Written by Joseph Chin of theedgemalaysia.com
Friday, 29 April 2011 20:14
KUALA LUMPUR: EON CAPITAL BHD [] said the board of directors had secured the additional payment of RM311.9 million after much negotiations with HONG LEONG BANK BHD [] (HL Bank).
EONCap chairman Gooi Hoe Soon said on Friday, April 29 the directors intended to manage this transaction fairly and equitably to all parties concerned, especially enhancing shareholders value for all shareholders.
“The additional interim dividend payment is in addition to the offer price of RM5.06 billion and was secured after much negotiation with Hong Leong Bank, and we’re pleased with the result,” he said.
EONCap announced on Friday that EON Bank Bhd has proposed a dividend of RM311.94 million, translating into 44.9 sen per share, but to be paid to its parent, EONCap.
The proposed interim dividend was a surprise when EONCap announced to Bursa Malaysia early Friday it had accepted HL Bank’s offer of RM5.06 billion or RM7.30 per share.
EONCap also said HL Bank confirmed it had no objection to EON Bank Bhd declaring and paying the interim net dividend upon receipt of the approval from Bank Negara Malaysia.
EONCap announced on Friday it had accepted HL Bank’s offer to acquire the entire assets and liabilities of EONCap for RM5.06 billion following a High Court decision on Thursday which dismissed a petition filed by Primus (Malaysia) Sdn Bhd which had opposed the takeover.
The transaction, when completed, which will result in Hong Leong Bank becoming the fourth largest banking group in Malaysia, had earlier been approved by a majority of EONCap shareholders who had passed a resolution in favour of the move at EONCap’s EGM in September 2010.
Shareholders’ approval had been subject to a final decision being made by the High Court which has now dismissed the petition by Primus with costs.
In the latest development, Primus had on Friday served on EONCap’s solicitors a notice of appeal to the Court of Appeal. The move was to appeal against the decision of the High Court handed down on Thursday.
On the interim net dividend of RM311.9 million subject to the approval from Bank Negara Malaysia, Gooi said HL Bank had agreed to the interim dividend payment not being deducted from its offer price.
“The directors intend to manage this transaction in a manner that is fair and equitable to all parties concerned, especially enhancing shareholders value for all shareholders,” he said.
Gooi said EONCap believed all stakeholders would be well-served by this move which would see the enlarged entity not only become a larger banking group with total assets in excess of RM140 billion “but it shall also be a stronger force in the regional banking arena.”
Gooi said that this move was also in line with the ongoing consolidation of the banking industry in the country and the boards of both banks will collaborate to achieve a successful transition.
“EONCap’s solid foundation has been built on developing close relationships with our employees and customers, coupled with in-depth knowledge of the local market and core business segments. It goes without saying that our performance particularly in recent years has been due to the integrated effort of a strong team of people who have done good work for the Bank.”
“We are also making every effort to ensure that the transition will have minimum impact on our employees and customers by making it as smooth as possible,” he said.
Keep INVESTING Simple and Safe (KISS) ****Investment Philosophy, Strategy and various Valuation Methods**** The same forces that bring risk into investing in the stock market also make possible the large gains many investors enjoy. It’s true that the fluctuations in the market make for losses as well as gains but if you have a proven strategy and stick with it over the long term you will be a winner!****Warren Buffett: Rule No. 1 - Never lose money. Rule No. 2 - Never forget Rule No. 1.
Thursday 5 May 2011
Silver tumbles again, gold continues decline
May 5, 2011 - 7:07AM
A 5 per cent tumble in silver marked its biggest three-day loss in five years, and gold dragging with it as speculators continued to dump long positions after margins requirements were hiked early this week.
Spot silver dropped 4.9 per cent to $US39.58 an ounce having earlier hit a near one-month low at $US38.95.
Silver has now lost 20 per cent, the conventional criteria for a bear market, since it rallied to a record high near $US50 an ounce last Thursday.
Advertisement: Story continues below
Spot gold was down 1.6 per cent at $USUS1,515.30 an ounce, having hit a record $US1,575.79 on Monday.
Gold also notched its worst three-day decline since January despite a broad dollar drop and a ramping up of gold reserves by Mexico. Despite a sharp pullback, silver is still one of the top-performing commodities of the year with a 30 per cent gain.
But investors remained wary of a market in almost chronic surplus and a highly volatile price.
Sentiment among precious metals investors also took a hit after a report said high-profile investor George Soros, who was bullish on gold and a top investor in gold funds, has been selling gold and silver in the past month or so.
"With the CME raising three times in a week the margin requirement of silver, that was enough to disrupt the parabolic move in silver prices," said Mark Luschini, chief investment strategist of broker-dealer Janney Montgomery Scott, which manages $US53 billion in client assets.
Spot silver dropped 4.9 per cent to $US39.58 an ounce by 3:17 p.m. EDT (1917 GMT), having earlier hit a near one-month low at $US38.95.
Technicals were in focus after silver broke below its 20-day moving average on Tuesday, which had held since February. But prices were still well above the 100- and 200-day averages, after a 170 per cent rally over the last 12 months.
Silver's decline sent the gold/silver ratio to a three-week high near 40 from just below 32 last Thursday.
Spot gold was down 1.6 per cent at $US1,515.30 an ounce, having hit a record $US1,575.79 on Monday.
COMEX June gold futures settled down $US25.10, 1.6 per cent, at $US1,515.30. Gold futures volume topped 230,000 lots, one-third above its 250-day average.
Holdings of the largest gold-backed exchange-traded-fund (ETF), New York's SPDR Gold Trust, fell 0.4 per cent from Monday to Tuesday, while the largest silver-backed ETF, New York's iShares Silver Trust, fell about 1 per cent.
Also factoring into gold was news that George Soros' big $US28 billion firm and some hedge funds have been selling gold and silver, while other notable managers including John Paulson continued to favor precious metals, the Wall Street Journal reported, citing sources.
In the third quarter of 2010, Soros reduced some of his big bets on gold, a market he has called "the ultimate bubble."
The bullion market largely ignored news that Mexico's central bank has beefed up their bullion reserves by buying over 90 tonnes of gold, more than $US4 billion worth, over the past couple of years to put some of their massive foreign exchange holdings to work.
"The size (of the purchase) is certainly pretty chunky to have been accomplished in that space of time. So it certainly gives another sizable layer of support to gold's position in the international reserves system," said Credit Suisse precious metals analyst Tom Kendall.
Platinum fell 1.8 per cent to $US1819.74 an ounce, while palladium fell more than 5 per cent to $US742.05.
Reuters
http://www.smh.com.au/business/markets/silver-tumbles-again-gold-continues-decline-20110505-1e8up.html#ixzz1LQOkw78T
BANK NEGARA LIKELY TO RAISE SRR BY FURTHER 1%
BANK NEGARA LIKELY TO RAISE SRR BY FURTHER 1%
03 May 2011
BANK NEGARA is likely to raise the Statutory Reserve Requirement (SRR) of banks by another 1% at its monetary policy meeting in May 2011 to further tighten liquidity, acccording to economists. Selective capital controls may also be introduced to stem the large amounts of liquidity in the system. The move to increase the SRR is not surprising as BANK NEGARA is moving towards normalisation of 4%. In Mar 2011, the Central Bank announced a 1% increase in the SRR to 2%, effective Apr 2011. It last reviewed the SRR in 2009.
LIQUIDITY ISSUE
" .... To address the liquidity issue, increasing interest rates is not so effective. The higher interest rates will merely attract more funds, and this will eventually increase inflation. Raising the SRR would be a more appropriate measure ...." said MIDF RESEARCH Chief Economist, ANTHONY DASS. " .... We do not rule out further normalisation move in the SRR ratio towards 4% by the end of the year (2011). Therefore, we expect another adjustment of 1% in May (2011), raising SRR to 3% - a pre-emptive measure to manage the risk of this build-up of liquidity from resulting in macroeconomic and financial imbalances ...." said AMRESEARCH Senior Economist, MANOKARAN MOTTAIN.
MANOKARAN added that despite the inflation rate hitting a 22-month high in Feb 2011, he did not expect any Overnight Policy Rate adjustment (OPR) for fifth consecutive time in the next MPC meeting in May 2011. " .... Given the economy in a lethargic mood, a steady interest rate is highly desirable and instrumental for the recovery process, especially when the Government is embarking on mega investment plans under the Economic Transformation Programme ...." said MANOKARAN.
OPR HIKE IN 2H-2011
He expected a single OPR hike in 2H-2011, once the domestic economy achieved steady but strong growth. On selective capital controls, ANTHONY said this could be taxes on inflow or outflow. " .... It can be either quantity based or price based. This is something which is already done in China, Indonesia, Taiwan and South Korea ...." said DASS.
LIQUIDITY GROWING AT DOUBLE DIGIT He said since May 2010, liquidity has been growing by double digits every month.
The higher SRR would mop up between RM6 bil and RM7 bil from the banking system, which is currently flush with excess liquidity of RM250 bil. Increasing the SRR is a one-off move that will soak up some RM6 bil from the banking system.
03 May 2011
BANK NEGARA is likely to raise the Statutory Reserve Requirement (SRR) of banks by another 1% at its monetary policy meeting in May 2011 to further tighten liquidity, acccording to economists. Selective capital controls may also be introduced to stem the large amounts of liquidity in the system. The move to increase the SRR is not surprising as BANK NEGARA is moving towards normalisation of 4%. In Mar 2011, the Central Bank announced a 1% increase in the SRR to 2%, effective Apr 2011. It last reviewed the SRR in 2009.
LIQUIDITY ISSUE
" .... To address the liquidity issue, increasing interest rates is not so effective. The higher interest rates will merely attract more funds, and this will eventually increase inflation. Raising the SRR would be a more appropriate measure ...." said MIDF RESEARCH Chief Economist, ANTHONY DASS. " .... We do not rule out further normalisation move in the SRR ratio towards 4% by the end of the year (2011). Therefore, we expect another adjustment of 1% in May (2011), raising SRR to 3% - a pre-emptive measure to manage the risk of this build-up of liquidity from resulting in macroeconomic and financial imbalances ...." said AMRESEARCH Senior Economist, MANOKARAN MOTTAIN.
MANOKARAN added that despite the inflation rate hitting a 22-month high in Feb 2011, he did not expect any Overnight Policy Rate adjustment (OPR) for fifth consecutive time in the next MPC meeting in May 2011. " .... Given the economy in a lethargic mood, a steady interest rate is highly desirable and instrumental for the recovery process, especially when the Government is embarking on mega investment plans under the Economic Transformation Programme ...." said MANOKARAN.
OPR HIKE IN 2H-2011
He expected a single OPR hike in 2H-2011, once the domestic economy achieved steady but strong growth. On selective capital controls, ANTHONY said this could be taxes on inflow or outflow. " .... It can be either quantity based or price based. This is something which is already done in China, Indonesia, Taiwan and South Korea ...." said DASS.
LIQUIDITY GROWING AT DOUBLE DIGIT He said since May 2010, liquidity has been growing by double digits every month.
The higher SRR would mop up between RM6 bil and RM7 bil from the banking system, which is currently flush with excess liquidity of RM250 bil. Increasing the SRR is a one-off move that will soak up some RM6 bil from the banking system.
Wednesday 4 May 2011
Investor backlash
Investor backlash
Published: 2011/05/04
Kuala Lumpur: Companies that were red-flagged by auditors and those that reported stark difference in their audited net earnings, saw their stocks punished by investors yesterday.
The selldown in some of the companies was systematic, as inves-tors were wary of their long-term prospects.
Since Friday, some 16 companies either had their books qualified by external auditors, or had revealed significant variance in their audited net earnings.
From the 16, eight companies saw their share prices fall, while two closed unchanged. Shares in the other six companies were untraded yesterday.
Sumatec Resources Bhd saw its share price fall by as much as 48 per cent to close the trading day 13 sen a share.
The Sumatec warrant, which also one of the top 10 actively traded securities fell by more than 50 per cent to 7 sen.
Sumatec's auditors SJ Grant Thornton was not convinced of the company's ability to secure new contracts.
The auditor highlighted that Sumatec did not impair goodwill on its subsidiary's consolidation and deferred tax assets of RM33.48 million and RM13.15 million respec-tively.
It also added that the company's trade receivables of RM5.91 million have been long outstanding and not impaired.
"I think, in most cases, the auditors are just making sure that provisions are being made on uncollectable debts. The rule of thumb today is to make provision for debts that can't be collected in six months," said Jupiter Securities head of research Pong Teng Siew.
Other notable stocks that fell include DBE Gurney Resources Bhd and Alam Maritim Resources Bhd.
DBE's shares fell by more than 5 per cent after it reported an audited net loss of RM3.71 million, more than 17 times of its unaudited net loss of RM202,000.
Meanwhile, Alam Maritim's shares fell by 4 per cent after it announced an audited net loss of RM12.9 million for the financial year ended December 2010, as compared to its unaudited net profit of RM2.2 million.
According to analysts, these variance between unaudited and audited numbers will, to a certain extent, change investors' long-term view of the companies.
"As you can see in today's selldown in some of the stocks, investors do take into account all these. Variations like these will make investors cautious of a company's sustainability and the credibility of its unaudited accounts," OSK Research head of research Chris Eng added.
While most analysts feel that most of these "incidents" are mainly driven by companies' misinterpretation of the new accounting standards, some feel that it could be a sign of more bad news to come.
"I think we can't discount the fact that it may be a prelude to bigger adjustments later," said Pong.
The selldown in some of the companies was systematic, as inves-tors were wary of their long-term prospects.
Since Friday, some 16 companies either had their books qualified by external auditors, or had revealed significant variance in their audited net earnings.
From the 16, eight companies saw their share prices fall, while two closed unchanged. Shares in the other six companies were untraded yesterday.
Sumatec Resources Bhd saw its share price fall by as much as 48 per cent to close the trading day 13 sen a share.
Sumatec's auditors SJ Grant Thornton was not convinced of the company's ability to secure new contracts.
The auditor highlighted that Sumatec did not impair goodwill on its subsidiary's consolidation and deferred tax assets of RM33.48 million and RM13.15 million respec-tively.
It also added that the company's trade receivables of RM5.91 million have been long outstanding and not impaired.
"I think, in most cases, the auditors are just making sure that provisions are being made on uncollectable debts. The rule of thumb today is to make provision for debts that can't be collected in six months," said Jupiter Securities head of research Pong Teng Siew.
Other notable stocks that fell include DBE Gurney Resources Bhd and Alam Maritim Resources Bhd.
DBE's shares fell by more than 5 per cent after it reported an audited net loss of RM3.71 million, more than 17 times of its unaudited net loss of RM202,000.
Meanwhile, Alam Maritim's shares fell by 4 per cent after it announced an audited net loss of RM12.9 million for the financial year ended December 2010, as compared to its unaudited net profit of RM2.2 million.
According to analysts, these variance between unaudited and audited numbers will, to a certain extent, change investors' long-term view of the companies.
"As you can see in today's selldown in some of the stocks, investors do take into account all these. Variations like these will make investors cautious of a company's sustainability and the credibility of its unaudited accounts," OSK Research head of research Chris Eng added.
While most analysts feel that most of these "incidents" are mainly driven by companies' misinterpretation of the new accounting standards, some feel that it could be a sign of more bad news to come.
"I think we can't discount the fact that it may be a prelude to bigger adjustments later," said Pong.
Read more: Investor backlash http://www.btimes.com.my/Current_News/BTIMES/articles/redred/Article/index_html#ixzz1LKi3cT2u
13 Essential Rules for Investing
I just finished reading The Bogleheads’ Guide to Investing, and it is the best personal finance book I read this year. The book is very practical with tons of useful tips. It’s also witty which makes it fun to read. It’s philosophy of investing is long term with buy-and-hold strategy, and it proves the effectiveness of this strategy with numerous studies.
Here I’d like to share with you 13 investing rules I summarized from the book. I believe they are essential for successful investing. Here they are:
1. Choose a sound financial lifestyle
This is the first thing you should do before investing. There are three steps you need to take:
- Graduate from the paycheck mentality to the net worth mentality.People with paycheck mentality spend to the max based on their net incomes. Their financial lifestyle is all about earning to spend. On the other hand, people with net worth mentality focus on building net worth over the long term.
- Pay off credit card and high-interest debts
Paying your high-interest debts is the highest, risk-free, tax-free return on your money that you can possibly earn. - Establish an emergency fundFor most people, six months living expenses is adequate.
2. Start early and invest regularly
Saving is the key to wealth, so there is no substitute for frugality. And, due to the power of compounding, starting early makes a huge difference.
3. Know what you are buying
Know more about the various investment choices available to you, such as stocks, bonds, and mutual funds. Don’t invest in things you don’t understand.
4. Keep it simple
Simple investing strategy almost always beats the complicated ones. Index investing takes very little investment knowledge, practically no time or effort – and outperforms about 80 percent of all investors.
Instead of hiring an expert, or spending a lot of time trying to decide which stocks or actively managed funds are likely to be top performers, just invest in index funds and forget about it.
However, not all index funds are created equal. Many of them will also charge you high sales commission and high yearly management fee. Do not buy those. Only consider investing in no-load funds with annual expense ratios of 0.5 percent or less, the cheaper the better.
5. Diversify your portfolio
When it comes to investing, the old saying, “Don’t put all your eggs in one basket,” definitely applies. In order to diversify your portfolio, you should try to find investments that don’t always move in the same direction at the same time. A good mix for this is stocks and bonds.
6. Decide your asset allocation
You should decide what a suitable stock/bond/cash allocation for your personal long-term asset allocation plan is. This is the most important portfolio decision you will make.
Investments in stocks, bonds, and cash have proven to be a successful combination of securities for portfolio construction. At times, you will read about other more exotic securities (such as hedge funds, unit trusts, option, and commodity futures). It is advised to simply forget about them.
7. Minimize your investment costs
The shortest route to top quartile performance is to be in the bottom quartile of expenses.Jack Bogle
Costs matter, so it’s critical that you keep your investment costs as low as possible. It is recommended to avoid all load funds and favor low-cost index funds.
8. Invest in the most tax-efficient way possible
For all long-term investors, there is only one objective – maximum total return after taxes.John Templeton
Tax can be your biggest expense, so it’s important to be tax-efficient. One of the easiest and most effective ways to cut mutual fund taxes significantly is to hold mutual funds for more than 12 months.
9. Avoid performance chasing and market timing
I never have the faintest idea what the stock market is going to do in the next six months, or the next year, or the next two.Warren Buffett
Using past performance to pick tomorrow’s winning mutual funds is such a bad idea that the government requires a statement similar to this: “Past performance is no guarantee of future performance.” And market timing (a strategy based on predicting short-term price changes in securities) is something which is virtually impossible to do.
The logical alternative to performance chasing and market timing is structuring a long-term asset allocation plan and then staying the course.
10. Track your progress and rebalance when necessary
Rebalancing is the simple act of bringing your portfolio back to your target asset allocation. Rebalancing controls risk and may reward you with higher returns.
Rebalancing forces us to sell high and buy low. We’re selling the outperforming asset class or segment and buying the underperforming asset class or segment. That’s exactly what smart investors want to do.
11. Tune out the “noise”
Most sales and advertising pitches from brokerage houses and money managers are variations of one single message: “Invest with us because we know how to beat the market.” Far more often than not, this promise is fictitious at best and financially disastrous at worst.
Here is a simple guideline: all forecasting is noise. Believing that “It’s different this time” can cause severe financial damage to your portfolio.
12. Master your emotions
When it’s time to make investing decisions, check your emotions at the door. Things such as blindly following the crowd, trying too hard, or acting on a hot tip will almost always leave you poorer.
Forget the popular but misguided notion that investing is supposed to be fun and exciting. If you seek excitement in investing, you’re going to lose money. Get excited about earning and saving money, but be very dispassionate when it comes to investing.
13. Protect your assets by being well-insured
To be a successful investor requires being a good risk manager. Managing risk means having a plan to cover the downside. That’s what insurance is all about – damage control to prevent the unforeseen from smashing your nest egg.
You need to consider the following type of insurance: life insurance, health care, disability, property, auto, liability, and long-term care.
Three key rules for being properly insured:
- Only insure against the big catastrophes and disasters that you can’t afford to pay for out of pocket.
- Carry the largest possible deductibles you can afford.
- Only buy coverage from the best-rated insurance companies.
Note:
I hope you find these rules useful. I completely agree with all of them, including the “controversial” rule of “tuning out the noise”. A few months ago I read the book Fooled by Randomness which takes different approach but arrives at the same conclusion.
I hope you find these rules useful. I completely agree with all of them, including the “controversial” rule of “tuning out the noise”. A few months ago I read the book Fooled by Randomness which takes different approach but arrives at the same conclusion.
Tuesday 26 April 2011
Great Businesses According to Buffett
Great Businesses According to Buffett
Thursday, March 6th, 2008
I finished digesting the latest Berkshire Hathaway 2007 letter to shareholders today. I found the most interesting part of this year’s letter was Warren Buffett’s discussion of what kinds of businesses turn him on.
The companies that he and Charlie Munger look for are:
Mr. Buffett once again reiterates that “a truly great business must have an enduring ‘moat’ that protects excellent returns on invested capital.” Fat Pitch Financials has been all about finding companies with wide moats ever since I first set up this blog in 2004. Given my economics background, I find Buffett’s arguement for the need for wide moats compelling. He argues that companies that lack a barrier to competition will succumb to the competitive forces of a capitalist market that tend to drive profits to zero. In this year’s letter, Buffett provides the example of GEICO’s and Costco’s low-cost production and Coca-Cola’s (KO) and Gillette’s world-wide brand as formidable barriers that are essential for maintaining enduring competitive advantages. Other durable competitive advantages include legal protections, high switching costs, the network effect and toll bridges. I discussed these barriers to entry in my review of Ten Ways to Build Moats to Hold Back Competition. The key is that these moats need to be “enduring” in order to avoid the creative destruction of capitalism. Companies in industries prone to rapid and continuous change are to be avoided, since it is unlikely their moats will be enduring.
In the past, Mr. Buffett often talked about return on equity, but many had assumed he actually meant returns on invested capital. This assumption was right since in this letter Mr. Buffett explicitly mentions returns on invested capital (ROIC). I think this is the first letter Warren Buffett has been so explicit about the importance on returns on invested capital. He actually also notes the importance of looking at a business’s returns on incremental capital invested when he discusses See’s Candy. Shai Dardasti examined Warren Buffett’s discussion regarding See’s Candy in a recent blog post that I highly recommend.
While Buffett says it is important to have trustworthy management, he also notes that if you restrict your investments to companies with durable competitive advantages that this “eliminates the business[es] whose success depends on having a great manager.” Invest in companies that can be run by an idiot because often one eventually will. Buffett reminds us in his letter that a great business should not require a superstar to produce great results. Buffett uses the example of a successfully growing medical practice led by a premier surgeon, but unlikely to be as successful if this leading surgeon leaves. However, the well know Mayo Clinic is likely to endure regardless of who is running it. This reminder makes me a bit nervous about my investment in Western Sizzlin (WEST), because I think Sardar Biglari is likely critical for that company to produce great returns. Of course, for many years it could be said that Warren Buffett was required to produce great results at Berkshire Hathaway (BRK-A).
Finally, Buffett also notes how advantagous it can be to have a business with low capital investment requirements. I can personally attest to that advantage. My online business has virtually no capital requirements, but has the ability continually increase its earnings.
Great businesses have sustainable competitive advantages, low capital investment requirements, don’t require superstar managers, and are in stable industries. Do you have any companies that fit these criteria? Share them below to see if they can hold up to Buffett’s criteria for great businesses.
http://www.fatpitchfinancials.com/772/great-businesses-according-to-buffett/
Thursday, March 6th, 2008
I finished digesting the latest Berkshire Hathaway 2007 letter to shareholders today. I found the most interesting part of this year’s letter was Warren Buffett’s discussion of what kinds of businesses turn him on.
The companies that he and Charlie Munger look for are:
- Understandable
- Businesses with favorable long-term economics
- Run by trustworthy management
- Selling at sensible prices
Mr. Buffett once again reiterates that “a truly great business must have an enduring ‘moat’ that protects excellent returns on invested capital.” Fat Pitch Financials has been all about finding companies with wide moats ever since I first set up this blog in 2004. Given my economics background, I find Buffett’s arguement for the need for wide moats compelling. He argues that companies that lack a barrier to competition will succumb to the competitive forces of a capitalist market that tend to drive profits to zero. In this year’s letter, Buffett provides the example of GEICO’s and Costco’s low-cost production and Coca-Cola’s (KO) and Gillette’s world-wide brand as formidable barriers that are essential for maintaining enduring competitive advantages. Other durable competitive advantages include legal protections, high switching costs, the network effect and toll bridges. I discussed these barriers to entry in my review of Ten Ways to Build Moats to Hold Back Competition. The key is that these moats need to be “enduring” in order to avoid the creative destruction of capitalism. Companies in industries prone to rapid and continuous change are to be avoided, since it is unlikely their moats will be enduring.
In the past, Mr. Buffett often talked about return on equity, but many had assumed he actually meant returns on invested capital. This assumption was right since in this letter Mr. Buffett explicitly mentions returns on invested capital (ROIC). I think this is the first letter Warren Buffett has been so explicit about the importance on returns on invested capital. He actually also notes the importance of looking at a business’s returns on incremental capital invested when he discusses See’s Candy. Shai Dardasti examined Warren Buffett’s discussion regarding See’s Candy in a recent blog post that I highly recommend.
While Buffett says it is important to have trustworthy management, he also notes that if you restrict your investments to companies with durable competitive advantages that this “eliminates the business[es] whose success depends on having a great manager.” Invest in companies that can be run by an idiot because often one eventually will. Buffett reminds us in his letter that a great business should not require a superstar to produce great results. Buffett uses the example of a successfully growing medical practice led by a premier surgeon, but unlikely to be as successful if this leading surgeon leaves. However, the well know Mayo Clinic is likely to endure regardless of who is running it. This reminder makes me a bit nervous about my investment in Western Sizzlin (WEST), because I think Sardar Biglari is likely critical for that company to produce great returns. Of course, for many years it could be said that Warren Buffett was required to produce great results at Berkshire Hathaway (BRK-A).
Finally, Buffett also notes how advantagous it can be to have a business with low capital investment requirements. I can personally attest to that advantage. My online business has virtually no capital requirements, but has the ability continually increase its earnings.
Great businesses have sustainable competitive advantages, low capital investment requirements, don’t require superstar managers, and are in stable industries. Do you have any companies that fit these criteria? Share them below to see if they can hold up to Buffett’s criteria for great businesses.
http://www.fatpitchfinancials.com/772/great-businesses-according-to-buffett/
Monday 25 April 2011
Numerous housing projects abandoned in Jenjarom
By Story and photos by ELAN PERUMAL| Apr 22, 2011
elan@thestar.com.my
Numerous housing projects abandoned in Jenjarom
Kampung Batu 9 Kebun Baru near Jenjarom in the Kuala Langat district is surrounded with abandoned housing projects and its villagers are fed up.
Over 10 years, the area between Jalan Kebun in Klang and Jenjarom, has attracted numerous development projects; sadly, most of these projects have been left unfinished.
Villagers said they kept stumbling upon new housing projects which were eventually abandoned after a period of time.
As for the village itself, they said, it had not seen much development.
A check by StarMetro showed the village has several abandoned housing projects especially along the branch roads leading to Jenjarom.
The projects ranged from as small as 30 units to over 100 houses and the prices were between RM100,000 and RM300,000.
Most of the projects comprised single-storey terrace houses while some were single-storey semi-detached houses.
A number of the projects were 50% and 70% completed while others were abandoned after some structural works.
Some projects had notice boards with information of the proposed development.
Villager Azman Yusof, 39, said the village had more abandoned houses compared with the number of occupied houses.
He said there were too many abandoned projects in the village and the residents had become fed up of seeing such projects in the area.
“The abandoned projects have become part of our village’s identity and this is not good for our image,” he said.
Another resident Sani Ahmad, 40, said most of the house buyers were from outside the village.
In the past, he said the village used to attract a lot of people during the weekends.
“The house buyers used to visit the projects to see the progress of the development, but they gradually stopped coming after realising work on their houses had been abandoned.
“Most of the projects took off in the mid 90’s and some in the beginning of 2000. Except for a few, the rest have not been completed,” he said.
Sani added most of the projects were carried out by individual landowners through joint ventures with developers.
He said it was sad that hundreds of house buyers had been left feeling cheated as they had not only paid huge sums on deposits but also forced to service monthly bank instalments.
“I hope the government can do something to revive the projects in order to help the victims,” he added.
State housing, building development and squatters committee chairman Iskandar Abdul Samad confirmed there were eight abandoned projects in the area.
He said the state had placed several of the projects under its Abandoned Project Task Force.
“Work on some of the projects have started and we are still involved in negotiations with a few of the developers.
“We are also faced with the challenge of not being able to locate the developers in most of the cases,” he added.
Sunday April 24, 2011
Gold fever rages on
By RASHVINJEET S.BEDI
rashvin@thestar.com.my
The practice of investing in gold is slowly gaining momentum in Malaysia.
THERE'S a lot of talk about gold these days. More Malaysians are investing in the precious metal and even criminals seem to have caught on to the gold bug.
Last month, police nabbed five kidnappers in Klang who demanded 10 one-kilogram gold bars (worth RM1.44mil at that time) from the victim's family. It is believed to be the country's first-ever kidnapping case involving the use of gold bars as ransom.
More recently, the Malaysian Anti-Corruption Commission (MACC) reportedly discovered gold bars in the homes of several Customs officers during raids.
There is good reason why gold is sought after it recorded an all-time price hike this week, reaching US$1,500 (RM4,500) an ounce for the first time in history.
Over the last year, the price of gold has risen approximately 23%; and in the last three years it has risen 98%. While unrest in the Middle East and the situation in Japan are cited for record gold prices in recent months, shaky financial systems are the main reasons why the price of gold has been shooting up over the years.
Companies are now aggressively marketing gold in the form of bars and coins while banks are offering gold-related savings accounts.
In cyberworld, there are countless numbers of websites offering gold products and online forums are hotting up with discussions on investment in the glittering metal.
According to RH Investment Services Labuan director Richard Hull, the rise in the gold price is predominately linked to the amount of US currency in circulation.
He explains that it took 200 years for the US to print US$825bil (RM2.5 tril). But in Sept 2008, the US government printed US$900bil (RM2.7tril) and in March 2009, another US$1.2tril (RM3.6tril). This means that in less than a year, they added over US$2tril (RM6tril) to the money supply or a 370% increase in currency.
“People are investing in precious metals because of distrust in the financial system. They want to put money into something that is real,” says Hull, adding that all the currencies in the world are backed against the US dollar.
He believes there is sound economic reason to estimate that the gold price may reach US$15,000 (RM45,000) an ounce, a rise of 1,000% from its present level.
Ng Yih Pyng, the president of the Federation of Goldsmiths and Jewellers Associations Of Malaysia says jewellery shops in the country started to stock on gold wafer and bars a few years ago when there was demand for it.
“Before, people bought gold in the form of jewellery. Now investors buy gold bars and wafers. Most, if not all jewellery shops, now sell gold bars from 1g to 100g. The trend is becoming stronger every day,” he shares.
People buy based on what they can afford as gold bars are very expensive.
To put it into perspective a 100g gold bar (999.9 purity) that barely sits on the palm can fetch anything between RM15,000 and RM17,000 (depending on the brand) these days. Prices are based on daily updates.
“People are not so confident with currency and other investments, so they diversify a bit,” says Ng, adding that white gold and diamonds have also become popular in the last year.
Acupuncturist Oran Kavity, 52, purchased gold through an online website a few years ago. Kavity had then purchased some property in London, and was unsure of what to do with his remaining funds.
Wanting to diversify his assets, the Londoner put the rest of his money into buying gold. And his gold investments have tripled in value over the last three years.
He sold some of his gold and managed to raise almost RM250,000 for his business venture in Malaysia.
Marcus Chong of mysmartgold.com has observed an increasing interest in gold investment as people are becoming more knowledgeable about gold and are making enquiries.
He says people know they can make profit out of gold and are aware of the different brand names available.
He has also noticed a stark difference in the way people pose questions now compared to just a year ago.
“They used to ask questions like where to place the gold bars and what gold investment is about. Now they are asking direct questions like what's the rate,” he says.
Businesswoman Aldila Tahziz, 35, invested about RM50,000 in gold last September when she wanted to start up her bakery supplies business.
Whenever she needs to raise money for her business, she pawns her gold and gets 70% of the current gold price. She only has to pay the pawnshop RM0.75 per day for storing her gold. When her business is profitable, she reclaims the gold from the pawnshop.
“I keep on rolling the money in my business until I can get back the gold,” says Aldila who also invests in property and shares.
Aldila constantly checks on the price of gold three times a day at least.
She keeps the gold in a safe deposit box and has also purchased some gold coins (dinars), which she keeps at home for emergencies.
Aldila has started investing in silver as well, which has gone up 124% in the last year and 188% in the last three years.
In Malaysia, silver is not as popular as gold, although some gold-traders stock up on it.
Chan Sew Mei (not her real name), 35, has started investing in gold for her five-year-old daughter, purchasing 100g every year for the purpose. In addition, she invests in a gold savings account which will go towards her daughter's education fund.
“I think gold has a certain sentimental meaning and value,” says Chan who also invests in stocks and property.
“When inflation occurs, gold prevails,” quips Chan who was introduced to gold investment by a friend in 2007. She has also diversified to investing in silver.
Jamaluddin Khalid, managing director of Saudagar Emas says many are turning to gold because of the higher returns.
The former bank officer of 20 years got into gold trading in 2009 after some research on the Internet. He recalls his friend making fun of him for selling “one-cent” coins (one dinar) for RM440 back then. But last year, his friend bought a dinar from him for RM580. Today, that one dinar is worth RM690.
“During the time of the prophets, one dinar could buy you a goat. Now, it can still buy one goat. After 1,500 years, it has still retained its value. Even gold dust is sought after these days,” he quips.
Jamaluddin got into the business after researching articles on the Internet. He borrowed money from close friends to start the business and has no regrets.
As a gold trader who doesn't have his own shop, Jamaluddin is wary of meeting anyone and only does it at places with CCTV cameras such as banks. He recalls an occasion when someone wanted to buy 1kg gold bars.
Jamaluddin suggested conducting business at a police station, but the person declined.
Rajen Devadason, a Securities Commission-licensed financial planner withMAAKL Mutual Bhd , notes that the practice of investing in gold is slowly gathering momentum.
Not long ago, he points out, it was theoretically appropriate to have precious metals comprise 5% of a diversified portfolio. Today, he feels 10% is more appropriate because of the “irresponsible action of developed nations, most notably the US, in circulating more currency around”.
He suggests that individuals gradually build up their gold position in stages over the next few years, with the aim of having gold by itself or with the other three precious metals, silver, platinum and palladium, reach between 8% and 10% of their total investment portfolio.
Devadason adds that it makes sense to have between one-tenth and one-fifth of investment in gold coins, wafers or bars. This relatively small portion of the total gold should be kept somewhere safe yet accessible in the event of a financial system meltdown.
“The likelihood of that happening is small, which is why the amount of physical gold that should be kept handy need not be very large,” he rationalises.
He points out that while gold is a safe investment during times of turmoil, human society doesn't just rely on gold for existence.
“Our economic health depends even more on the health of our businesses, on our supply of food and fuel, and in the real estate that houses us and our companies from which our crops spring forth,” he elaborates.
He adds that a well-diversified portfolio should include significant equity exposure in key geographic regions, including the economic powerhouse United States and well-run emerging economies such as China, India and Indonesia.
He also suggests investing in equities that are tied with food production, hard commodity exposure such as oil, equities that are tied to mineral mining and exploration, and either direct real estate or indirect property exposure via real estate investment trusts.
“It is unwise to just invest in gold and any investment should be done as part of a concerted plan to construct a sensibly diversified portfolio,” he advises.
Devadason believes those who are savvy investors will gradually increase their personal purchases of gold over the next one or two years before everyone else wakes up to the fact that gold prices are rising.
He urges caution, though.
“It's likely a bubble will then form. When it bursts, unsophisticated speculators will lose a great deal of money,” he warns.
Wednesday 20 April 2011
Pos Malaysia divestment
Wednesday April 20, 2011
Pos Malaysia divestment
INVEST Malaysia has come and gone, and still there is no winner in the sale by Khazanah Nasional Bhd of its 32.2% stake in Pos Malaysia Bhd.
Perhaps that is apt, since the interests of minorities are very much in focus here, and the sellers need to carefully assess and address what might ultimately be not in line with the spirit of best practises.
Fact: Pos Malaysia's shareholding is highly fragmented about 23,800 shareholders, and ironically, majority owned by minorities.
We can see this from Pos' shareholding at the end of December, where there were 5,478 shareholders who owned a maximum of 100 shares in the postal company. This body of shareholders amounts to 23% of the total number.
A level higher, there are 8,443 shareholders who own between 100 and 1,000 shares, amounting to 35% of the total number of shareholders. And then there are another 8,531 shareholders who own a maximum of 10,000 shares in the company, also comprising about 35% of the total number of shareholders.
This would mean that 93% or a total of 22,452 retail minority shareholders of Pos Malaysia's may not enjoy the potential premium to the current price of RM3.51 as I write this article.
The rest of the shareholders are institutional funds such as the EPF, Socso and other unit trusts which will not enjoy this premium either.
(In a recent media release, Khazanah said it had shortlisted three and recently two bidders from five with offers ranging from RM3.38 to RM4.62 per share.)
Is this right? Should minorities be excluded from the potential upside on offer if the mandatory general offer (MGO) threshold of 33% is not breached?
This debate would be moot if the new owner is merely strategic. But as StarBiz rightly points out, Khazanah is asking bidders for their business plans for Pos Malaysia and rigorously vetting them. This suggests that the new owner could control the company with the 32.2% stake.
On the other hand, we also understand that Khazanah desires a “responsible exit” from Pos Malaysia as its services will impact all Malaysians thus the morally right thing for the seller to do whether control takes place or otherwise.
But the flipside is the possible exclusion of minorities from the premium potentially on offer that goes to only Khazanah because the sales falls short of the threshold level for an MGO by 0.8% .
Pos' book value per share stands at RM1.54 a share and it was reported initially that three shortlisted candidates were bidding between 2.2 times and 3 times, implying an offer range of RM3.38 to RM4.62 per share.
There are convincing arguments for minorities to be unhappy in such a situation where a new owner “slips in” without their consent or participation.
Firstly, there have been occasions in the past where minorities have not benefited from the exercise (such as Tan Sri Tajudin Ramli's 1994 acquisition of a 32% stake in Malaysia Airlines and Primus Pacific Partners' 2008 acquisition of a 20.2% block in EON Capital Bhd at a 55% premium).
Of course, the sellers might cite the possible upside from the stringent due diligence as a mitigating factor. After all, the reported final two shortlisted each bring their own niche expertise to the table, with one possibly looking to inject a bank via DRB, where, Khazanah the seller owns a substantial portion of it.
And Pos itself has been hard at work transforming itself. In June it announced a strategic alliance with UPS and jointly launched PosLaju International Premium, an international express delivery service serving over 215 countries.
And before that in January, Pos Malaysia and Maybank jointly launched a partnership to provide shared banking services at over 400 Pos Malaysia outlets around the country.
Is there a possible resolution to this? It depends.
Existing rules in the Takeover Code deem control as passing only when the 33% threshold has been breached and only then will there be a MGO for the remaining shares at the prevailing price by the offeror. It is essentially a numerical test, the same as in Britain, Hong Kong and Singapore, but the threshold levels are lower at 30%. The reasons cited is that determination of control is subjective.
The reality is that control in many cases can take place way below this threshold levels depending on the shareholding structure.
The more dispersed the shareholding, the easier to wrest control over the company as in this typical case of Pos.
Given the circumstances, it is important for the regulators to go beyond what is contained in the Takeover Code in certain cases, in assessing whether control has passed, and in assessing whether the rights and privileges of minorities might be compromised.
Pos Malaysia could be one such example?
Rita Benoy Bushon is chief executive officer of Minority Shareholder Watchdog Group.
Pos Malaysia divestment
INVEST Malaysia has come and gone, and still there is no winner in the sale by Khazanah Nasional Bhd of its 32.2% stake in Pos Malaysia Bhd.
Perhaps that is apt, since the interests of minorities are very much in focus here, and the sellers need to carefully assess and address what might ultimately be not in line with the spirit of best practises.
Fact: Pos Malaysia's shareholding is highly fragmented about 23,800 shareholders, and ironically, majority owned by minorities.
We can see this from Pos' shareholding at the end of December, where there were 5,478 shareholders who owned a maximum of 100 shares in the postal company. This body of shareholders amounts to 23% of the total number.
A level higher, there are 8,443 shareholders who own between 100 and 1,000 shares, amounting to 35% of the total number of shareholders. And then there are another 8,531 shareholders who own a maximum of 10,000 shares in the company, also comprising about 35% of the total number of shareholders.
This would mean that 93% or a total of 22,452 retail minority shareholders of Pos Malaysia's may not enjoy the potential premium to the current price of RM3.51 as I write this article.
The rest of the shareholders are institutional funds such as the EPF, Socso and other unit trusts which will not enjoy this premium either.
(In a recent media release, Khazanah said it had shortlisted three and recently two bidders from five with offers ranging from RM3.38 to RM4.62 per share.)
Is this right? Should minorities be excluded from the potential upside on offer if the mandatory general offer (MGO) threshold of 33% is not breached?
This debate would be moot if the new owner is merely strategic. But as StarBiz rightly points out, Khazanah is asking bidders for their business plans for Pos Malaysia and rigorously vetting them. This suggests that the new owner could control the company with the 32.2% stake.
On the other hand, we also understand that Khazanah desires a “responsible exit” from Pos Malaysia as its services will impact all Malaysians thus the morally right thing for the seller to do whether control takes place or otherwise.
But the flipside is the possible exclusion of minorities from the premium potentially on offer that goes to only Khazanah because the sales falls short of the threshold level for an MGO by 0.8% .
Pos' book value per share stands at RM1.54 a share and it was reported initially that three shortlisted candidates were bidding between 2.2 times and 3 times, implying an offer range of RM3.38 to RM4.62 per share.
There are convincing arguments for minorities to be unhappy in such a situation where a new owner “slips in” without their consent or participation.
Firstly, there have been occasions in the past where minorities have not benefited from the exercise (such as Tan Sri Tajudin Ramli's 1994 acquisition of a 32% stake in Malaysia Airlines and Primus Pacific Partners' 2008 acquisition of a 20.2% block in EON Capital Bhd at a 55% premium).
Of course, the sellers might cite the possible upside from the stringent due diligence as a mitigating factor. After all, the reported final two shortlisted each bring their own niche expertise to the table, with one possibly looking to inject a bank via DRB, where, Khazanah the seller owns a substantial portion of it.
And Pos itself has been hard at work transforming itself. In June it announced a strategic alliance with UPS and jointly launched PosLaju International Premium, an international express delivery service serving over 215 countries.
And before that in January, Pos Malaysia and Maybank jointly launched a partnership to provide shared banking services at over 400 Pos Malaysia outlets around the country.
Is there a possible resolution to this? It depends.
Existing rules in the Takeover Code deem control as passing only when the 33% threshold has been breached and only then will there be a MGO for the remaining shares at the prevailing price by the offeror. It is essentially a numerical test, the same as in Britain, Hong Kong and Singapore, but the threshold levels are lower at 30%. The reasons cited is that determination of control is subjective.
The reality is that control in many cases can take place way below this threshold levels depending on the shareholding structure.
The more dispersed the shareholding, the easier to wrest control over the company as in this typical case of Pos.
Given the circumstances, it is important for the regulators to go beyond what is contained in the Takeover Code in certain cases, in assessing whether control has passed, and in assessing whether the rights and privileges of minorities might be compromised.
Pos Malaysia could be one such example?
Rita Benoy Bushon is chief executive officer of Minority Shareholder Watchdog Group.
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