Over the long term, shares have proved both less risky and more lucrative than other main forms of investments

Shares less risky in long term

Shares are generally thought of as far more risky than investing in bonds or putting money into a bank account. In many ways they are not.

It is true that if someone puts their life savings into the shares of one or two companies in the expectation of a rapid return they are taking a big risk. If they are lucky they could make a substantial gain but they could equally make large losses.

But there are two main ways in which investment in shares can be made less risky.

• One is to diversify from one or two firms to a mixed basket of different types of shares – this is discussed elsewhere on this site (see Advantages of fund investment).
• The other is to extend the duration of the investment to a longer time span.

The longer an investor’s time horizon the safer it is to invest in shares. For long term investment it is actually safer to invest in shares than in bonds or cash.

One definitive study of this phenomenon is by Jeremy Siegel, a professor of finance at the University of Pennsylvania, in Stocks for the Long Run (McGraw-Hill 2002). From a study of American stockmarket returns from 1802-2001 he shows that shares beat bonds and bills (short term government debt)

• 80% of the time with a 10-year horizon,
• 90% of the time with a 20-year horizon and
• almost all the time with a 30-year horizon.

Article ridiculed

Historically this has meant that even if someone has started to invest in shares at the worst time possible they have generally made good returns in the long term. Indeed Professor Siegel starts his book with a discussion of an article published in the summer of 1929 – just before the Wall Street crash - which argued for regular stockmarket investment. The article was subsequently ridiculed as it was published just before a three-year fall in the market which led to a cumulative decline of 89%. But Professor Siegel estimates that even taking this decline into account an investor who had invested in shares regularly for 30 years from 1929 would have made an average annual return of 13%.

Although Professor Siegel’s study concentrates on America the British market has behaved in a similar way. Over the long term shares have easily outperformed other asset classes.

Perhaps the most definitive study of long-term investment trends in relation to the British market is Triumph of the Optimists (Princeton University Press 2002) – the title itself is based on the fact that shares have outperformed other assets in the long term.

• According to this study an investment of £1 in shares in 1900 would have grown to £16,160 in nominal terms by the end of December 2000.
• In contrast the figure for long-term bonds was just £203 and
• for short term Treasury bills only £149.

Of course once inflation is taken into account the increases are not quite so dramatic. Once the 55-fold increase in prices over the century is incorporated into the calculations the return on

• shares would have been 291 times in real terms,
• on bonds 3.7 and
• on bills 2.7.

Inflation risk

Indeed one advantage of shares over bonds is that they tend to perform much better in periods of high inflation.

• Whereas inflation tends to quickly erode the capital value of bonds the stockmarket generally at least keeps up with rising prices.
• In other words one way in which shares are less risky than bonds is their relative immunity to the risk of inflation.

Another factor that can affect relative returns is taxation.

• For instance, if a government decided to impose a punitive tax on share dividends it would clearly hit returns.
• But historically companies have often found ways round this problem – such as distributing income by buying back their own shares – and all the main political parties now support wider share ownership.

As with all forms of investment the past is not necessarily a guide to the future. Returns in the next two decades may not be nearly as great as during the great bull market of 1982-99.

However, historically there is no doubt that over the long term shares have proved both

• less risky and
• more lucrative

than the other main forms of investment.

http://www.morningstar.co.uk/uk/default.aspx?lang=en-GB

 

When you are caught in a market panic

When you are caught in a market panic

In fact, the only rational thing to do is take courage and make buys. Being gutsy enough to act on our contrarian test - refusing to sell good stocks cheap because Wall Street and Main Street have lost faith for a few days - ensures that your earlier selling at better levels, or not at all, will prove appropriate.

It will be emotionally difficult to buy in a panic. those who can do so are demonstrably rational and therefore also calm enough to sell with discipline as the prior highs approached.

So, should you find yourself in the midst of a crisis in the future, remember:

•Do not engage in panic selling.


•Sit tight and stick to your strategy.


•If you are a long-term, buy-and-hold investor, do hold on.


•If you are an adventurous investor, follow your strategy to buy on dips.


Make sure your overall portfolio is designed to limit your potential losses during a substantial market decline.

http://myinvestingnotes.blogspot.com/2009/10/when-you-are-caught-in-market-panic.html

Fear is your friend

Fear is your friend

When you take a long-term view, the horrific market indicators are actually your friends because they lower prices of the stocks you are interested in. Fear is your buddy. Doom and gloom are close pals. Economic devastation is your friend. In fact, you should want the market to freak out because there is no other easy way to get a fantastic price for a business. Of course, I'm speaking in an investing sense -- obviously a recession is no fun on a day-to-day basis. But fortunes are built in times like these.

Why should you care about a few years of poor results if someone is willing to sell you that business for a song? In two or three years, you could be sitting pretty while the seller will be left with only remorse.

But of course, we want to be choosy with our investments in these turbulent times, so we suggest you focus on:

• Companies with good track records (earnings per share growth, return on equity)
• Companies with strong balance sheets (low debt-to-equity ratios)

http://myinvestingnotes.blogspot.com/2009/04/fear-is-your-friend.html

Graham's thinking was original and he preached value.

Graham preached value - the advantage of paying less for stocks than for the value of the current assets after deducting all liabilities.

One of Graham's favourite teaching strategies was to analyse 2 companies side by side, even if they were in different industries, and compare the balance sheets. 

• He would take Coca-Cola and Colgate, related to one another only by alphabetical proximity, and ask which stock was more of a bargain relative to the net asset values. 
• Graham's primary concern was the margin of safety, a focus which prevented hm from recognising the great growth potential in Coke.

Not all of Graham's tactics worked out.

1.  He would buy a leading company in an industry, such as the Illinos Central Railroad, and sell short a secondary one, like Missouri Kansas Texas, as a hedge. 

• As it turned out, the two securities were not correlated, and the hedge did not work.

2.  Another type of hedge that Graham used repeatedly was to buy a convertible preferred stock and short the common. 

• If the common rose, he was protected by the convertible feature. 
• If it fell, he made money on the short. 
• In either case, he collected the dividend. 
• This approach has become a standard practice in the industry even though it no longer has the tax advantage it once did. 

Graham is seen as a legitimate genius, someone whose thinking was original and often contrary to establish wisdom.  Graham's motivation, was primarily intellectual.  He was more interested in the ideas than in the money, although that too had its rewards.

An equally important strategy: Stay within your circle of competence.

The other term in their strategy is equally important.  This is what the Schlosses shared.


"We don't buy derivatives, indexes or commodities.

We don't short stocks.  We have in the past, and have made some money, but the experience was uncomfortable for us. 

We don't try to time the market, though we do let the market tell us which stocks are cheap.

We did invest in bankrupt bonds at one time, and if the situation presented itself to us, we might again.  But that field has become crowded over the years, and like most value investors, we don't want too much company.

We stay clear of ordinary fixed income investments.  The potential returns are limited, and they can be negative if the interest rates rise.

We buy stocks.  We invest in cheap stocks.

If we find a cheap stock, we may start to buy even before we have completed my research.  We have at least a rudimentary knowledge of many companies and we can consult Value Line or the S&P stock guide for quick check into the company's financial position. 

We believe the only way really to know a security is to own it, so we sometimes stake out our initial postion and then send for the financial statements. 

The market today moves so fast that we are almost forced to act quickly."

Now that the price has fallen ....

"I buy cheap stocks."

Identifying "cheap" means comparing price with value.

What attracts your attention is that the price has fallen. 

Scrutinize the new lows list to find stocks that have come down in price. 

If the price is at a two or three-year low, so much the better.

Some brokers may call with suggestions.  These tend to be at the opposite end of the spectrum from the momentum stocks that most brokers are peddling.

Be especially attracted to stocks that have gapped down in price - stocks where the price decline has been precipitous.

Stock prices sink when investors have been disappointed, either

• by a recent event such as an earnings announcement below expectations, or
• by continued unsatisfactory performance that ultimately induces even patient investors to throw in the towel. 

Some investors put money in

• these companies with shares that have plummeted in price, and
• in those that have slid downward gradually but persistently. 

These companies can be in different industries, and maybe large, medium and small companies. The unifying them is that the stuff they buy is on sale.

More than 70% of traders will lose nearly all their money!

According to the National American Securities Administrators Association, more than 70% of traders will lose nearly all their money! This is solid proof that the majority of traders and investors are dumb money.

What is the Dumb Money Doing Wrong?

First and foremost, the dumb money act as a herd or mob. This group exhibits very little individual decision making. This is exemplified by how the herd follows the financial news so religiously. The financial news is a severe lagging indicator. This is because reporters only report after the fact. It is so silly that people actually think they will gain knowledge that will allow them to have “the edge” in the markets. This isn’t possible because millions of other competing investors are watching the same news! The news is notoriously bullish right before a bear market and bearish right before the market starts soaring.

http://www.stock-market-crash.net/zero-sum.htm

http://myinvestingnotes.blogspot.com/2009/12/does-everyone-lose-in-crash.html

When to Buy, When to Sell: Value Investors Buy too Soon and Sell too Soon

The notion that an investor can buy a stock that has reached the bottom of its fall is a fantasy.  No one can accurately predict tops, bottoms, or anything in between. 

More often than not, value investors will start to buy a stock on the way down.  The disappointments or reduced expectations that have made it cheap are not going away anytime soon, and here will still be owners of the stock who haven't yet given up when the value investor makes an initial puchase.  If it is toward the end of the year, then selling to take advantage of tax losses can drive the price even more.  Because they are aware that they are - to use the industry cliche - catching a falling knife, value investors are likely to try to scale into a position, buying it in stages. 

• For some, such as Warren Buffett, that may not be so easy.  Once the word is out that Berkshire Hathaway is a buyer, the stock shoots up in price. 
• Graham himself, Walter Schloss recounts, confronted this problem.  He divulged a name to a fellow investor over lunch; by the time he was back in the office, the price had risen so much that he could not buy more and still maintain his value discipline. 
• This is one of the reasons why the Schlosses limit their conversations.

Still, when asked to name the mistake he makes most frequently, Edwin Schloss confesses to

• buying too much of the stock on the initial purchase and
• not leaving himself enough room to buy more when the price goes down. 

If it doesn't drop after his first purchase, then he has made the right decision. 

• But the chances are against him. 
• He often does get the opportunity to average down - that is, to buy additional shares at a lower price. 
• The Schlosses have been in the business too long to think that the stock will now oblige them and only rise in price. 

Investing is a humbling profession, but when decades of positive results confirm the wisdom of the strategy, humility is tempered by confidence.

Value investors buy too soon and sell too soon, and the Schlosses are no exceptions. 

• The cheap stocks generally get cheaper. 
• When they recover and start to improve, they reach a point at which they are no longer bargains. 
• The Schlosses start to sell them to investors who are delighted that the prices have gone up. 
• In many instances, they will continue to rise, sometimes dramatically, while the value investor is searching for new bargains. 
• The Schlosses bought the invetment bank Lehman Brothers a few years ago aat $15 a share, below book value.  When it reached $35, they sold out.  A few years later it had passed $130.  Obviously that last $100 did not end up in the pockets of value investors. 
• Over the years, they have had similar experiences with Longines-Wittnauer, Clark Oil, and other stocks that moved from undervalued through fair valued to overvalued without blinking. 
• The money left on the table, to cite yet another investment cliche, makes for a good night's sleep.

The decision to sell a stock that has not recovered requires more judgement then does selling a winner.  At some point, everyone throws in the towel. 

• For value investors like the Schlosses, the trigger will generally be a deterioration in the assets or the earnings power beyond what they had initially anticipated. 
• The stock may still be cheap, but the prospects of recovery have now started to fade. 
• Even the most tolerant investor's patience can ultimately be exhausted. 
• There are always other places to invest the money. 
• Also, a realized loss has at least some tax benefits for the partners, whereas the depressed stock is just a reminder of a mistake.

Footnote: 
Over the entire 45 year period from 1956 through 2000, Schloss and his son Edwin, who joined him in 1973, have provided their investors a compounded return of 15.3% per year. 

For the nine and a half years that Walter Schloss worked for Ben Graham and for some years after he left to run his own partnership, he was able to find stocks selling for less than two thirds of working capital. But sometime after 1960, as the Depressin became a distant memory, those opportunites generally disappeared. Today, companies that meet that requirement are either so burdened by liabilities or are losing so much money that their future is in jeopardy. Instead of a margin of safety, there is an aura of doubt.

****3 Steps To Profitable Stock Picking

3 Steps To Profitable Stock Picking

Stock picking is a very complicated process and investors have different approaches. However, it is wise to follow general steps to minimize the risk of the investments. This article will outline these basic steps for picking high performance stocks.

Step 1. Decide on the time frame and the general strategy of the investment. This step is very important because it will dictate the type of stocks you buy.

Suppose you decide to be a long term investor, you would want to find stocks that have sustainable competitive advantages along with stable growth. The key for finding these stocks is by looking at the historical performance of each stock over the past decades and do a simple business S.W.O.T. (Strength-weakness-opportunity-threat) analysis on the company.

If you decide to be a short term investor, you would like to adhere to one of the following strategies:

a. Momentum Trading. This strategy is to look for stocks that increase in both price and volume over the recent past. Most technical analyses support this trading strategy. My advice on this strategy is to look for stocks that have demonstrated stable and smooth rises in their prices. The idea is that when the stocks are not volatile, you can simply ride the up-trend until the trend breaks.

b. Contrarian Strategy. This strategy is to look for over-reactions in the stock market. Researches show that stock market is not always efficient, which means prices do not always accurately represent the values of the stocks. When a company announces a bad news, people panic and price often drops below the stock's fair value. To decide whether a stock over-reacted to a news, you should look at the possibility of recovery from the impact of the bad news. For example, if the stock drops 20% after the company loses a legal case that has no permanent damage to the business's brand and product, you can be confident that the market over-reacted. My advice on this strategy is to find a list of stocks that have recent drops in prices, analyze the potential for a reversal (through candlestick analysis). If the stocks demonstrate candlestick reversal patterns, I will go through the recent news to analyze the causes of the recent price drops to determine the existence of over-sold opportunities.

Step 2. Conduct researches that give you a selection of stocks that is consistent to your investment time frame and strategy. There are numerous stock screeners on the web that can help you find stocks according to your needs.

Step 3. Once you have a list of stocks to buy, you would need to diversify them in a way that gives the greatest reward/risk ratio. One way to do this is conduct a Markowitz analysis for your portfolio. The analysis will give you the proportions of money you should allocate to each stock. This step is crucial because diversification is one of the free-lunches in the investment world.

These three steps should get you started in your quest to consistently make money in the stock market. They will deepen your knowledge about the financial markets, and would provide a of confidence that helps you to make better trading decisions.

http://tradingindicator.blogspot.com/2010/01/3-steps-to-profitable-stock-picking.html

Comment:  There are many ways to make money.  Investing for the long term is profitable for many investors.  Some of those who employ other strategies can also be profitable too.

Banking sector sees 19pc earnings growth this year

Banking sector sees 19pc earnings growth this year
Published: 2010/01/09


The banking sector expects an earnings growth of 19 per cent this year, premised on lower provisions supported by overall improved operating income.

HwangDBS Vickers Research, in its focus on the banking sector, said corporates have switched to the bond market for funding, adding that this served as an impetus for non-interest income expansion.

"We forecast a 10 per cent growth in non-interest income in 2010 and consumer loans will drive loans growth this year as corporates turn to the bond market to raise funds," the report added.

HwangDBS Vickers Research also expects SME loans utilisation to recover this year.

"Judging from loan applications and approvals by banks, we gather that the pipeline will be healthy," it said, projecting loans growth in 2010 between 8 and 9 per cent.

The research house said the top pick for Malaysian banks was CIMB because of its key proxy to Malaysian capital markets and regional expansion.

"We also like Hong Leong Bank for its reach in China which could spice up earnings growth as well as its regional aspirations.

"Hong Leong Bank is currently in talks to acquire EON Capital which is currently tagged for a merger and acquisition activity", the report said.

HwangDBS Vickers Research added there could be further room for earnings upgrade for selected banks such as Hong Leong Bank and RHB Capital when overnight policy rates move up.

For Maybank, there could be an upside on stronger Bank Internasional Indonesia earnings while Public Bank stood out as an excellent proxy of a quality bank.

"Public Bank loans growth still outpaces industry average while asset quality is still the best among peers," it said.

However, HwangDBS Vickers Research pointed out there were key risks to the sector's earnings.

"Key risk to earnings would be slower-than-expected drop in GDP growth which could potentially lead to slower recovery in overall earnings," it added.

As for Dubai's debt woes, it said not all Malaysian banks were exposed to the Middle East, nevertheless, a check with banks revealed that total exposure was less than RM200 million per bank.

HwangDBS Vickers Research said there was significant pick up in interest for banking stocks in 2009, which on the average, outperformed the FTSE Bursa Malaysia Kuala Lumpur Composite Index by 83 per cent. - Bernama

Rubber glove sector downgraded

Rubber glove sector downgraded
Published: 2010/01/27


MIDF Research has downgraded the rubber glove sector to "Neutral" from "Overweight" due to concerns over sustainability of global glove demand growth, expected excess glove production capacity and earnings margin sustainability.

"After the remarkable surge in 2009, the price momentum carried through in 2010 with a 15.9 per cent - 30.3 per cent year-to-date," it said in a research note today.

However, moving forward, MIDF Research said the returns prospect of glove companies are expected to be less promising from the risk-reward perspective.

The research house said the market is expecting global glove demand to hit about 150 billion pieces this year, with a growth rate of eight to 10 per cent annually.

"Although we also anticipate glove demand to continue rising, mainly from developing countries, there is a risk that the growth demand will be lower, considering that the domestic glove production and export values last year were not as high as reflected by consensus estimate of eight to 10 per cent per annum," it said.

For the cumulative 11 months last year, production volume and export value grew by only 2.0 per cent year-on-year and 0.8 per cent year-on-year to 42 billion pieces and RM6.46 billion, respectively.

"In addition to lower volume, the slower growth in export value was also attributable to lower average selling price in tandem with the lower average latex price in 2009," MIDF Research said.

It said there was no guarantee that lower average selling price would lead to higher demand and export volume, adding that the diminishing threat of the H1N1 viral outbreak would be a drag on demand.

MIDF Research said glove makers were expanding their production capacity more aggressively this year with an average increase of 26.6 year-on-year growth.

"An additional capacity of 15 billion pieces of glove is expected to be available by the second half of this year. In 2011, the glove makers planned to expand their capacity by another 16 billion pieces of glove," it said.

MIDF Research said earnings margin should be safeguarded in the first half of this year given the higher plant utilisation rate and better pricing power.

"We believe margin sustainability is highly dependent on the issues of demand sustainability and excess production capacity," it added. - BERNAMA

Merrill recommends specific stock picking

Merrill recommends specific stock picking
By Chong Pooi Koon
Published: 2010/01/27


Merrill Lynch Wealth Management thinks Malaysia is rather fully valued, so the strategy has to be specific stock picking

MERRILL Lynch Wealth Management, which rates China and Hong Kong as its top markets for stocks this year, says it sees limited upside potential for Malaysian shares although selected companies like rubber glove makers can outperform.

"We think Malaysia is rather fully valued, so the strategy has to be specific stock picking," its chief investment officer for Asia Pacific, Stephen Corry, said in a media interview in Kuala Lumpur yesterday.

He said banks with exposure to the improving capital market activities as well as rubber glove makers are likely to perform this year. He did not name the stocks due to the bank's policy.

Merrill Lynch, now a unit of Bank of America following a merger, believes that overall, stocks and commodities will give better returns than bonds and cash this year.

A muted recovery in developed economies will lead to low core inflation and steep yield curves this year, acording to Merrill Lynch.

In contrast, rising longer-term interest rates will make government and corporate bonds less attractive.

"Retail investors are pursuing two strategies as we can see. They believe there could be deflation, so they bought fixed income, specifically A-grade corporate papers. They also thought there could be inflation, that's why they like emerging stocks and commodities.

"People are buying inflation and deflation but they are not buying low inflation and equity, so that's where we see opportunity. That's part of reasons why we think the MSCI All-Country World Index could reach 350 this year, roughly 15 to 20 per cent upside," Corry said.

The combination of huge policy stimulus from governments, a steep yield curve and low volatility are factors that contribute to its bullish view on shares.

Merrill Lynch likes stocks from Europe, Asia as well as emerging market consumer shares.

Emerging market is a secular growth story, Corry said, while European shares are now cheaper than US stocks in terms of price-earnings multiple.

http://www.btimes.com.my/Current_News/BTIMES/articles/scorry-2/Article/

Malaysia may raise interest rates in the first half of the year

Malaysia may raise interest rates in H1: Citi
Published: 2010/01/27


Malaysia may raise interest rates in the first half of the year, said Citigroup Inc, which brought forward its estimated timing of an increase from the fourth quarter, after the central bank said borrowing costs can’t be kept “too low.”

The central bank may boost the overnight policy rate by 25 basis points at the next policy meeting on March 4, followed by another 25 basis points on May 13, Citi said.

Meanwhile, CIMB Group Holdings Bhd says Malaysia’s central bank may raise interest rates “sooner than expected” following yesterday’s monetary policy statement by Bank Negara Malaysia.

The central bank’s overnight policy rate may start rising in the first half of this year from the current level of 2 per cent and reach 2.5 per cent by year-end, CIMB said. -- Bloomberg

Sometimes stock picking can really work out great.

Stock Picking 101

posted in Bricks and Mortar Business |

It’s time for fund managers to “return to their natural stock-picking tendencies,” said Citigroup chief global equity strategist Robert Buckland. “Just when the bear market (and subsequent rebound) has bullied us all into being very macro is the time when a good contrarian should be moving micro.” Over the last few years, the financial advisory business has been playing it close to the vest to protect as much of their clients’ investments as possible. They’re hesitant to move away from safe options because everyone is fearful of market fluctuations these days. However, some analysts say it’s precisely this strategy that’s holding us back. Stock picking is slowly but surely coming back into favor again, offering higher yields and better deals for people who know when to get in and when to get out.

Sometimes stock picking can really work out great. For instance, financial advisory professionals who advised their clients to put money into MacDonald’s fast food chain in 1992 are now enjoying 25% returns each year. Similarly, insightful investors who sunk $10,000 into Microsoft’s stocks back in 1986 would have earned 35,000% back on their investment over an 18-year period! So by 2004, that initial investment would have become a nice $3.5 million, which would be an ideal retirement cushion!

There are many different types of stock picking strategies. Some of the most common include

• Fundamental Analysis,
• Qualitative Analysis,
• Value Investing,
• Growth Investing,
• GARP Investing,
• Income Investing,
• CAN SLIM,
• Dogs of the Dow and
• Technical Analysis.

While there is limited space to delve deeply into these complex strategies here, more information can be found at Investopedia (www.investopedia.com/university/stockpicking/stockpicking1.asp). Even when consumers learn financial investment techniques, there is no guarantee, however. According to Investopedia: “The bottom line is that there is no one way to pick stocks. Better to think of every stock strategy as nothing more than an application of a theory; a ‘best guess’ of how to invest.”

Stock picking can be done by individuals or by professionals. Top financial advisors work to assist clients in selecting a winning stock portfolio. While these individuals are undoubtedly more experienced in watching economic market fluctuations, they are still human and ultimately fallible. One should not simply entrust an enormous sum of money with a financial advisor, without looking over the periodic statements and watching the DOW/NASDAQ activity. All investing is a gamble, so expectations should be clear when getting started. Perhaps the best advice is still “don’t put all of your eggs in one basket!”

As a leading expert in the field of anxiety disorders and panic attacks, Beth Kaminski is always on the lookout for how to end panic attacks. Visit her site for more information on her treating panic disorder and much more.

http://growthbyaction.com/bricks-and-mortar-business/2145-stock-picking-101

How to Value a Stock like Buying a Business

How to Value a Stock like Buying a Business

Major task of a right stock market investor, especially value investor, is the valuation of stocks. There are thousands of methods available to evaluate a stock or a business to identify the best in it before taking an investment decision. For an ordinary investor, valuation is not so easy as it pronounces. Most of the stock investors or emerging investors feels stock valuation required high knowledge in numerical. It is just a myth. If you study the approach and characters of world famous investors, you could find none of them have above average numerical skills to evaluate the stocks or a business to invest. Great investor Warren Buffett can be a best example on this.

There are multiple stages to get knowledge. It begins with our school and collage study. Next level is from our experiences and final level is from the life itself. These rules are highly applicable to stock investors too. There is no investor in this world that is ahead of any mistakes or errors with their selection or investments. Success of these investors totally lies on how they avoid the same mistake not happening again to them in the rest of their investing career. In this sense, mistakes are the best tools to learn real investment and reach to maximum success.

This article highly intend to ordinary investors who have basic skills and average with numerical. Of course, numerical skills required to an extent, but not to an expert level. An ordinary investor can select a right stock same like buying a new business. It is so easy to understand and simple to apply.

Suppose you are looking for a good business to buy in your locale and receives an offer from a local business owner to buy his business.

• If you don't have any interest on his business, you will certainly reject that offer.
• But if you have interest, you will proceed with further.
• Whether buying or not, you will approach him to know more about the business to understand whether it is suitable to your interest or not.
• the next step would be preparing a set of questions to ask to the present owner to identify how much this business meets your requirements.

Below are some of the important questions if I might be the person there to buy the business.

1. When did you start this business and what is your product or service?
2. How familiar and comfortable the public is, with your product or service?
3. What was the total capital employed to start this business and what is its present status?
4. How many owners or stake holders involved into this business?
5. Do you have any loans or other debts? If yes, from where and how much?
6. Who all are your immediate competitors in the area doing same business?
7. What is their market share compare with your business?
8. What is the profit you have received from the beginning year till today?
9. Does your business have any kind of legal issues or judicial cases against?
10. How qualifies and efficient your employees are?
11. What you have done to market your products or service?
12. What is the real cost associated to manufacture each product and what would be the real profit if sell the same?
13. Why do you want to sell the business now?

Of course the above are 13 simple questions anyone can easily ask to a business owner who presently want to sell his business to you. it is not highly complicated questions or not required much efforts to prepared. Only common sense required to ask these questions because each of the answers to these questions either makes you close to buy the business or take away from the buying decisions. Another truth is, you will get answers to these questions. But it is your duty to confirm the received information are true. Slightly complicated areas like profit and spending areas that can cover using your average numerical skills.

If you are a real buyer, what would you do after getting answers to all these questions? You may buy or may not buy. Why? there would be some solid information about the company that may support your decision or take away from the decisions. If you are able to identify the same easily, then why don't apply the same skills to evaluate a stock or business to invest. It is so easy isn't it?

Answers to the above questions pointing its fingers to some of the best information about the company as follows:

• First question points its finger to the reputation of the company. How old it is and how established it is in the market.
• Second question is to understand how popular the product or services to the people or markets.
• Third is to get information about its total worth or assets.
• Fourth, information of its stake holders and how much each of them holding.
• Fifth, is the company suffering from debt or has any debt that is unmanageable.
• Sixth gives information about the competitors.
• Seventh is to understand the monopolistic position of the company.
• Eighth, year to year profit growth and thus earnings growth.
• Ninth, understand legal issues against companies that may lead to shutdown or lead to bankruptcy.
• Tenth is to the managerial efficiency of the company and work force capacity.
• Eleventh, company network information to promote the product.

Next, identifying the capability of surviving bad situations like economic recessions and related business bottlenecks and finally, understanding any critical possible situations that may drag the company out business or total loss.

I still wonder, why don't people able to pick right stocks or businesses to invest by asking these questions against them? It is so easy to identify if one spend little time to research. All the information about these questions are easily available from the company websites or stock exchange sites where companies filing their information. Along with collecting such highly useful information, add little commonsense to confirm the suitability of a stock or business for you to invest.

In this article, I have given an idea to only identify the stock. There are various article available in the data base of this blog to give you knowledge to understand the right time to buy or sell. I have simplified the buying information of a business with number of articles and you can easily collect them by clicking on the label named 'investment' under this blog.

Now it is your turn. I have given an idea and shared some experience from life on that idea to make you understandable how I am picking the stocks. I have also given the idea to you to improve much better than me and take better decisions than me by using your own sense.


http://www.investinternals.com/2010/01/stock-valuation.html

Britain is out of recession at last – but are you?

Britain is out of recession at last – but are you?

While the nation’s output of goods and services grew in the final quarter of last year, according to the latest official figures, many people will be wondering whether their own finances are actually in better shape.

By Richard Evans
Published: 9:33AM GMT 26 Jan 2010


For many the answer will be no.

Recovery can bring its own problems; for a start, rising demand tends to stoke inflation, which could prompt the Bank of England to raise interest rates – good news for savers, but not something that hard-pressed home owners would welcome.

 “The danger is that, with a return to growth, Britons will underestimate the hardships of recovery,” said Stephen Barber of Selftrade, the stockbroker.

So what are the prospects for our personal finances as the economic recovery takes hold?

Tax
With Britain borrowing record amounts of money, many expect public spending cuts or tax rises – or both – as the Government attempts to balance the books. Income tax could have to rise by as much as 5p in the pound, said Mark Dampier of Hargreaves Lansdown, the asset manager.

“We have been living through a phoney war, mainly because of the electoral cycle. No political party has the heart or the courage to tell it as it really is,” he said. “So we won’t get a real Budget until after the election and this will probably be worse than the infamous 1981 Geoffrey Howe Budget. So the real war will begin probably some time in July.

“What can we expect? I strongly suspect that the big tax takers – basic-rate tax and VAT – will rise, VAT to 20pc and basic-rate tax by 2p to 5p in the pound.”

He added: “The high level of government and consumer debt makes me feel quite pessimistic. It took over 300 years for us to have £380bn worth of public debt. It has taken this government 12 years to bring it to £850bn. Reducing it will mean a huge shock to our finances – the recession is not over for most of us.”

Adrian Shandley of Premier Wealth Management said: “After the election taxes will rise and, if this is coupled with a rise in interest rates and inflation, individuals could find themselves much worse off, with higher mortgage payments, higher taxes and a lower real value of their wages.”

Interest rates and inflation
Commentators are divided on the likelihood that interest rates will rise from their current unprecedented lows. Mr Dampier said official rates were unlikely to rise this year because a tough post-election Budget “would equate to a significant interest rate rise”.

But he pointed out that you don’t need the Bank of England to put up official rates for mortgage costs to rise. Lenders are by and large able to change their standard variable rates at will, while Skipton Building Society recently abandoned a pledge to keep its SVR within three percentage points of Bank Rate.

“Money is very expensive at the moment even though base rates are at a 311-year low,” Mr Dampier said. “While for home owners with a tracker mortgage 2009 probably proved to be rather good in terms of income, I think for the consumer who has kept their job the recession is only just about to start. I believe people are going to be in for a real shock. They have got used to a standard of living that goes up every year. I expect that standard of living for the next four or five years to fall.”

Ros Altmann, a governor of the London School of Economics, said interest rates would have to start rising at some point. “They cannot possibly stay at these low levels as the economy picks up,” she said. “But I fear that the Bank of England might keep rates too low for too long. This leads to a significant risk of rising inflation – indeed inflation is already well above the official target – and once inflation takes hold it may not be easy to bring it back under control.”

Higher interest rates might seem like good news for savers, who would finally see better returns on their money, she said. But if inflation rose faster than interest rates, pensioners’ and savers’ incomes would not keep up with increasing household bills. “Rising rates also means higher mortgage rates, which will put further pressure on many households’ incomes.”

Vicky Redwood of Capital Economics, the consultancy, said rises in interest rates looked unlikely. “So at least mortgage costs should stay low. But house prices still look overvalued and could start to fall again, leaving more households in negative equity,” she added.

Investments
While you would expect the end of a recession to be good news for the stock market, it’s worth bearing in mind that markets generally look ahead, so much of the good news will already be “in the price”. So instead of simply expecting the FTSE100 to soar, investors may have to be selective if they want to profit, experts say.

“A return to growth does not mean a return to pre-credit crunch investment strategies,” Mr Barber said. “Investors would do well to build portfolios which are both defensive and which take advantage of the new opportunities in Britain and across the world.”

Mr Dampier agreed, saying: “I think it becomes a real stock picker’s market. There are some areas of the stock market – high yielding defensives and special situations – which I think could blossom through a difficult time in the economy. But the general indices may well tread water.”

Bond investors may have to be more careful, Ms Altmann warned. “As the Bank of England begins to unwind its policy of quantitative easing, it will have to try to sell gilts. This will push bond yields up and prices down. Bond investors would lose money, while rising yields could also unsettle the stock market later on.”

Jobs
An immediate improvement in employment prospects is unlikely, experts say. Ms Redwood said: “Jobs will remain hard to find, with employers likely to remain nervous about hiring when the economic recovery is still sluggish. In fact, we expect unemployment to start rising again and it could even reach 3m.

“Even if employment holds up, that is only likely to be because firms are controlling costs by cutting or freezing pay instead. For many people, it will still feel very much like a recession.”

Ms Altmann agreed. She said: “Companies will not suddenly rush to recruit new staff until they are more confident that the recovery will last, so unemployment is likely to stay high and pay will not increase much if at all for most of us.”

Household bills
There is further bad news for consumers when it comes to council tax and household energy bills. “We can expect council tax to rise further as we are paying for the public sector pensions,” Mr Dampier said. “Utility bills will continue to rise, not only because of rises in commodity prices but also because of environmental taxes.”

http://www.telegraph.co.uk/finance/personalfinance/consumertips/7077807/Britain-is-out-of-recession-at-last---but-are-you.html?utm_source=tmg&utm_medium=TD_rec&utm_campaign=pf2701am

Forget bubble fears

Questor share tips: forget bubble fears, Templeton Emerging Markets remains a buy

Questors does not believe emerging markets have quite become a bubble yet and recommends buying Templeton Emerging Markets.

Published: 5:30AM GMT 26 Jan 2010

Are emerging markets in a bubble or not? This is the debate that has been raging for a couple of months now. Although there is the chance that a bubble may emerge, Questor feels we are not there yet – and Citigroup agrees.

“Asset price gains in emerging markets have been particularly strong recently, although we’re not convinced that it’s right to talk about bubbles just yet,” according to economist David Lubin. “There is little to suggest that the price appreciation we’ve seen in emerging equity markets exhibits the kind of characteristics seen in previous equity market bubbles,” he added

However, this does not mean it is all plain sailing. By their nature, emerging markets are volatile and risky. There is a valuation risk once stimulus packages are withdrawn later this year.

Valuations are also likely to be supported by a wave of money as investors continue to releverage into risk positions. Some commentators have suggested selling part of their holdings and running with the rest of the investment. This is a perfect strategy for cautious investors.

However, for now Questor is comfortable maintaining a buy stance on Templeton Emerging Markets Investment Trust, which was recommended on January 5 last year and is up 78pc compared with a market up 16pc.

As of January 22 the funds net asset value stood at 542.97p.


http://www.telegraph.co.uk/finance/newsbysector/epic/tem/7073100/Questor-share-tips--forget-bubble-fears-Templeton-Emerging-Markets-remains-a-buy.html

Buy and Hold vs. Market Timing: Some personal observations

Short term traders do not hold their stocks for too long.  They often take their profit.  They then plough them back into another new trade when they perceive the upside is better than the downside.  They are not the buy and hold types.  To them, rightly so, buy and hold is a very dangerous strategy, especially so too if they are not picking carefully the stocks they trade in.   Short term trends are totally unpredictable.  They react to graphs depicting volumes and prices; searching for and attributing meanings to these.

When the market is on the uptrend, everyone benefits.  Postings were similarly optimistic.  "Why I like stock XXX?"  "Why I like stock XYZ, very much?"... Blah. Blah. Blah.   Now that the market has shown some volatilites and uncertainties, the postings turned pessimistic.  "Beware the black swan..."  Blah. Blah. Blah.  Such thinking is typical of a market timer. 

Yet, the reality is:  No one can predict the market with any certainty.  If he can, he will own the world.  But one should invest with some knowledge of the probabilities of likely outcomes. Even more importantly, is knowing the consequences arising from these probabilities, however unlikely these maybe.  Nassim Taleb is right to point these "fatal downsides" of unintelligent or emotional investing in his two classic books.

Let me share with you a "well known' secret.  Do you know that the richest persons  in the world are all mostly "buy and hold" type investors?  Look at the KLSE bourse.  Who owns the major wealth in the KLSE?  Lee family of KLK, Lim family of Genting, Yeoh family of YTL, Teh family of PBB, Lim family of TopGlove, Lee family of IOI, .......  They are the major shareholders of the good quality successful companies.  Do they buy and sell their shares in their companies regularly?  Do they make more of their money from trading their shares or from holding onto their shares over a very very long period?

Buy and hold is safe.  It is very safe for those with a long term investing horizon.  However, there is one provision:  You need to be in the right stock.  You will need to be a stock-picker.  Pick the good quality successful companies and you will have few reasons to sell them. 

Buy and hold is certainly very safe for selected stocks.  Do not react emotionally to price volatilities.  Price volatility is your friend to be taken advantage of:  giving you the opportunity to buy these companies at a bargain and to sell them if they are overpriced.  Often, the price is correct and fair, and you need not do anything.   For the super-rich whose wealth are locked in a "buy and hold" mode for umpteen years in their good quality successful companies, this strategy has benefitted them immensely.  If they can grow rich, so can you.  After all, you can be a co-owner in their companies.  Think about this and you may wish to follow them too, buying into their companies at fair or bargain prices.  For this, you will need to be rewired appropriately.

The Economic Climate (12): The UNPREDICTABLE Economic Climate and the Investor

From the Great Depression to 1995, US had nine recessions.  So in your lifetime, you're likely to be subjected to a dozen or more. 

Each time it happens, you'll hear from the reporters and the TV commentators that the country is falling apart and that owning stocks is too risky. 

The thing to remember is that we've wiggled out of every recession since the one that turned into the Great Depression.

Reviewing the period from the Great Depressions to 1995 shows that

• the average recession lasts 11 months and 1.62 million jobs are lost, while
• the average recovery lasts 50 months and 9.24 million jobs are created.

The seasoned investor realizes that stock prices may drop

• in anticipation of a recession, or because
• Wall Street is worried about inflation

But there's no sense in trying to anticipate either predicament, because the economic climate is unpredictable. 

You have to have faith that inflation will cool down eventually, and that recessions will thaw out.

The Economic Climate (11): Fed and Money Supply

The agency in charge of climate control is the Federal Reserve System, also known as the Fed. 

It has a special way of heating things up and cooling things down - not by blowing on them, but by adding and subtracting money.  Given its huge importance, it's amazing how few people know what the Fed is all about.

In a survey from several years ago, some people said the Federal Reserve was a national park, while others thougth it was a brand of whiskey.

In fact, it's the central banking system that controls the money supply. (Monetary policy)



Whenever the economy is cooling off too much, the Fed does 2 things. 

(1)  It lowers the interest rates that banks must pay when they borrow money from the government. 

• This causes the banks to lower the interest rates they charge to their customers, so people can afford to take out more loans and buy more cars and more houses. 
• The economy begins to heat up.

(2)  The Fed also pumps money directly into the banks, so they have more to lend. 

• This pumping of money also causes interest rates to go down. 

And in certain situations, the government can spend more money and stimulate the economy the same way you do every time you spend money at a store. (Fiscal policy)



If the economy is too hot, the Fed can take the opposite approach:  raising interest rates and draining money from the banks. 

This causes the supply of money to shrink , and interest rates go higher. 

• When this happens, bank loans become too expensive for many consumers, who stop buying cars and houses. 
• The economy starts to cool off. 
• Business lose business, workers lose jobs, and store owners get lonely and slash prices to attract customers.

Then at some point, when the economy is thoroughly chilled, the Fed steps in and heats it up again.  The process goes on endlessly, and Wall Street is always worried about it.

The Economic Climate (10): The Government and the Fed

The US federal government is much bigger than it was during the last Great Depression. 

Back then, it didn't have much economic clout. 

• There was no welfare, no social security, no housing department, none of the hundreds of departments that exist today. 
• In 1935, the entire federal budget was $6.4 billion, about 1/10th of the total US economy. 
• In 1995, it was $1.5 trillion, and nearly 1/4 of the total economy.

An important divide in US:  As of 1992, more people worked in local, state, and federal governments than in manufacturing.  This so-called public sector pays so many salaries and pumps so much money into the economy that it keeps the economy out of the deep freeze.  

• Whether business is bad or good, millions of government employees, social security recipients, and welfare recipients still have money to spend. 
• And when people get laid off, they get unemployment compensation for several months while they look for another job.

The dark side of this story is that the government has gotten out of whack, with huge budget deficits that

• soak up investment capital and
• keep the economy from growing as fast it as once did. 

Too much of a good thing has become a bad thing.

The agency in charge of climate control is the Federal Reserve System, also known as the Fed.

The Economic Climate (9): Goldilocks climate, the perfect situation doesn't seem to last.

The perfect situation for companies and their investors is the Goldilocks climate:  not too hot and not too cold.

But whenever we get into a Goldilocks climate, it doesn't seem to last.

Most of the time, the economy is either heating up or cooling down, although the signals are so confusing that it's often hard to tell which way we're headed.

The government can't control a lot of things, especially the weather, but it has a big effect on the economic climate. 

Of all the jobs the federal government does, from fighting wars to fighting poverty, it may be that its most important job is keeping the economy from getting too hot or too cold.  It it weren't for the government, we might have had another Great Depression by now.

The Economic Climate (8): Cold Climates and Recession

Reviewing the recessions in US since World War II to 1995:  all last an average of 11 months, and cause an average of 1.62 million people to lose their jobs.

In a recession, business goes from bad to terrible. 

Companies that sell soft drinks, hamburgers, medicines - things that people either cannot do without or can easily afford - can sail through a recession unscathed. 

Companies that sell big-ticket items such as cars, refrigerators, and houses have serious problems in recessions.  They can lose millions, or even billions, of dollars, and unless they have enough money in the bank to tide them over, they face the prospect of going bankrupt.

Many investors have learned to "recession-proof" their portfolios. 

• They buy stocks only in McDonald's, Coca-Cola, or Johnson & Johnson, and other such "consumer growth" companies that tend to do well in cold climates. 
• They ignore the likes of General Motors, Reynolds Metals, or U.S. Home Corp.  These are examples of "cyclical" companies that suffer in cold climates. 

Cyclical companies either

• sell expensive products,
• make parts for expensive products, or
• produce the raw materials used in expensive products. 

In recessions, consumers stop buying expensive products. 

The Economic Climate (7): The economy has gone from hot to cold in a matter of months.

A hot economy can't stay hot forever. Eventually, there's a break in the heat, brought about by the high cost of money. With higher interest rates on home loans, car loans, credit-card loasn, you name it, fewer people can afford to buy houses, cars, and so forth. So they stay where they are and put off buying the new house. Or they keep their old clunkers and put off buying a new car.

Suddenly, there's a slump in the car business, and Detroit has trouble selling its huge inventory of the latest models.  The automakers are giving rebates, and car prices begin to fall a bit.  Thousands of auto workers are laid off, and the unemployment lines get longer.  People out of work can't afford to buy things, so they cut back on their spending.

Instead of taking the annual trip to Disney World, they stay home and watch the Disney Channel on TV.  This puts a damper on the motel business in Orlando.  Instead of  buying a new fall wardrobe, they make do with last year's wardrobe.  This puts a damper on the clothes business.  Stores are losing customers and the unsold merchandise is piling up on the shelves.

Prices are dropping left and right as businesses at all levels try to put the ring back in their cash registers.  There are more layoffs, more new faces on the unemployment lines, more empty stores, and more families cutting back on spending.  The economy has gone from hot to cold in a matter of months.  In fact, if things get any chillier, the entire country is in danger of falling into the economic deep freeze, also known as a recession.

The Economic Climate (6): Price of Money (Interest rate) rise in hot economy

With new stores being built and factories expanding all over the place, a lot of companies are borrowing money to pay for their construction projects.  Meanwhile, a lot of consumers are borrowing money on their credit cards to pay for all the stuff they've been buying.  The result is more demand for loans at the bank.

Seeing the crowds of people lining up for loans, banks and finance companies follow in the footsteps of the automakers and all the other businesses.  They, too, raise their prices - by charging a higher rate of interest for their loans.

Soon, you've got the price of money rising in lockstep with prices in general - the only prices that go down are stock prices and bond prices. 

• Investors bail out of stocks because they worry that companies cannot grow their earnings fast enough to keep up with inflation. 
• During the inflation of the late 1970s and early 1980s, stock and bond prices took a big fall.

A hot economy can't stay hot forever.  Eventually, there's a break in the heat, brought about by the high cost of money.  With higher interest rates on home loans, car loans, credit-card loasn, you name it, fewer people can afford to buy houses, cars, and so forth.  So they stay where they are and put off buying the new house.  Or they keep their old clunkers and put off buying a new car.

The Economic Climate (5): Inflation in a hot economy

The main worry is that a hot economy and too much prosperity will lead to inflation - the technical term for prices going up. 

• Demand for goods and services is high, which leads to a shortage of raw materials, and possibly a shortage of workers. 
• Whenever there's a shortage of anything, the prices tend to go up. 
• Car manufacturers are paying more for steel, aluminum, and so forth, so they raise the prices of cars. 
• When employees begin to feel the pinch of higher prices, they demand higher wages.

One price hike leads to another, as businesses and workers take turns trying to match the latest increase. 

• Companies are paying more for electricity, raw materials, and workers. 
• Workers take home bigger paychecks but they lose the advantage because everything they buy is more expensive than it used to be. 
• Landlords are raising rents to cover their increased costs. 

Pretty soon, inflation is out of control and prices are rising at 5%, 10%, or in extreme cases, upwards of 20% a year.  From 1979 to 1981, United States had double-digit annual inflation.

The Economic Climate (4): The Hot Climate

The Hot Economic Climate

Business is booming, and people are crowding into stores, buying new cars, new couches, new VCRs, new everythings.  Merchandise is flying off the shelves, stores hire more clerks to handle the rush, and factories are working overtime to make more products. 

When the economy reaches the high-heat phase, factories are making so many products that merchandise is piling up at every level: in the stores, in the warehouses, and in the factories themselves.  Store owners are keeping more goods on hand, so they won't be caught short.

Jobs are easy to find, for anybody who's halfway qualified, and the help-wanted ads in the newspapers go on for several pages.  There's no better time for teenagers and recent college grads to enter the workforce than in the middle of a hot economy.

It sounds like the perfect situation: 

• Businesses of all kinds are ringing up big profits;
• the unemployment lines are getting shorter; and
• people feel prosperous, confident, and secure in their jobs. 
• That's why they're buying everything in sight. 

But in the world of finance, a hot economy is regarded as a bad thing.  It upsets the professional investors on Wall Street.  If you pay attention to the business news, you'll see headlines that read:  "Economy Strong, Nation Prosperous, Stock Market Drops 100 Points."

The main worry is that a hot economy and too much properity will lead to inflation.

The Economic Climate (3): Hot, cold and warm or Goldilocks climate

In the economic climate, there are 3 basic conditions:

• hot,
• cold and
• warm.

A hot climate makes investors nervous.

A cold climate depresses them.

What they're always hoping for is the warm climate, also known as the Goldilocks climate, when everything is just right. 

But it is hard to maintain the Goldilocks climate.  Most of the time, the economy is moving toward one extreme or another:  from hot to cold and back again.

The Economic Climate (2): Farmers and the Weather

At one time, when 80% of the population owned farms or worked on farms, the economic climate had everything to do with weather. 

If a drought burned up the crops, or they drowned in the rain, farmers couldn't make money.  And when the farmers had no money, the local general store wasn't doing any business, and neither were the suppliers to the general store.  But when the weather was favourable, farms produced a record harvest that put cash in farmers' pockers.  The farmers spent the money at the general store, which put cash in the store owner's pockets.  The store owners would restock the shelves, which put cash in the suppliers' pockets.  And so on.

No wonder the weather - and not the stock market - was the favourite topic at lunch counters and on street corners.  Weather was so important to people's livelihood that a book of homespun predictions, The Farmer's Almanc, was a perennial bestseller.  You don't see any weather books on the best-seller lists today.  But books about Wall Street make those lists quite often.

Today, with less than 1% of the population involved in farming, the weather has lost much of its influence.  In the business world, people pay less attention to the weather report and more attention to the reports on

• interest rates,
• consumer spending, and
• so forth, that come out of Washington and New York. 

These are the man-made factors that affect the economic climate.

In the economic climate, there are three basic conditions:

• hot,
• cold, and
• warm.

The Economic Climate (1): Companies live in this economic climate

Companies live in a climate - the economic climate.

They depend on the outside world for survival, just as plants and humans do. 

• They need a steady supply of capital, also known as the money supply.
• They need buyers for whatever it is they make, and
• Suppliers for whatever materials they make it from. 
• They need a government that lets them do their job without taxing them to death or pestering them to death with regulations.

When investors talk about the economic climate, they don't mean sunny or cloudy, winter or summer.  They mean the outside forces that companies must contend with, which help determine whether

• they make money or
• lose money,

and ultimately, whether they

• thrive or
• wither away. 

Maybank Research ups Hartalega’s earnings forecast

Maybank Research ups Hartalega’s earnings forecast
Written by Maybank Investment Research
Tuesday, 26 January 2010 10:00

KUALA LUMPUR: Maybank Investment Research has raised the earnings outlook for Hartalega by between 12% and 19% and lifted the target price to RM8.30.

It said on Tuesday, Jan 26 it expects 3QFY10 results are expected to again beat consensus forecasts. It has a Buy call on RM7.77.

“Strong earnings and margins should extend into FY11 before industry capacity catches up and restocking activities abate, potentially impacting ASP (average selling price) and margins in FY12.

“Nevertheless, we think that Hartalega, with its superior technical abilities, should be able to ride this out by raising operating efficiencies. Maintain Buy. Our new TP is DCF-derived,” it said.

Buy and Hold vs. Market Timing

Buy and Hold = Select your stocks for your portfolio and hold.

Stock picking is easier than timing whole market.

Nobody can predict the future.

Even a broken clock is right twice a day.

What's luck got to do with it?

Is this person skillful or lucky?

For every action, there's an opposite reaction.

Buyers & Sellers, Bulls & Bears: that is what makes the markets.

The higher the risk, the higher the expected return.

http://video.yahoo.com/watch/3913819

Chat site for local or regional stocks

There are many blogs on local and regional investing. 

Which is a good chat site(s) to visit for sharing on local or regional stocks?  Any recommendations?

Fitch upgrades Indonesia

Fitch upgrades Indonesia
Published: 2010/01/26


HONG KONG: Fitch Ratings upgraded Indonesia's sovereign rating yesterday to one notch below investment grade, giving a vote of confidence that is likely to spur further investments in Southeast Asia's biggest economy.

Indonesia's rating was raised to BB plus, with Fitch citing rising foreign exchange reserves, improving public finances and strong growth prospects as key factors behind the move. The outlook on the rating is stable.

The rupiah currency snapped back from early lows and spreads on Indonesian credit default swaps tightened after the upgrade of its long-term foreign and local currency ratings, and analysts said an investment grade rating was likely in the next few years.

"This (upgrade) reiterates what markets have been saying for a long time now, that Indonesia is a great credit story but it has some more work to do before getting that investment grade rating," said Kenneth Akintewe, a fund manager at Aberdeen Asset Management in Singapore who manages US$500 million (US$1 = RM 3.41) in assets.

Though foreign investors have been snapping up its bonds and stocks on its strong economic outlook as well as its high yield, analysts said high and volatile bouts of inflation and weak infrastructure meant its debt yields were close to those of Argentina - which has billions of US dollars in unsettled debt.

The stock market jumped over 80 per cent and bonds posted equity-like returns last year as investors have been attracted by the tantalising prospect that relatively stable politics and healthy economic growth could catapult the country to investment-grade status in a few years to stand alongside BRIC nations Brazil, Russia, India and China.

A US$2 billion Indonesian government bond sale earlier this month attracted US$4.5 billion in orders, bankers said.

Pimco, the world's biggest bond fund manager, recently said that it expects the economy to get an investment grade rating in the next three to five years.

The rupiah was the best performing Asian currency last year, gaining 17 per cent, and analysts are bullish about its prospects this year, too.

"I see capital gains for holding Indonesia's bonds with maturity above 10 years for long-term investors and the rupiah should also get a boost," Gunawan said.

Fitch now has the highest rating for Indonesia among the three major rating agencies, though it remains below its investment grade rating prior to the 1997 Asian financial crisis.

Standard & Poor's rates Indonesia's unsecured foreign currency debt at BB minus, while Moody's Investors Service has its sovereign foreign currency rating at Ba2, two notches below investment grade.

The upgrade means it is the highest ranking non-investment grade country in Asia ahead of the Philippines and Vietnam.

Fitch noted, however, that the country's relatively shallow capital markets remained vulnerable to risks surrounding a reversal of carry trades or sudden emerging-market risk aversion. It also said more reforms in its financial sector were needed.

"The concerns on the ground are the success of the reforms. To get investment grade, the reforms would have to play out," said Wellian Wiranto, Asian economist at HSBC in Singapore. - Reuters

Some Lowest P/E Stocks

LTKM 3.02
KUMPULAN FIMA 4.06
MEASAT GLOBAL 4.54
COASTAL 5.31
AJIYA 5.40
KLCC PROP 5.76
PANTECH 5.87
DXN 6.15
POH KONG 6.22

Hong Leong's offer undervalues EONCap: Chairman

Hong Leong's offer undervalues EONCap: Chairman
By Chong Pooi Koon
Published: 2010/01/26

EON Capital has sought clarification from Hong Leong 'on a range of details' in its buyout proposal, particularly on the valuation.

EON Capital Bhd (EONCap)(5266), which must decide on Hong Leong Bank Bhd's takeover offer by tomorrow, may try to remove the clause that restricts it from talking to other potential bidders while asking for a higher price.
 EONCap, the smaller of the two banks, said it has yesterday sought clarification from Hong Leong "on a range of details" in its buyout proposal, particularly on the valuation.

"The board (of directors) is evaluating this approach, but on the face of it the offer price significantly undervalues EONCap," chairman Tan Sri Syed Anwar Jamalullail said in a statement yesterday.

Hong Leong, the sixth largest local bank, last Thursday said it will offer RM7.10 cash per share to take over EONCap. The offer priced EONCap at 1.4 times book value, which falls in the lower end of the past valuations range in local banking deals.

Still, many banking analysts feel that the price offered was fair given EONCap's weaker franchise, though others argued that scarcity premiums should be attached as there are not many local lenders left available for a takeover.

Hong Leong has also set strict conditions in its proposal, one of which requires EONCap to deal with it exclusively on the sale.

"In evaluating the Hong Leong Bank offer, we will consider all alternatives open to us in order to fulfil our responsibility to shareholders," Syed Anwar said yesterday.

Meanwhile, EON Banking Group chief executive officer Michael Lor was quoted by Bernama news agency as saying that EONCap's board was also looking into other offers as there were interested parties.

"If there are better opportunities, why not pursue all the alternatives?" he told reporters in Petaling Jaya yesterday. Lor, however, said that he did not know whether other banks had submitted their applications to Bank Negara Malaysia to participate in the negotiations.

EONCap said it had launched a three-year transformation programme in October 2007, which sharply improved the bank's performance despite difficult economic conditions in 2009.

"In the past year, we have seen our transformation programme succeeding. As Malaysia emerges from the economic downturn, EONCap is well positioned for future value creation," Syed Anwar said.

Public Bank lowered to 'sell' at Citi

Public Bank lowered to 'sell' at Citi
Published: 2010/01/26

Public Bank Bhd, Malaysia’s third biggest lender, was downgraded to “sell” from “hold” at Citigroup Inc. amid the bank’s lower dividend outlook.

Citigroup also cut Public Bank’s share price estimate to RM10.90 from RM11.67. -- Bloomberg

Hartalega gains as target price raised

Hartalega gains as target price raised
Published: 2010/01/26

Hartalega Holdings Bhd, a Malaysian rubber-glove maker, rose to a record after Maybank Investment Bank Bhd increased the share price forecast, saying fiscal third-quarter earnings due on January 28 will exceed consensus forecasts.

The stock gained 1.7 per cent to RM7.90 at 9:38 am local time, set for the highest level since it went public on April 17, 2008.

Maybank raised the target price for the stock to RM8.30 from RM6.50. -- Bloomberg

The Company When It's Young: Long on expectations and short on experience. Can grow very fast and High Risk.

The young company is full of energy, bright ideas, and hope for the future.  It is long on expectations and short on experience. 

It has the cash that was raised in the offering, so chances are it doesn't have to worry about paying its bills at this point.  It expects to be earning a living before the original cash runs out, but there's no guarantee of that.

In its formative years, a company's survival is far from assured.  A lot of bad things can happen. 

• It may have a great idea for a product but spend all its money before the product is manufactured and shipped to the stores. 
• Or maybe the great idea turns out not to have been so great after all. 
• Or maybe the company gets sued by people who say they had the great idea first, and the company stole it.  If the jury agrees with the plaintiffs, the company could be forced to pay millions of dollars it doesn't have. 
• Or maybe the great idea becomes a great product that fails a government test and can't be sold in this country. 
• Or maybe another company comes along with an even greater product that does the job better, or cheaper, or both.

In industries where the competition is fierce, companies knock each other off all the time.  Electronics is a good example. 

• Some genius in a lab in Singapore invents a better relay switch, and six months later it's on the market, leaving the other manufacturers with obsolete relay switches that nobody wants.

It is easy to see why 1/2 of all new businesses are dissolved within 5 years, and why the most bankruptcies happen in competitive industries.

Because of the variety of calamities that can befall a company in the high-risk juvenile phase of its life, the people who own the shares have to protect their investment by paying close attention to the company's progress. 

• You can't afford to buy any stock and then go to sleep and forget about it, but young companies, especially, must be followed every step of the way. 
• They are often in the precarious position where one false step can put them into bankruptcy and out of business. 
• It's especially important to assess their financial strength - the biggest problem with young companies is that they run out of cash.

When people go on vacation, they tend to take twice as many clothes as they're going to need, and half as much money.  Young companies make the same mistake about money.  They start out with too little.

Now for the good part: 

• Starting from scratch, a young company can grow very fast. 
• It's small and its restless, and it has plenty of room to expand in all directions. 

That's the key reason young companies on the move can outdistance the middle-aged companies that have had their growth spurt and are past their prime.

The Company in Middle Age (2): Midlife crisis of Apple

The company in middle age can have a midlife crisis. 

Whatever it's been doing doesn't seem to be working anymore.  It abandons the old routines and thrashes around looking for a new identity.  This sort of crisis happens all the time.  It happened to Apple.

1980:  In late 1980, just after Apple went public, it came out with a lemon:  the Apple III.  Production was halted while the problems were ironed out, but then it was too late.  Consumers had lost faith in Apple III.  They lost faith in the whole company.

There's nothing more important to a business than its reputation.  A restaurant can be 100 years old and have a wall full of awards, but all it takes is one case of food poisoning or a new chef who botches the orders, and a century's worth of success goes out the window.  So to recover from its Apple III fiasco, Apple had to act fast.  Heads rolled in the front office, where several executives were demoted.

The company developed new software programs, opened offices in Europe, installed hard disks in some of its computers.  On the plus side, Apple reached $1 billion in annual sales in 1982, but on the minus side, it was losing business to IBM, its chief rival.  IBM was cutting into Apple's territory: personal computers.

Instead of concentrating on what it knew best, Apple tried to fight back by cutting in on IBM's territory:  business computers.  It created the Lisa, a snazzy machine that came with a new gadget:  the mouse.  But in spite of the muse, the Lisa didn't sell.  Apple's earnings took a tumble, and so did the stock price - down 50% in a year.

Apple was less than 10 years old, but it was having a full-blown midlife crisis.  Investors were dismayed, and the company's management were feeling the heat.  Employees got the jitters and looked for other jobs.  Mike Markkula, Apple's president, resigned.  John Sculley, former president of Pepsi-Co, was brought in for the rescue attempt.  Sculley was no computer experts, but he knew marketing.  Marketing is what Apple needed.

Apple was split into 2 dividsions, Lisa and Macintosh.  There was spirited rivalry between the two.  The Macintosh had a mouse like the Lisa and was similar in other respects, but it cost much less and was easier to use.  Soon, the company abandoned the Lisa and put all its resources into the Macintosh.  It bought TV ads and made an incredible offer:  Take one home and try it out for twenty-four hours, for free.

The orders poured in and Apple sold 75,000 Macintoshes in 3 months.  The company was back on track with this great new product.  There was still turmoil in the office, and Jobs had a falling out with Sculley.

This is another intersting aspect of corporate democracy:  Once the shares are in public hands, the founder of the company doesn't necessarily get what he wants.

Sculley changed a few things around and solved a few more problems, and the Macintosh ended up doing what the Lisa was supposed to do:  It caught on with the business crowd.  New software made it eary to link one Macintosh to another in a network of computers.  By 1988, more than a million Macintoshes had been sold.

A company's midlife crisis puts investors in a quantdary.  If the stock has already dropped in price, investors have to decide whether

• to sell it and avoid even bigger losses or
• hold on to it and hoe that the company can launch a comeback. 

In hindsight, it's easy to see Apple recovered, but at the time of the crisis, the recoverry was far from assured.