowest yields this decade since the 1960's. These low yields aren't much of an incentive for global investors to buy U.S. bonds.

The Federal Reserve has had good reason to keep interest rates low; it was crucial in freeing up money flows in the face of a global recession. But as the economy stabilizes, look for the Fed to slowly begin to ratcheting up interest rates. As this happens, the U.S. dollar should begin to strengthen.

What Investments to Hold in a Low-Dollar World?
Commodities and other "hard" assets tend to do very well in a low dollar environment. The reason is twofold; hard assets are a safe haven when fiat currencies weaken, and most global commodities are priced in dollars. So foreign investors (whose currency has risen in value vs. the USD), can buy more with the same amount of money. This increases overall demand, leading to rising prices for things like gold, silver and oil. (For further reading, check out How to Invest in Commodities.)

Companies that are based in the U.S. but conduct a lot of business overseas make great investments in a falling dollar world. The reasoning is simple; costs to pay workers and produce goods are paid in dollars (which are weak), but goods are sold in foreign currencies abroad. When those higher-valued foreign currencies are translated back to dollars for the purposes of accounting, the favorable exchange rate adds to profit margins.

Investors can easily find out how much business a U.S. firm does overseas by reading the most recent annual report. Look for firms with greater than 40% of sales abroad, and having the bulk of factories and offices located in the U.S.

USD Outlook
The future strength of the dollar will largely depend on how well the U.S. government can control its budget deficit. The better the U.S. looks as a debt payer, the better the dollar will do. Use this as a guide to determine when it might be time to begin investing in dollar strength versus dollar weakness. (To learn more, check out What Fuels the National Debt?)

And when it comes to the dollar, a little inflation can be a good thing. As our economy strengthens, some inflation should begin creeping back into the system. This will trigger the Fed to start raising interest rates, boosting the dollar along with Treasury yields. When this trend begins to occur, look to shift away from the investments outlined above.

Parting Thoughts
A low dollar world will have some bad side effects, like more expensive overseas travel and higher prices of imports like gas and electronics. But savvy investors can make up the pennies being squeezed elsewhere by profiting from the many companies and assets that are taking a low dollar environment all the way to the bank.

http://financialedge.investopedia.com/financial-edge/1009/Where-To-Invest-In-A-Weakening-Dollar-Environment.aspx

A Little Knowledge Is a Dangerous Thing

Financial Fraud: Don't Let It Happen To You
Posted: October 9, 2009 1:20PM
by Andrew Beattie




If viewed as an industry, fraud is pretty resilient. It does well when the economy is up and people have speculative cash combined with big, optimistic dreams. It also does well when the economy is low and people are trying desperately to recoup losses, regain retirement nest eggs and generally stay afloat. Fraud cuts investors deep at the best of times, but with the current economy pushing baby boomers to the edge of desperate measures to assure retirement, the damage is potentially on a larger scale. The key to avoiding the growing legion of scams out there is to temper your desperate hopes with a healthy dose of sober second thought and careful research.

A Little Knowledge Is a Dangerous Thing
It's unfair to see victims of fraud as thoughtless people caught up by modern snake oil salesman. Many people who get caught by investment frauds are financially capable. At the very least, they have the habits that have allowed them to accumulate the wealth that makes them a target for people selling genuine investments as well as fraudulent ones.

In many cases, the people caught in frauds are sophisticated investors – Bernie Madoff among others have beguiled professionals right along with regular folks – and the failure is not a lack of knowledge but a lapse in due diligence. Afterwards, almost everyone hurt in a fraud realizes they should have known better, but they get caught up in the same way as investors in a bubble. (Identity thieves are using home equity lines of credit to commit their crimes. Find out more in Protect Yourself From HELOC Fraud.)

Count to Three
Hindsight is pretty useless when it comes to your portfolio, so there are three basic steps that can help you avoid getting caught up in an investment scam. They take time and, much like counting to ten when you're angry, can help dampen some of the emotion that can cloud an investors head when phrases like "iron-clad, double-digit returns" are being thrown about.
1) Research the Company and the People Involved.
You can find out a lot now by simply running an internet search, although an internet search isn't enough in itself. People often build up to big frauds and have a paper trail of their previous attempts. You might want to know if the guy selling you condos in Barbados has been the subject of any investigations or angry complaints. Asking for credentials, checking them, and looking up names in regulatory filings can uncover a host of interesting facts, including whether or not the person wanting to sell you investments is in anyway certified. Being certified isn't a badge of virtue, but a lack of any formal training can be a red flag.

2) Dig Into the Numbers
Revolutionary forms of investing that are so complex, yet so sure in yielding results should be viewed skeptically. Ask for a prospectus or explanation of any such investment in writing and work through it until you understand how the profits are made. If you don't, and no one around you does, then you have another red flag. Most highly complex investments aren't sold door-to-door, so don't underestimate your own smarts. When you don't understand where the money comes from, the chances are good that the person selling the investment doesn't either.

3) Delay
One of the easiest ways to avoid fraud is to delay. High-pressure sales tactics are at the heart of most frauds, as if this superb investment opportunity that is so solid that you'll be drinking daiquiris in a New York high-rise by years end will paradoxically vanish in moments. When someone is insistent that you don't have time to think about things, it's usually because they're afraid of what you'll figure out. People who are confident that they're selling a great investment should be happy to explain it in detail rather than imposing time deadlines and talking about you "missing the chance of a lifetime."

Scammers generally go for the easy and quick money to maximize their profits, consequently giving up fast in the face of delaying. If someone tells you they'll be sold out in a week, then wish him the best and let him go on to people who are less cautious with their money. (These fraudsters were the first to commit fraud, participate in insider trading and manipulate stock. Read more in The Pioneers Of Financial Fraud.)

A Truly Great Investment
The best investments are the ones you feel completely comfortable holding, whether land, stock, precious gems or anything else. Part of being comfortable is knowing the facts behind an investment and understanding the economic machinery that makes it tick. Taking your time and discovering all you can is the surest way to protect against fraud and build an investment portfolio you can truly believe in.

http://financialedge.investopedia.com/financial-edge/1009/Dont-Be-A-Victim-Of-Fraud.aspx?partner=ntu10

'Financial shares to rally 20pc'

'Financial shares to rally 20pc'
Jupiter's well-respected financials fund manager Philip Gibbs says the sector should enjoy a further 20pc gain before the current rally peters out.

By Matt Goodburn
Published: 3:24PM BST 01 Oct 2009

Mr Gibbs, the only manager to have been AAA-rated by Citywire for the entire ratings coverage, was also optimistic about the prospects for equities as a whole over the next few months. Mr Gibbs says he believes corporate earnings for the financials sector will be ''very much beating expectations'' after the current round of trading updates are released.

"The run could go a very long way. We are down over 50pc in global financials and the numbers are compelling. I think if the sector returns to more normal valuations it will stage a more significant rally of more than 20pc and individual stocks could do very well.''

Mr Gibbs' top fund holding is Barclays, which comprises 7pc of his £1.3bn Jupiter Financial Opportunities fund. He picked the bank as ''a winner from the credit crunch'' compared to rivals Lloyds and Royal Bank of Scotland: ''Lloyds is a microcosm of the sector. It is a very leveraged play on the UK consumer, but still has some very horrible problems, especially in commercial property. It is still undercapitalised and wrestling with the issue of paying a huge premium to the Government.
I prefer HSBC and Barclays.''

According to fund statisticians Lipper, Jupiter Financial Opportunities has posted a total return of 857pc since launch in June 1997 to the end of August, making it by far the most successful UK unit trust over the period, with an annualised return of 19.8pc.

http://www.telegraph.co.uk/finance/personalfinance/investing/6251200/Financial-shares-to-rally-20pc.html

Selling could be as big a gamble as holding out for bigger gains.

Gold and shares are booming, so is it time to sell?
The Coppock Indicator, which has signalled past rallies, points to the bull run continuing. Selling could be as big a gamble as holding out for bigger gains.

By Paul Farrow
Published: 10:52AM BST 12 Oct 2009


Asked if he was selling gold, a leading fund manager said: 'Absolutely not. I think everybody should have a bit of gold' I'd imagine it was a dilemma for Sir Alex Ferguson, the Manchester United manager, last summer: wondering whether it was time to cash in on his biggest asset, Cristiano Ronaldo, or to hang on to to him for another season.

He cashed in to the tune of £80m and so far it looks like a shrewd decision. Knowing when to sell is arguably more crucial than knowing when to buy.


Related Articles
Diary of a private investor: Three reasons why it is bigger risk to be out of the market
Comment: investors doubt that this bull market has legs
Coppock's score will encourage investors to strike up the recovery band
FTSE100 rally: fund and share tips from the experts, part II
Is the first-quarter rally sustainable?

It's a conundrum that may be on many people's mind right now. The economy is on the up, shares are up, gold is up and even house prices have returned to late 2008 levels. Yet you get the feeling that everyone is expecting a reality check sooner rather than later and that the rises will turn out to have been froth.

The fear is that underlying problems that manifested themselves during the recession will linger long after the growth figures have turned positive and that these problems will drag us back down.

As one property consultant proclaimed last week: "For anyone considering selling their home, now is the time to do so. It is a window of opportunity that may soon shut." Well, he would say that, wouldn't he, but the pessimistic property commentators outnumber the optimistic ones by some margin.

The steep rise in share prices will also get investors asking themselves whether now is the time to take some profits. However, a couple of reports suggest that the market may yet prove resilient.

The Coppock Indicator, which is less about selling and more about buying, might dissuade investors from taking profits now. The story goes that in the early 1960s the Episcopalian Church in America asked Coppock, an economist, to come up with something that might spot long-term buying opportunities.

Coppock thought the stress caused by a bear market was comparable to bereavement. He asked the church how long, on average, a period of mourning might last; the answer, apparently, was between 11 and 14 months.

The indicator (a 10-month weighted moving average of the sum of the 14-month rate of change and the 11-month rate of change in the relevant index, if you really want to know) produces a buy signal when it is both below zero and turning upwards from a trough.

It does not have a 100pc success rate but in recent times the indicator signalled rallies in 1988 and 1994. The indicator started to turn a couple of months ago and is now rising.

Meanwhile, Ned Davis, a well-known investment research firm based in the US, reckons the bull market, although slowing, still has legs. Its latest bulletin concludes that "with the global economic recovery in its early stages, and absent threatening levels of interest rates and valuations, the six-month horizon does not include another bear market".

Its calculations suggest the climb over the next six months will be more gradual than the humdinger of a run the markets have experienced since the March lows.

Gold investors are another bunch who have enjoyed rising values. When it comes to gold, it would appear the bears are in hiding, but the endless queue of bulls insist the case for holding gold remains intact. Ian Henderson, one of Britain's leading fund managers, is not one of the pundits with a vested interest, but he is a firm believer in the asset's diversification qualities.

He does not think the gold price is going to storm ahead but ask him whether he is looking to liquidate his exposure to gold and the response is firm: "Absolutely not. I think everybody should have a bit of gold."

The upshot is that Man United couldn't afford to turn the record £80m offer for Ronaldo down but I doubt the recent gains will be enough to tempt home owners and investors to cash in. For most it will be as big as gamble to sell as it would be to stay put.

Tory baby bond plan misguided
Labour promised to turn us into a nation of savers; now the Tories have promised to do the same. They want to reverse the effects of Gordon Brown's pensions tax raid and get the country saving again.

All very commendable, although George Osborne's speech was thin on the detail of how he hopes to persuade the masses to salt more of their money away. One measure he did mention will mean we actually save less for our future. Mr Osborne wants to ditch child trust funds (CTFs) for all but the poorest children because "handing out new baby bonds to the rest of the country is a luxury we can no longer afford".

He's right, of course; we can't afford them. Besides, CTFs benefit only those families that have enough spare cash at the end of the month to put some aside for their children. But if the Tories go so far as to scrap CTFs for the majority, they might just as well get rid of them altogether.

The party says it "will fight for the poorest" but, if it wants to help in any meaningful way, child trust funds are not the answer. These funds will end up being an almost worthless pot if the only contribution has been the Government's free handout of £500. If the full £500 was invested and grew at 5pc year a CTF would be worth around £1,000 after 18 years.

That would barely cover the fees for a term at university, let alone be enough for a deposit on a first home. It might be enough for a second-hand banger and a year's insurance – but it won't make an iota of lasting difference to an 18-year-old when they venture out into the adult world.

http://www.telegraph.co.uk/finance/personalfinance/comment/paulfarrow/6305438/Gold-and-shares-are-booming-so-is-it-time-to-sell.html

Dow breaks through the 10,000 barrier

The Dow Jones broke through the critical 10,000 mark for the first time in a year last night – raising hopes that a fully-fledged bull market is now in train

By Edmund Conway, Economics Editor
Published: 8:03PM BST 14 Oct 2009

Things are looking up on Wall Street. Shrugging off warnings from economists that Britain and the US could fall victim to a W-shaped recession, markets hit their highest levels since the height of the crisis just over a year ago. London's benchmark FTSE 100 index rose by almost 2pc, while in Wall Street the Dow Jones Industrial Average pushed briefly above the psychologically important 10,000-point barrier.

The FTSE was 101.95 points higher at 5,256.10, more than reversing Tuesday's 1.1pc slide. The index has now rallied by 52pc since hitting a low in March, and is almost a fifth higher than at the start of the year. The Dow Jones was up by 1.1pc in late trading at 9979.74 points.

It came after the Office for National Statistics reported that although UK unemployment is still on the rise, recent months have seen the smallest increases for a year. It said the jobless total in the three months to August rose by 88,000 – smaller than any quarter since last summer, before the Lehman Brothers' collapse. The news helped the pound to a rare increase against other leading currencies, rising more than a cent against the dollar to $1.5953. However, the market's strength owed less to domestic news than an overarching sense that the global economy, having emerged from recession in the summer, is now powering ahead to a full-blooded recovery.

One theory, that growth will be delivered by emerging market powerhouses such as India and China, was underlined by new official data on Chinese exports. It showed that with Chinese investment continuing to increase, its appetite for commodities soared in recent months, while data on exports to neigh-bouring countries suggested that the broader Asian economy is gaining traction.

The news pushed shares in commodity producers sharply higher, among them Rio Tinto, Vedanta, BHP Billiton and oil groups BP and Shell.

International corporate news generated a further boost. JP Morgan's announcement that its profits rose by a phenomenal 581pc in the third quarter to $3.6bn (£2.3bn) lifted financial shares both in the US and the UK. Barclays, Royal Bank of Scotland and Lloyds Banking Group rose amid hopes that they too will report improved activity in recent months, when they update investors.

Analysts said that although the economic forecasts for the coming years, including those issued by the International Monetary Fund earlier this month, remain downbeat, earnings figures from leading companies tell a different story. Philip Gillett, trader at IG Index, said investors had been better-than-predicted third-quarter earnings news.


http://www.telegraph.co.uk/finance/markets/6329242/Dow-breaks-through-the-10000-barrier.html


Comment:  Beware the bull market.  Embrace the bear.

Shares: the winners since April

Shares: the winners since April
Over the last six months the FTSE 100 has risen 31pc, but which companies have fared the best?

Published: 4:16PM BST 12 Oct 2009


Nick Raynor, investment adviser at The Share Centre, reviews the index's performance, highlighting this year's biggest winners and losers and identifies a company with future potential.

BIGGEST WINNERS:
Vedanta up 194pc
Vedanta Resources is a metals and mining group with annual sales of $1.9bn. The company primarily produces aluminum, copper, zinc and lead. Since its low of 743p back in March, Vedanta's share price has increased nearly three-fold to 2191p. The company's performance has been boosted by the weak dollar, coupled with the resurgence in minerals and commodity prices, which has lifted the whole sector.


Barclays

Barclays up 138pc
Barclays' share price has rocketed over the last six months currently trading at 376p, not far off the price levels it was trading before the collapse of Lehman Brothers. The bank chose financial independence over government support and as a stand-alone bank has outperformed its rivals. As a result Barclays' shares were not diluted and therefore rose faster as confidence returned to the market. The old saying, "sell in May and stay away until St Ledger's Day" would certainly have proved costly to Barclays investors. Collectively, from 1 March up to mid-August, banking shares went up over 300%.

Rentokil up 120pc
Rentokil is known as the royal rat catcher, but has many other strings to its bow i.e. the laundry group, Initial. Following a disastrous 2008, Rentokil decided to reorganise its business operations. The company has since delivered better than expected cost savings and its share price has increased almost more than doubled from 53p to an impressive 116.8p. More recently, Rentokil made a surprise return to the FTSE 100.

BIGGEST LOSERS
United Utilities down 9.7pc
United Utilities share price has slowly been falling as investors move from steady performing shares to snap up down beaten shares for value. As a result, United Utilities share price has dropped from 495p back in April to 451p. There are also concerns of OFWAT's forthcoming review, which is likely to have a negative impact on the water sector as a whole. United Utilities may well be forced to cut its dividend, but the company has strongly suggested that no cut will be needed. On the plus side, United Utilities' shares are currently yielding over 7pc.

Reed Elsevier down 7.6pc
Reed Elsevier, provider of journals and textbooks, has seen a large fall in profits over the last six months. Its share price has dropped from 498.5p back in April to 463p, which is believed to be the result of spending cut backs in education publications and increased debt pressure. More recently, the publisher surprised the market by placing 110m new shares in the market. As a result, of this announcement its share price took a 15% hit. Funds raised by the placing will be used to pay off debts acquired from Reed Elsevier's takeover of ChoicePoint.

Thomas Cook down 7.2pc
The travel sector has not had the best year as consumers continue to tighten their belts. Thomas Cook's August trading statement confirmed it was suffering and that swine flu had impacted the tour operator much worse than its rival TUI. Tough conditions in the global travel market have forced Thomas Cook to abandon its operating profit target of £480m for next year, a goal established in the happier times of 2007. Since April Thomas Cook's share price has dropped from 250p to 233p.

http://www.telegraph.co.uk/finance/personalfinance/investing/shares/6308268/Shares-the-winners-since-April.html

HLG cool on insurers, but likes LPI Capital

HLG cool on insurers, but likes LPI Capital
Published: 2009/01/30

HLG Research is not too excited about the insurance sector, but it is telling investors to buy LPI Capital Bhd (8494) because the stock is a "sustainable yield play".

"LPI Capital continues to be well managed even during difficult times and is an attractive investment for yield-seekers and index outperformers," HLG wrote in a report.

The broker continues to like LPI due to its strong management, favourable insurance portfolio, income-protected investment assets, on-going capital management, further industry consolidation and index outperformance.

HLG has maintained a "buy" call on LPI shares with RM12.50 target price. The stock closed flat at RM10.30 yesteday.

LPI is expected to maintain its 8 per cent gross dividend yield, among the highest in Malaysia, from its relatively safe investments, HLG Research said.

"Its investment income is not expected to be significantly eroded by the 100 basis points cut in Overnight Policy Rates since November 2008," the report said.

LPI's management had also committed to sustaining over 100 per cent dividend payout ratio, the research said. The shares have outperformed the benchmark Kuala Lumpur Composite Index by 21 per cent over one year, HLG said.

HLG likes LPI's well-managed insurance portfolio with the strong risk and underwriting management.

"LPI has prudently trimmed exposure to the motor segment with only 60 per cent retention ratio for motor compared to 90 per cent for property insurance," the report said.

Property insurance continues to contribute the highest underwriting surplus due to the attractive pricing structure in Malaysia compares to the motor segment, it added.

LPI's investment returns will also stay resilient since 75 per cent of its investments is held in safe haven instrument that are shielded from the equity market, HLG said.

http://www.btimes.com.my/Current_News/BTIMES/articles/ciho/Article/

Reforms, better earnings boost Malaysia finance stocks

Reforms, better earnings boost Malaysia finance stocks
Published: 2009/08/21

Bank stocks are still a 'buy' but investors have to be selective, says the chief investment officer at Kurnia Insurans

BETTER than expected earnings and the initiation of government-led reforms have given Malaysian bank stocks a big lift, helping the leading ones in the sector outperform the broader market.

Bumiputra-Commerce has risen 77 per cent so far this year, AMMB is up 65 per cent and Maybank has climbed 40 per cent. That compares with the main index's 33 per cent rise and Singapore-based DBS's 50 per cent and Oversea-Chinese Banking Corp's 57 per cent gains.

But recent economic indicators have been mixed. Central bank data show non-performing loans may have bottomed, staying at 2.2 per cent in June for the seventh month in a row, but loans growth has decelerated to 8.3 per cent year-on-year in June from 8.9 per cent in May.

"Bank stocks are still a "buy" but we have to be selective," says Pankaj Kumar, who manages about US$540 million (US$1 = RM3.53) of assets as chief investment officer at Kurnia Insurans Bhd, a local insurance company.

Kumar said he would buy shares of Bumiputra-Commerce, the holding company of Malaysia's No.2 lender and top deal maker CIMB, but avoid Maybank as the lender still faces headwinds from its acquisitions in Pakistan and Indonesia.

"We still see value in bank stocks as the (deal) pipeline continues to be big for fund-raising," said David Ng, who helps manage about US$1 billion of assets as chief investment officer at HwangDBS Investment Management.

Analysts said bank stocks have jumped as earnings expectations ratcheted up in tandem with the recovering capital markets, with most banks delivering April-June results that exceeded expectations due to healthy loan growth and a moderate bad-debts increase.

Bumiputra-Commerce posted a net profit of RM663 million for the second quarter, exceeding forecasts by 15.3 per cent, while AMMB's first-quarter net profit of RM258.2 million was 21.1 per cent above estimates.

BNP Paribas expects the Malaysian government to announce "more favourable policy initiatives" in the second half of 2009 and 2010, after foreign investors shunned the country, and in particular the banking sector.

The Malaysian government has lifted equity ownership restrictions in a bid to inject life into capital markets and draw in foreign investment as well as liberalised sections of the banking and fund management industry.

"As more regulatory impediments are removed, we expect more foreign direct investments," said BNP analyst Ng Wee Siang.

"(We are) still negative on Malaysian banks. The ongoing deceleration of loans growth reinforces our negative view on the sector," said Tan See Ping, analyst at Cazenove Asia.

Tan expects loan and fee income growth to slow sharply and provisions for bad debts to rise as the economy contracts in 2009.

Malaysia's government has forecast that the economy may shrink as much as 5 per cent in 2009. A Reuters poll of 11 economists in July forecast a contraction of 3.2 per cent.

"Our top sell is Public Bank. The current economic contraction and slowdown of loan growth looks particularly negative for (the bank)," said Tan. - Reuters

Comment:  What can one say.  Often the analysts' forecasts are just that.  No one can predict the future with certainty.

Survey: Investors to stick to mainstream investments

Survey: Investors to stick to mainstream investments
Published: 2009/08/26

In the retail space, asset managers believe that clients will focus more on capital protection rather than returns they can potentially earn.

POST financial crisis, investors worldwide will likely stick to simpler and safer mainstream investments for a long time to come instead of blindly chasing high returns, a global survey of asset managers shows.

"Retail clients are likely to display stronger behavioural changes than other segments. Loss aversion will be rife for the foreseeable future. Priorities will change," said Barbara McKenzie, the chief operating officer of Principal Global Investors, which commissioned the study.

"The memory and impact of the recent financial crisis will last longer this time."

The research sought to assess industry sentiment and how the global asset management industry will evolve after the crisis. The survey was conducted on 225 asset managers and pension funds in 30 countries, responsible for US$18.2 trillion (US$1 = RM3.51) of assets as at April this year.

In the retail space, asset managers believe that clients will focus more on capital protection rather than returns they can potentially earn.

Institutional clients, meanwhile, are expected to stress on expected risks instead of the expected returns, the survey showed.

"Simplicity, safety and quality are now the watchwords underpinning clients' investment goals," McKenzie said in a media briefing in Kuala Lumpur yesterday.

Datuk Noripah Kamso, the chief executive of CIMB-Principal Islamic Asset Management Sdn Bhd, said syariah-based investment management will gain momentum riding on this shift in investors' behaviour.

The values of Islamic asset management, which filters out risky investments and stress on the fair distribution of wealth, fit well with investors new priorities, she said.

CIMB-Principal Islamic Asset Management, which manages US$1.3 billion at the end of June, expects to pull in another US$400 million by the end of the year, Noripah said. The company is a partnership between Principal Global Investors and CIMB Group.

http://www.btimes.com.my/Current_News/BTIMES/articles/prinpo/Article/

UMW may reapply for O&G unit listing

UMW may reapply for O&G unit listing
By Francis Fernandez
Published: 2009/09/09

The assembler of Toyota Motor Corp cars in Malaysia will likely submit a fresh IPO application to the Securities Commission by end-month

UMW Holdings Bhd (4588), the assembler of Toyota Motor Corp cars in Malaysia, will likely submit a fresh initial public offer application to the Securities Commission (SC) by month-end to list its oil and gas (O&G) subsidiary, TA Research said in a report yesterday.

The research house, which held discussions with the UMW management recently, said that the group has to update and make several key amendments to the new application in tandem with the changes seen in the group's O&G division over the past year.

UMW, which started its oil and gas business in 2002 currently has projects in 12 countries including Singapore, Thailand, China, Indonesia and the Middle East.

For the year ended December 31 2008, UMW's O&G division posted RM754.66 million revenue, making the third largest contributor to the group revenue, which was dominated by the automotive division, raking in sales of RM10.03 billion.
UMW have been looking to raise as much as RM425 million by selling shares of its O&G unit to the public. It had announced the listing plans in February last year, but stalled on the floatation plan due to weak market conditions.

"The exercise has since been postponed twice, with the second extension from the SC valid till September 30 2009. Although UMW now has less than 30 days to list its O&G unit, the group has not provided investors with any new updates on the status of the listing," TA said in the report.

It speculates that UMW could bid its time, and possibly list the O&G unit by as early as the second half of next year, when market conditions are expected to be much better than now.


http://www.btimes.com.my/Current_News/BTIMES/articles/umwz/Article/

FBMKLCI rises to new high

FBMKLCI rises to new high
Published: 2009/10/14

THE FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) jumped to the year's new high as investors snapped up banking-related stocks today.

The benchmark index closed 13.33 points higher at 1,246.84 after hitting an intraday high of 1,248.14.

Dealers said the Malaysian Institute of Economic Research's forecast that the country's economy would shrink at a slower pace of 3.3 per cent this year, an improvement from 4.2 per cent projected earlier, provided some support.

Rising buying interest in penny and small cap stocks with the return of risk appetite was also evident, they said.

"Follow-through buying by foreign funds in key banking-related stocks such as Maybank and CIMB Group helped the FBM KLCI extend its gain," a dealer said.

At the close, the FBM Emas Index gained 97.57 points to 8,393.58, the FBM Top 100 increased 91.98 points to 8,171.25, the FBM 70 jumped 111.23 points to 8,257.70 and the FBM ACE Index advanced 48.30 points to 4,269.02.

The Finance Index surged 171.58 points to 10,528.24, the Plantation Index gained 43.75 points to 6,031.33 and the Industrial Index added 13.85 points to 2,667.12.

Gainers outnumbered losers by 574 to 174 while 208 counters unchanged and 338 others untraded.

Turnover increased to 1.261 billion shares valued at RM1.655 billion from 939.925 million shares worth RM1.005 billion yesterday.

Among active counters, KNM Group rose four sen to 84.5 sen, SAAG Consolidated added three sen to 23.5 sen and Silk Holdings advanced 5.5 sen to 50 sen.

Time Engineering inched up 1.5 sen to 38 sen, Hubline Bhd-OR added one sen to 11 sen and Green Packet-Warrants gained 5.5 sen to 42.5 sen.

Conglomerate Sime Darby rose seven sen to RM8.69 while finance heavyweight Maybank gained 22 sen to RM6.96.

CIMB Group advanced 16 sen to RM12.32, Tenaga Nasional rose two sen to RM8.25, IOI Corp edged up six sen to RM5.33 and Genting gained seven sen RM7.39.

The Main Market turnover jumped to 1.173 billion shares worth RM1.633 billion from 820.767 million shares worth RM982.236 million yesterday.

The ACE Market volume, however, decreased to 49.662 million shares valued at RM11.937 million from 100.747 million shares valued at RM18.028 million while warrants increased to 28.860 million units worth RM7.071 million from 14.911 million unit worth RM3.664 million.

Consumer products accounted for 51.489 million shares traded on the Main Market, industrial products 284.396 million, construction 59.883 million, trade and services 368.269 million, technology 100.543 million, infrastructure 63.492 million, finance 76.327 million, hotels 4.486 million, properties 145.674 million, plantations 15.498 million, mining 92,200, REITs 2.852 million and closed/fund 133,000.

Bernama

Nestle aims to double out-of-home market share

Nestle aims to double out-of-home market share
By Zaidi Isham Ismail
Published: 2009/10/14


FOOD and beverage (F&B) maker Nestle (Malaysia) Bhd (4707)aims to double its share of Malaysia's out-of-home market worth RM11.2 billion to 70 per cent in the next five years.

Out-of-home business refers to F&B-related businesses that take place out of the home such as buying fast food, teh tarik, coffee and snacks at supermarkets, mamak stalls or five-star hotels.

Nestle executive director Zainun Nur Abdul Rauf said the goal is achievable, in line with an increasing affluence of Malaysians.

"Malaysians spend 35 per cent of their income for in home business such as buying instant noodles and 65 per cent outside of the home on food and drinks.

"The 65 per cent ratio is likely to increase in the future as more and more Malaysians become affluent and eat out," Zainun told reporters at the launch of its Nescafe Professional branding initiative in Kuala Lumpur yesterday.

Zainun said for the past 15 months, consumer trend has been eating at home due to the global economic slowdown, but this is likely to change in the near future, in line with a recovering economy.

"We will also work closer with our food partners such as hotels and mamak stalls by providing new innovative coffee concoctions, Milo and Maggi," said Zainun.

Nestle Malaysia is part of Swiss group Nestle, which is the world's largest food company, marketing more than 8,000 brands and 30,000 products with 500 factories spread over 80 countries and employing 250,000 people.

http://www.btimes.com.my/Current_News/BTIMES/articles/NESDOU/Article/

Top Glove optimistic of good dividends

Top Glove optimistic of good dividends
Published: 2009/10/14

TOP Glove Corp Bhd's shareholders can expect better dividend income going forward based on the company's optimism of continuing to record double-digit growth for at least 1-2 years more based on strong demand for rubber gloves and its expansion.

For financial year ended Aug 31, 2009 (FY09), the world's largest rubber glove manufacturer paid a dividend of 22 sen, a 100 per cent increase from 11 sen previously.

Its chairman Tan Sri Lim Wee Chai said the company, which targeted to pay 30 per cent dividend annually, would consider a special dividend if it continued to record strong performance.

"The chances are always good for us to achieve growth of more than 10 per cent, at least for the next one to two years and this will translate into a possible high dividend.



"With good earnings and strong cash, we should also be able to pay a good or even better dividend in the coming years," he told a media briefing on the company's performance for 2009 financial year in Kuala Lumpur today.

As at Aug 31, 2009, Top Glove's cash in banks stood at RM197.2 million and total borrowings at RM20.5 million.

Lim said the global demand for rubber gloves grew at between 8-10 per cent annually.

He said Top Glove had enough cash to pay dividend and the land for expansion.

The company, which has been on expansion mode with the opening of a new factory every year, is enthusiastic about increasing its capacity either through organic growth or acquisitions.

Currently, it has the capacity to produce 31.5 billion pieces of gloves annually, but that will be increased to 34.5 billion next year with the operation of factory number 20 in February next year and factory number 21 somewhere in the middle of next year.
Each factory has the capacity to produce 1.5 billion pieces annually.

At the moment, it has 17 gloves factories and two latex concentrate factories and its target is to capture 30 percent of the global market by 2012 compared to 22 percent now.

Lim said the company's capital expenditure for FY2010 was RM70 million.

He said the company would continue to expand its manufacturing plants in Malaysia, Thailand and China.

"We have the land to build one or two more factories every year to meet the increasing demand," he said.

The company has 7.2 hectares in Klang for future development, 8.4ha in Thailand and six ha in China.

He said investment in China was a challenge as many companies had suffered losses.

Top Glove's venture, however, is profitable, he said.

On acquisition, he said, although Top Glove was receptive it would be careful as not all acquisitions would be successful.

He said money alone would not ensure the success of the acquisition as there were also a need for adequate resources in areas such as human resources and marketing.

For FY09, its pre-tax profit rose by 65 per cent to RM221.5 million from RM134.6 million in the same period of 2008.

Revenue surged 11 per cent to RM1.53 billion from RM1.38 billion previously.

The record profit has been achieved on a high EBITDA (earnings before interest, tax, depreciation and amortisation) margin of 18.7 per cent in FY2009 compared to 14.4 per cent in FY2008.

Executive director, Lim Cheong Guan, said the 18 per cent plus margin was on the high side and did not expected a repeat in the near term.

Lim, however, still expected the margin to be in 16-17 per cent range going forward based on strong demand for rubber gloves.

Meanwhile, another executive director, Lee Kim Meow, said the prospect for the rubber glove industry was bright given its resilience to recession and rising demand due to increase awareness among the governments on global health threats.

"We expect government allocations for healthcare-related products such as gloves, to increase in future and this will boost our business," he said.

China and India, including Malaysia spent about 4.5 per cent of their gross domestic product on healthcare compared with the US at 15.3 per cent.

Top Glove rose 24 sen to close at RM8.40 on Bursa Malaysia today. -- BERNAMA


http://www.btimes.com.my/Current_News/BTIMES/articles/20091014190121/Article/index_html

Strong Earnings Push Wall Street Higher

Strong Earnings Push Wall Street Higher

By JACK HEALY
Published: October 14, 2009

For Wall Street, the news was sweet: a major bank turned a $3.6 billion profit, earnings were up at a major computer-chip maker, and retail sales held up better than expected.

And so investors around the world went shopping, lifting stock markets from London to New York to Mexico City. On Wall Street, shares touched their highest levels of the year, and the Dow flirted again with retaking 10,000.

Many investment experts dismiss the significance of such big, round benchmark numbers, and say that no sophisticated investors or hedge funds make investment decisions based on whether a stock index’s total value can be measured in four or five digits.

The Dow Jones industrial average, one of the most-watched measures of the financial markets, surged at the opening and was up 73 points, or 0.7 percent, at about 10:30 a.m. The broader Standard & Poor’s 500-stock index and the Nasdaq were about 0.9 percent higher.

The major stock indexes have rebounded by 50 percent or more in a scorching rally that began in early March and galloped higher through the summer and early autumn, as the economy stabilized and once-bleeding companies began to report better profits and rising revenue.

That optimism got louder on Wednesday.

Investors rushed to take positions on companies and commodities that could benefit from a broad upturn in corporate profits and the global economy. Crude oil prices hit their highest levels since last October, topping $75 a barrel. Safety bets like the dollar and government bonds got creamed.

Financial stocks surged after JPMorgan Chase announced a third-quarter profit that trounced expectations. JPMorgan was the first major financial company to announce earnings, and the sight of rising revenues and stabilizing losses at one of Wall Street’s most powerful banks lifted expectations that the financial sector was back on its feet, a year after its near-implosion.

Shares of JPMorgan climbed 3 percent in early trading, and its rising tide lifted shares of other banks like Goldman Sachs, Wells Fargo, Bank of America and Citigroup, which are all scheduled to report their own quarterly results in the days ahead.

Even regional banks shared in the hoopla, despite lingering problems with their mortgage portfolios and worries that the smaller banks are more exposed to losses in the commercial real estate market.

Investors swept up shares of computer companies, search engines and software makers after Intel reported profits that surpassed Wall Street’s expectations and foreshadowed a return to global growth. Shares of Intel, which reported a profit after markets closed on Tuesday, were up 3 percent.

Shares were also higher in Asia and Europe. The FTSE 100 in London rose 1.7 percent while the DAX in Frankfurt was 2 percent higher. The CAC-40 in Paris rose 1.7 percent.

In Asia, the Shanghai index rose 1.2 percent, while Hong Kong’s Hang Seng index increased 2 percent. Japan’s Nikkei index slipped 0.2 percent.

http://www.nytimes.com/2009/10/15/business/15markets.html?hpw

Smart guys started going to Wall Street

Op-Ed Contributor

Wall Street Smarts

By CALVIN TRILLINPublished: October 13, 2009

“IF you really want to know why the financial system nearly collapsed in the fall of 2008, I can tell you in one simple sentence.”

The statement came from a man sitting three or four stools away from me in a sparsely populated Midtown bar, where I was waiting for a friend. “But I have to buy you a drink to hear it?” I asked.

“Absolutely not,” he said. “I can buy my own drinks. My 401(k) is intact. I got out of the market 8 or 10 years ago, when I saw what was happening.”

He did indeed look capable of buying his own drinks — one of which, a dry martini, straight up, was on the bar in front of him. He was a well-preserved, gray-haired man of about retirement age, dressed in the same sort of clothes he must have worn on some Ivy League campus in the late ’50s or early ’60s — a tweed jacket, gray pants, a blue button-down shirt and a club tie that, seen from a distance, seemed adorned with tiny brussels sprouts.

“O.K.,” I said. “Let’s hear it.”

“The financial system nearly collapsed,” he said, “because smart guys had started working on Wall Street.” He took a sip of his martini, and stared straight at the row of bottles behind the bar, as if the conversation was now over.

“But weren’t there smart guys on Wall Street in the first place?” I asked.

He looked at me the way a mathematics teacher might look at a child who, despite heroic efforts by the teacher, seemed incapable of learning the most rudimentary principles of long division. “You are either a lot younger than you look or you don’t have much of a memory,” he said. “One of the speakers at my 25th reunion said that, according to a survey he had done of those attending, income was now precisely in inverse proportion to academic standing in the class, and that was partly because everyone in the lower third of the class had become a Wall Street millionaire.”

I reflected on my own college class, of roughly the same era. The top student had been appointed a federal appeals court judge — earning, by Wall Street standards, tip money. A lot of the people with similarly impressive academic records became professors. I could picture the future titans of Wall Street dozing in the back rows of some gut course like Geology 101, popularly known as Rocks for Jocks.

“That actually sounds more or less accurate,” I said.

“Of course it’s accurate,” he said. “Don’t get me wrong: the guys from the lower third of the class who went to Wall Street had a lot of nice qualities. Most of them were pleasant enough. They made a good impression. And now we realize that by the standards that came later, they weren’t really greedy. They just wanted a nice house in Greenwich and maybe a sailboat. A lot of them were from families that had always been on Wall Street, so they were accustomed to nice houses in Greenwich. They didn’t feel the need to leverage the entire business so they could make the sort of money that easily supports the second oceangoing yacht.”

“So what happened?”

“I told you what happened. Smart guys started going to Wall Street.”

“Why?”

“I thought you’d never ask,” he said, making a practiced gesture with his eyebrows that caused the bartender to get started mixing another martini.

“Two things happened. One is that the amount of money that could be made on Wall Street with hedge fund and private equity operations became just mind-blowing. At the same time, college was getting so expensive that people from reasonably prosperous families were graduating with huge debts. So even the smart guys went to Wall Street, maybe telling themselves that in a few years they’d have so much money they could then become professors or legal-services lawyers or whatever they’d wanted to be in the first place. That’s when you started reading stories about the percentage of the graduating class of Harvard College who planned to go into the financial industry or go to business school so they could then go into the financial industry. That’s when you started reading about these geniuses from M.I.T. and Caltech who instead of going to graduate school in physics went to Wall Street to calculate arbitrage odds.”

“But you still haven’t told me how that brought on the financial crisis.”


“Did you ever hear the word ‘derivatives’?” he said. “Do you think our guys could have invented, say, credit default swaps? Give me a break! They couldn’t have done the math.”

“Why do I get the feeling that there’s one more step in this scenario?” I said.

“Because there is,” he said. “When the smart guys started this business of securitizing things that didn’t even exist in the first place, who was running the firms they worked for? Our guys! The lower third of the class! Guys who didn’t have the foggiest notion of what a credit default swap was. All our guys knew was that they were getting disgustingly rich, and they had gotten to like that. All of that easy money had eaten away at their sense of enoughness.”

“So having smart guys there almost caused Wall Street to collapse.”

“You got it,” he said. “It took you awhile, but you got it.”

The theory sounded too simple to be true, but right offhand I couldn’t find any flaws in it. I found myself contemplating the sort of havoc a horde of smart guys could wreak in other industries. I saw those industries falling one by one, done in by superior intelligence. “I think I need a drink,” I said.

He nodded at my glass and made another one of those eyebrow gestures to the bartender. “Please,” he said. “Allow me.”

Calvin Trillin is the author, most recently, of “Deciding the Next Decider: The 2008 Presidential Race in Rhyme.”

http://www.nytimes.com/2009/10/14/opinion/14trillin.html?_r=1

FTSE 100 back above 5,200 as gold hits new record high

The FTSE 100 rallied back above 5,200 as investors took heart at strong US corporate results and encouraging economic news from China and a weak dollar pushed gold to a fresh record high.

Published: 3:42PM BST 14 Oct 2009

FTSE 100
London's index of leading shares rose 1.7pc to 5241 as investors ploughed back into the market, lifted by positive results from US bank JP Morgan and chipmaker Intel.

The dollar slumped to a fresh 14-month low against other major currencies as investors' appetite for risk increased, sending gold to another record high of $1,072 an ounce.

Oil prices rose above $75 a barrel in New York for the first time in a year.

Miners surged in London after China said its slump in exports eased in September, offering a further sign that global trade is improving. Kazakhmys, up 8.4pc to £12.78, was the leading riser in the blue chip index.

Rio Tinto (up 4pc) fuelled this view after it raised full-year production targets on the back of continued strong demand from Chinese steelmakers.

Barclays , Royal of Scotland and Lloyds Banking Group got a boost from a sevenfold rise in third-quarter profits to $3.6bn at JP Morgan.

The bank's bumper profits and a better-than-expected 5pc fall in Intel's third-quarter profits to $1.9bn pushed Wall Street back toward 10,000. America's blue chip index was up nearly 1pc at 9954 in early trading.

http://www.telegraph.co.uk/finance/markets/6327173/FTSE-100-back-above-5200-as-gold-hits-new-record-high.html

Time for rate increases is approaching

Near-zero policy interest rates are powerful. If the claims of financial economists are to be believed, they are holding up economic activity and bank balance sheets. But their magic isn’t only beneficial. They also distort behaviour in dangerous ways.

By Edward Hadas, Breakingviews.com
Published: 1:13PM BST 14 Oct 2009

The US Federal Reserve, still the world leader in central banking, has kept its overnight policy rate at 0pc-0.25pc for 10 months and is in no hurry to change. Ultra-low rates will be needed for an “extended period”, says Donald Kohn, the Fed’s vice chairman.

Most central bankers don’t think zero is actually low enough to deal with weak economic activity, high unemployment, low confidence and a still fragile banking system. In the standard calculation, current conditions are so dire that people and companies should be paid to spend money. But zero rates are better than nothing, so to speak. Central banks are at least not doing anything to impede lending.

That’s the theory. But with the financial system still in post-traumatic shock, it’s not certain that the ultra-low policy rates are getting through the banks and into the real economy. Business lending remains weak.

Even if the aggressively low rates are helping activity, the gains come with losses. The financial infrastructure is being undermined. Central bankers think almost entirely about the incentive to borrow, but non-zero rates also create an incentive to save. When the policy rate is zero, so is the incentive. A prolonged period of nearly free official money makes it hard to recreate a much needed culture of savings in the US and UK.

Also, whether or not the transmission from policy rate to real economy is working well, financial markets seem to respond all too strongly. Commodity prices have risen sharply and the dollar and pound – the currencies of the central banks most committed to ultra-cheap money – are dropping.

Ultra-low rates were justified, despite the risks, when GDP and trade were in freefall and banks were gasping for support. But conditions are now more stable. The risks are starting to outweigh the rewards. Central bankers should put rate increases back on the agenda.

http://www.telegraph.co.uk/finance/breakingviewscom/6325982/Time-for-rate-increases-is-approaching.html

"Four Bad Bears" comparison.

Bear Turns to Bull?


October 13, 2009 updated each market day

The S&P 500 closed the day 58.6% above the March 9th low, which is 31.4% below the peak in October 2007.

http://dshort.com/articles/2009/bear-turns-to-bull.html

A Rising Tide Lifts All Boats

When the economy is doing well, most companies do well as a result. This is the reasoning behind this old adage. If you ignore rising tides in economies, industries, and sectors, you could miss out on big profits. Missing out on these types of profits can hurt you because trend following is one of the easiest and most reliable investing strategies (as long as you're not the last one that follows).

If you see trends forming early on in any market, and invest in that market, you can make a very nice profit. The important part again, is to do your homework to identify the most credible trends and take advantage of them before anyone else. The earlier you get in on an upward trend, the better off you'll be.

But also be aware of the other adage: "the financial genius in a rising market."

What is the most important question for a stockmarket investor?

What is the most important question for a stockmarket investor?

Whether the market is undervalued or overvalued? No!
Whether interest rates will go up or down? No!
Whether a particular company is undervalued or overvalued? No!
Whether you should buy ABC or XYZ? No!
Whether Joe Bloggs, the famous analyst, says it is a great buy? No!

Tempting as it is to look for answers to these, we will soon see that they are misleading.

Yet, there are whole office buildings full of people pumping out answers to these questions. From their side they are not trying to mislead you. They are just trying to supply answers to these questions because people keep asking them and are willing to pay large amounts of money for the answers.

Even if they could be answered, the answers will not help you reach your financial goals. Why? Because they are the wrong questions.

Warren Buffett said that he has no idea what the market is going to do and whether it is undervalued or overvalued, whatever that may mean. What is more, he is not interested in knowing.

The same applies to interest rates. Buffett once said, "If the Federal Reserve Chairman Alan Greenspan were to whisper to me what his monetary policy was going to be over the next two years, it wouldn't change one thing I do."

There is only one question. Underneath it all, there is only one question. What is my profit rate or percentage return going to be?

The core activity of an investor is to estimate with confidence the percentage return over a specified holding period when buying stock in a company. And you want to be able to do this based on reliable numbers and information.

http://myinvestingnotes.blogspot.com/2009/08/hidden-desire-of-investors.html

Multi-baggers

"The majority of the multi-baggers owe their stellar returns to the market “re-rating”, rather than an impressive expansion in their earnings."


The above statement is probably true for the short term.  However, over the long term, multi-baggers are the result of their long term earnings growth.

Investing for the long haul: Sell the losers, let the winners run.

This is the time people should review their holdings, keep the stocks with the best potential, sell the losers (not those with the depressed prices but those whose revenues and earnings aren't capable of growing adequately), and buy others with better potential while they're selling cheap.

Sell the losers, let the winners run.  But you shouldn't jump into any "hot stock" without knowing what you're doing.


Read also:
The Ultimate Hold-versus-Sell Test
http://myinvestingnotes.blogspot.com/2009/09/ultimate-test.html

Let Your Winners Run, Cut Your Losers

When you invest, it is easy to sell your successful investments and keep your failing ones. This is what comes intuitively to most investors but can end up costing you a lot of potential profits. By selling your winners too early, you could miss out on huge gains. By keeping your losers too long, you could realize many losses. This isn't always true, but it makes mathematical sense; if you keep your money in losing investments instead of winning ones, you'll more likely end up losing money.

If you have an investment that has been performing consistently well, there is no good reason to sell it. As the adage states, it is important to let your winners run. By selling too early, you could miss out on a lot more than holding onto a losing investment for too long. When holding onto a losing investment too long, you can only lose the money you initially spent. If you sell too early, you could lose many times the amount of money you initially spent. By letting your winners run, and cutting your losers, you can do much better than doing the opposite. As with all investments, it is still important to do your homework.

Be an intelligent investor through financial education

In day to day conversations, one can easily gauge that the MAJORITY of "investors" in the market are not intelligent.  An intelligent investor is as defined by Benjamin Graham in his book, The Intelligent Investor.

How can these investors acquire the financial education to guide them through the stock market investment minefields?  How can they acquire the investing philosophy and strategy to help them over many years (or decades) of their investing lifespan?  Above all to ensure that they do not lose their money in the stock market while seeking for a reasonable return.

Inevitably, this will involve acquiring a set of RELEVANT knowledge through their reading, their interactions with the other investors, their interactions with investment professionals and the market.  From personal experience, there is a huge core knowledge that has to be acquired.  This is probably too overwhelming for many potential investors. 

Therefore, though it is good to attend an hour's presentation on investment here and there, or even pay a small sum for a half day session on investment talk, this is not going to transform one into a intelligent investor.   At best, these are introductory sessions to highlight areas of investments where you may wish to explore further. How much knowledge can be acquired in a half day presentation that you cannot acquire from a good book?  At worst, you are "convinced" that you know investing when in fact the small amount of new knowledge you acquire is in fact very detrimental to your long term investing.

There is no substitute to hard work.  You would need to acquire the necessary core financial and investment knowledge.  You do not need very high power investment or financial knowledge.  However, you do need to acquire some simple knowledge in the relevant important fields to guide your investing.  Above all, you will also need to understand behavioural finance to guide your emotions.

By the way, with blogs springing up everywhere, you too have another avenue to observe investing by various individuals.  Learn their good and bad habits.  You will probably find some benefit reading this blog too. 

Good luck in your investing.

http://myinvestingnotes.blogspot.com/2008/12/investment-philosophy-strategy-and.html

http://myinvestingnotes.blogspot.com/2009/09/investing-for-beginners.html

http://myinvestingnotes.blogspot.com/2009/08/learn-to-invest-in-10-steps.html

http://myinvestingnotes.blogspot.com/2009/08/8-signs-of-doomed-stock.html

Characteristics of ideal stock you plan to purchase

Some thoughts on Analysing Stocks

Ideally a stock you plan to purchase should have all of the following charateristics:

•A rising trend of earnings, dividends and book value per share.
•A balance sheet with less debt than other companies in its particular industry.
•A P/E ratio no higher than average.
•A dividend yield that suits your particular needs.
•A below-average dividend pay-out ratio.
•A history of earnings and dividends not pockmarked by erratic ups and downs.
•Companies whose ROE is 15 or better.
•A ratio of price to cash flow (P/CF) that is not too high when compared to other stocks in the same industry.

Keep It Simple and Safe.


Also read: 
8 signs of doomed stock
http://myinvestingnotes.blogspot.com/2009/08/8-signs-of-doomed-stock.html

Buffett's focussed investing

According to Buffett, his results follow not from any master plan but from focussed investing - allocating capital by concentrating on businesses with outstanding economic characteristics and run by first-rate manager.

It is the Business that Matters

Over the long haul, stock prices tend to track the value of the business. When firms do well, so do their shares, and when business suffers, the stock will as well. Always focus on the company's fundamental financial performance.

Analyst upgrades and chart patterns may be fine tools for traders who treat the stock market like a casino, but they're of little use to investors who truly want to build wealth in the stock market. You have to get your hands dirty and understand the businesses of the stocks you own if you hope to be a successful long-term investor.

P/S: Look at Hai-O to learn that price tracks the value of the company's business.

Great Opportunities to buy companies with durable competitive advantage

a) Correction or panic during a bull market:

Any company with a durable competitive advantage will eventually recover after a market correction or panic during a bull market.

b) Bubble-bursting situation:

But beware. In a bubble-bursting situation,during which stock prices trade in excess of 40 times earnings and then fall to single-digit PEs, it may take years for them to fully recover.

After the crash of 1997, it took until 2007 to match the 1990s bull market highs. There are still companies trading today at below their last decade high price. On the other hand, if you bought during the crash, as Warren Buffett often did, it didn't take you long to make a fortune.

Stock market creates buying opportunities

The bull/bear market cycle offers many buying opportunities for the selective contrarian investor.

The most important aspect of these buying opportunities is that they offer the investor the chance to buy into durable-competitive-advantage companies that have nothing wrong with them other than sinking stock prices.

The herd mentality of the shortsighted stock market creates buying opportunities.