Is Growth Always A Good Thing?

Rapid growth in revenue and earnings may be top priorities in corporate boardrooms, but these priorities are not always best for shareholders. We are often tempted to invest large amounts in risky or even mature companies that are beating the drum for fast growth, but investors should check that a company's growth ambitions are realistic and sustainable.

Growth's Attraction
Let's face it, it's hard not to be thrilled by the prospect of growth. We invest in growth stocks because we believe that these companies are able to take shareholder money and reinvest it for a return that is higher than what we can get elsewhere.

Besides, in traditional investing wisdom, growth in sales earnings and stock performance are inexorably linked. In his book "One Up on Wall Street," investment guru Peter Lynch preaches that stock prices follow corporate earnings over time. The idea has stuck because many investors look far and wide for the fastest-growing companies that will produce the greatest share-price appreciation.



Is Growth a Sure Thing?
That said, there is room to debate this rule of thumb. In a 2002 study of more than 2,000 public companies, California State University finance professor Cyrus Ramezani analyzed the relationship between growth and shareholder value. His surprising conclusion was that the companies with the fastest revenue growth (average annual sales growth of 167% over a 10-year period) showed, over the period studied, worse share price performance than slower growing firms (average growth of 26%). In other words, the hotshot companies could not maintain their growth rates, and their stocks suffered.

The Risks
Fast growth looks good, but companies can get into trouble when they grow too fast. Are they able to keep pace with their expansion, fill orders, hire and train enough qualified employees? The rush to boost sales can leave growing companies with a deepening difficulty to obtain their cash needs from operations. Risky, fast-growing startups can burn money for years before generating a positive cash flow. The higher the rate of spending money for growth, the greater the company's odds of later being forced to seek more capital. When extra capital is not available, big trouble is brewing for these companies and their investors.

Companies often try increasingly big - and risky - deals to push up growth rates. Consider the serial acquirer WorldCom. In the 1990s, the company racked up growth rates of more than 20% by buying up little-known telecom companies. It later required larger and larger acquisitions to show impressive revenue percentages and earnings growth. In hopes of sustaining growth momentum, WorldCom CEO Bernie Ebbers agreed to pay a whopping $115 billion for Sprint Corp. However, federal regulators blocked the deal on antitrust grounds. WorldCom's prospects for growth collapsed, along with the company's value. The lesson here is that investors need to consider carefully the sustainability of deal-driven growth strategies.

Being Realistic About Growth
Eventually every fast-growth industry becomes a slow-growth industry. Some companies, however, still pursue expansion long after growth opportunities have dried up. When managers ignore the option of offering investors dividends and stubbornly continue to pour earnings into expansions that generate returns lower than those of the market, bad news is on the horizon for investors.

For example, take McDonald's - as it experienced its first-ever losses in 2003, and its share price neared a 10-year low, the company finally began to admit that it was no longer a growth stock. But for several years beforehand, McDonald's had shrugged off shrinking profits and analysts' arguments that the world's biggest fast-food chain had saturated its market. Unwilling to give up on growth, McDonald's accelerated its rate of restaurant openings and advertising spending. Expansion not only eroded profits but ate up a huge chunk of the company's cash flow, which could have gone to investors as large dividends.

CEOs and managers have a duty to put the brakes on growth when it is unsustainable or incapable of creating value. That can be tough since CEOs normally want to build empires rather than maintain them. At the same time, management compensation at many companies is tied to growth in revenue and earnings.

However, CEO pride doesn't explain everything: the investing system favors growth. Market analysts rate a stock according to its ability to expand; accelerating growth receives the highest rating. Furthermore, tax rules privilege growth since capital gains are taxed in a lower tax bracket while dividends face higher income-tax rates.

The Bottom Line
Justifications for fast growth can quickly pile up, even when it isn't the most prudent of priorities. Companies that pursue growth at the cost of sustaining themselves may do more harm than good. When evaluating companies with aggressive growth policies, investors need to determine carefully whether these policies have higher drawbacks than benefits.


Read more: http://www.investopedia.com/articles/fundamental/03/082003.asp#ixzz2KA5lFtVB

The Greater Fool Theory

The Greater Fool Theory:  Buy from Suckers, Sell to Suckers

Only when the tide goes out, do you discover who's been swimming naked

Honesty is a very Expensive Gift. Do not expect it from Cheap People.

Excellent Quotes by Warren Buffett

WARREN BUFFETT- DON'T MAKE THIS TERRIBLE MISTAKE

Buffett: Buying and selling stocks on current news is a mistake.

Ben Graham Centre - Value Investing Conference 2012

How to Invest like Warren Buffett

1. High ROCE + Low Debt
2. Predictable Earnings
3. Profits generate a lot of Cash Flows
4. Uncomplicated Business (you can understand)
5. Strong Brand + Pricing Power
6. Managers are also Owners of Business

Last speech of Tunku Abdul Rahman

http://www.youtube.com/watch?v=sx8mJnWFAtM&feature=youtu.be&t=1m56s

http://www.youtube.com/watch?v=YkqLwtbGaQ0 http://www.youtube.com/watch?v=XyHDBDLTt0A

http://www.youtube.com/watch?v=XfrD4wVRTc8 

The Best of Value Investing (Video)

Tunku Abdul Rahman Putra Al-Haj

Warren Buffett's Interview from India

Good advice: @ 28 mins

Apa ini? Listen .. listen carefully ........ Shameful!

The student who spoke her mind has my respect.

KLSE Market PE is 16.6 (11.1.2013)

KLCI	11.1.2013
Index Stock	Price		Mkt. Cap		Earnings		Dividends		Equity
Stock Name	RM		RM (m)		RM (m)		RM (m)		RM (m)
AMMB	6.64		20014.2		1527.8		600.4		11152.5
CIMB	7.66		56935		4037.9		1651.1		25940.4
RHB	7.9		19704.2		1713.4		630.5		12944.9
HLFG	14.42		15180.9		1167.8		258.1		8495.8
MBB	9		75960.7		5798.5		3038.4		36967.5
PBB	16.2		57217.2		3510.3		1716.5		14975.4
IOI	5.05		32475.5		1794.2		1006.7		12668.7
MMC	2.63		8008.5		333.7		120.1		6211.9
KLK	22.48		23997.5		1212.0		695.9		7130.9
GENTING	9.51		35372.3		2875.8		283.0		17741.9
PPB	13		15411.5		981.6		277.4		14060.0
BAT	60.9		17388.8		718.5		782.5		431.2
SIME	9.59		57630.8		4146.1		2074.7		26021.0
UMW	12.4		14486.8		503.0		362.2		4264.3
YTL	1.81		19395		1259.4		213.3		13394.3
GENM	3.61		21434.3		1498.9		514.4		12528.1
TM	5.82		20820.5		1189.7		707.9		6975.9
AIRASIA	2.89		8033.9		565.8		136.6		4058.6
UEMLAND	2.15		9307.1		313.4		0.0		4848.3
PETCHEM	13		49840		2637.0		1295.8		9623.0
MHB	4.4		7040		206.5		161.9		2432.0
ARMADA	3.82		11189.4		428.7		78.3		3544.3
TENAGA	6.92		38349.9		4261.1		1112.1		36410.2
PETDAG	22.96		22809.7		655.5		798.3		4778.5
HLBANK	14.98		49128.8		2532.4		2996.9		3542.0
MAXIS	6.55		49128.8		2532.4		2996.9		8100.6
PETGAS	18.98		37556.3		1082.3		788.7		8884.5
YTLPOWER	1.6		11740.7		1249.0		340.5		9539.3
AXIATA	6.69		56920.8		2381.6		1593.8		19399.0
DIGI	5.17		40196.8		1252.2		1366.7		1399.5
			902675.9		54366.7		28599.8		348464.7
Market PE	16.60
DY	3.17%
DPO	0.53
Mkt cap/BV	2.6
ROE	15.6%
EY	6.02%
Risk free int.	3.40%
ERP	2.62%	(Fairly  valued)
KLCI
11.1.2013	1682.7

Related:

KLSE Market PE is 17.7 (19.10.12)

Arithmetic vs logarithmic: Difference between charts plotted using these two scales

Narendra Nathan, ET Bureau Aug 27, 2012,

When data is plotted as a chart, it can be done using two types of scales—arithmetic or semi-logarithmic. The difference in scale can completely alter the shape of the chart even though it is plotted using the same set of data. Consider the three charts given below, which use theSensex data since its inception in 1979 till now. But why does one need to use the semi-logarithmic scale when arithmetic scale is commonly used for plotting charts. This is in order to overcome the inherent weakness of the arithmetic charts.

Arithmetic charts

In arithmetic or linear charts, both X and Y axes scales are plotted at an equal distance. For instance, the Sensex movement from 15,000 to 16,000, that is, an increase of 1,000 points, is treated as equal to the Sensex movement from 16,000 to 17,000, which is another 1,000 points.

This works fine when the data range is small, but will distort the picture when the range is big. Consider the Sensex movement from 20,000 to 21,000, which was a mere 5% increase, but the movement of the first 1,000 points in the Sensex, that is, from 100 to 1,100, was a whopping 1,000% increase. By treating them as equal, the arithmetic chart distorts the picture. This explains why it seems as if the Sensex was almost flat for the first 10 years of its existence in the arithmetic chart.

Logarithmic charts

Logarithmic charts are commonly used in science and engineering when you need the data to be displayed accurately. This is also a necessity when the data that needs to be plotted varies widely. In such charts, the logarithm of the data value (Sensex in the given example) is used as a base to fix the gaps between each data points on the Y axis. This process makes sure that the percentage increase between two data values is depicted clearly. To understand this in a better manner, consider the logarithmic charts given below. Note that the gap between 100 and 200 (100% increase) is equal to the gap between 200 and 400 (next 100% increase). The same gap is maintained for the Sensex increase from 1,000 to 2,000 or from 10,000 to 20,000. Semi-logarithmic charts

In logarithmic charts, both the X and Y axes are plotted using the logarithmic scale. Since there is no possibility of distortion in the X axis (where the date range is plotted), we can continue to use the arithmetic scale while plotting the share price data. In other words, the logarithmic scale is used only along one axis, that is, the Y axis, and therefore, these charts are called semi-log charts.

Advantages

The semi-logarithmic charts can be of immense help while plotting long-term charts, or when the price points show significant volatility even while plotting short-term charts. This is because the chart patterns will appear as more clear in semi-logarithmic scale charts. For example, the very long-term uptrend line in the Sensex is clearly visible in the semi-logarithmic chart (see Semi-logarithmic scale with trendline), not in the arithmetic chart. Similarly, the Sensex was constrained in a slightly upward moving channel for 13 years in the middle, that is, between 1992 and 2005, and this is clearly visible only in the semi-logarithmic chart (see Semi-logarithmic scale with channel). One can plot the charts in the semi-logarithmic scale to easily identify several other chart patterns, some of which we shall explain in the coming weeks.

 

http://articles.economictimes.indiatimes.com/2012-08-27/news/33425208_1_charts-sensex-arithmetic

Semilogarithmic-scale line graphs

If we use a logarithmic scale on the y-axis and if the x-axis remains the same (arithmetic scale), we create a semi-logarithmic scale line graph. With a logarithmic scale on the y-axis we represent the relative change of y over time rather than its absolute change over time. Semi-logarithmic scale line graphs are used to present and interpret rates of change over time rather than magnitude of change. They also allow showing very different magnitudes and ranges of rates between two lines (e.g. high incidence and low mortality rates for the same disease).

Semi-logarithmic scale paper:

• On the y-axis, intervals are logarithmic and no longer arithmetic.
• There are several cycles of tick marks on the y-axis. Each corresponds to an equal distance on the y-axis.
• The values of one cycle are 10 times greater than the values of the previous cycle.
• Within a cycle the 10 tick marks are not equally distant (distance from 2 to 3 is different than distance from 3 to 4). Their progression is geometric, not arithmetic.
• The y axis can cover a large range of y values.

The following characteristics are noteworthy:

• The slope of the line indicates the rate of change (the relative change) of y over time.
• A horizontal straight line indicates no change.
• An upward or downward straight line slope indicates a constant rate of increase or decrease in the measured indicator (e.g. rate) over time.
• Two parallel lines indicate similar rate of change over time.

Tesco’s UK sales growth highest in three years

Tesco’s UK sales growth highest in three years
Published: 2013/01/11


LONDON: Britain’s Tesco plc said its £1 billion (RM4.86 billion) turnaround plan for its home market was starting to work as it posted its highest sales growth in three years over the Christmas period.

Tesco, the world’s third-largest retailer, beat forecasts for underlying sales growth, regaining an edge after a dismal Christmas in 2011 prompted the group’s first profit warning in 20 years and a strategic rethink.

Sales at British stores open more than a year, excluding fuel and VAT sales tax, grew 1.8 per cent in the six weeks to January 5, part of Tesco’s fiscal fourth quarter, compared with analysts’ forecasts in a range of up 0.5 to 1.5 per cent and with a third-quarter fall of 0.6 per cent. Reuters





http://www.fool.com/investing/international/2013/01/09/whats-in-store-for-tescos-shareholders.aspx

Teoh Beng Hock Documentary

http://www.youtube.com/watch?feature=player_embedded&v=2Yq4rLg9TWo#!

MALAYSIA'S first Islamic bond (sukuk) for retail investors

Minimum profit rate of 3.7pc

By Adeline Paul Raj

Published: 2013/01/09

MALAYSIA'S first Islamic bond (sukuk) for retail investors, launched yesterday and expected to be listed on February 8, will have a minimum profit rate of 3.7 per cent a year.

The RM300 million sukuk with a 10-year tenure was issued by DanaInfra Nasional Bhd, a unit under the Ministry of Finance, to fund the Mass Rapid Transit (MRT) project that will run between Kajang and Sungai Buloh in the Klang Valley. It was launched by Prime Minister Datuk Seri Najib Razak.

The issue is part of a larger RM1.5 billion sukuk that's being sold by DanaInfra, of which RM1.2 billion is for institutional investors.

"It will be better than the fixed deposit (FD) return and better than the MGS (Malaysian Government Securities, or government bonds)," Treasury secretary-general Datuk Seri Mohd Irwan Serigar Abdullah told reporters after the launch yesterday.

The average fixed deposit rate offered by commercial banks as at November last year was 3.15 per cent, according to Bank Negara Malaysia data, while the current yield for three-year government bonds is 3.04 per cent.

Bankers said the actual profit rate for the retail sukuk, which will depend on investor demand and the prevailing market interest rate, will be determined at the close of the book building exercise of the institutional offering.

Datuk Lee Kok Kwan of CIMB Investment Bank, one of four banks that are the joint lead arrangers for the issue, said he was confident that there would be strong demand for the retail sukuk.

He pointed out that unlike fixed deposit, income that investors derive from sukuk is not subject to tax.

"And the main assurance is that, post-listing, the liquidity will be there as the four banks are obligated to market them," he remarked.

Bursa Malaysia chief executive officer Datuk Tajuddin Atan said the retail sukuk, which opens up a new asset class for people to invest in, cements Malaysia's role as a top sukuk marketplace.

Previously, bonds or sukuk were accessible only to high-net worth and institutional investors.

"To make this sustainable, we need a pipeline, and this is being worked on. DanaInfra has a big pipeline of sukuk, but we're also looking at other issuers," he said.

The sukuk is meant for investors who want to diversify their portfolio. The minimum subscription amount for an ETBS is RM1,000, which will get an investor one board lot which comprises 10 units with a principal price of RM100 each.

Read more: Minimum profit rate of 3.7pc http://www.btimes.com.my/Current_News/BTIMES/articles/sukuk/Article/#ixzz2HQbadqdL

Indonesia: An industry-led growth economy

Cyrillus Harinowo Hadiwerdoyo, Jakarta | Opinion | Fri, January 04 2013, 9:10 AM

Arwana may not be a household name yet in Jakarta. Yet, the ceramic tiles manufacturer has been a stellar performer in the stock market. At the closing of stock trading on Dec. 28, 2012 its stock price shot up to Rp 1,640 (17 US cents), more than four times its price at the beginning of the year.

In the ceramic tile industry, Arwana is truly an awakening giant. Founded in 1995, the company now boasts a production capacity of over 40 million square meters annually, ranking second only to Mulia Ceramics.

But, with plans to open new factories in South Sumatra, Arwana will be closing the gap with the market leader very rapidly. Arwana currently stands as the 16th largest ceramic tile company in the world with the production cost that can compete with China.

A similar story is also shared by South Pacific Viscose. This rayon company, part of Lenzing Group of Austria, is finishing its fifth factory in West Java that will increase its capacity to 325,000 tons annually, making it the largest single-site rayon factory in the world. The company, founded in the 1980s, was invited by the owner of Bhirla Group of India, which had initiated a factory nearby in West Java by the name of Indo Bharat.

That story can be read in one of the Harvard Business School case studies on the development of such a company in Indonesia.

I will not be surprised if the company will further expand its facilities in Indonesia, given the strong growth of the country’s and the ASEAN region’s economy.

There is no doubt that the demand for textile fibers will continue to climb rapidly.

These two companies do not generally make headlines. It is, for sure, much easier to focus on the automotive industry, led by Toyota and Daihatsu, which has achieved a landmark domestic sale of 1 million vehicles in November 2012. That month, the total sales topped 1.02 million units.

LG and Samsung, meanwhile, have been competing as the leading electronic manufacturers in Indonesia and are expanding their production capacity quite aggressively here.

The domestic demand of electronic products, especially LCD and LED TVs, refrigerators, air conditioners and other household appliances has been growing by over 30 percent annually. All these stories lead to the conclusion that the Indonesian manufacturing industry has been developing at a rapid rate. Arwana has been surging at 23 percent
this year.

Meanwhile, Indonesian car sales have also grown (in terms of units) by around 24 percent. Unilever’s sales have ballooned at a rate of almost 18 percent, while its competitor, Mayora, has been growing by 30 percent.

It is no wonder that the growth of the non-oil manufacturing sector in creating gross domestic product (GDP) has increased to 7.27 percent in the third quarter of 2012, much higher than the growth rate of the overall economy, which grew at 6.17 percent in the same period. At the same time, the growth rate in the first nine months of 2012 of the non-oil manufacturing sector was 6.50 percent, higher than the 6.29 percent in overall GDP growth.

The manufacturing sector has been the largest contributor to Indonesian economic growth at 1.62 percent, followed by the trade, hotel and restaurant sector with 1.22 percent.

While Central Statistics Agency (BPS) data has been showing robust growth of the manufacturing sector, I feel that the performance of the sector has been grossly understated. There are at least four factors that lead me to this conviction.

First, several sectors have been understated. The cement industry, for instance, has reportedly grown at 8.75 percent. At the same time, data from the Indonesian Cement Producers Association reports a 15 percent increase in volume in the first nine months of 2012. The automotive industry has grown by 8.24 percent, although domestic car sales, in terms of units (which is real growth), has grown at a rate of 24 percent.

Pulp, paper and printed products have been reported to suffer negative growth, dropping 4.5 percent in the first three quarters of 2012. At the same time, Asia Pulp and Paper, which has a market share of over 30 percent, has grown at a rate of around 10 percent.

There have been reports of expansion in the corrugated paper industry, which produces carton containers for other industries such as food and beverage, electronic products and others. With such a high growth in the food and beverage and tobacco industry as well as electronic industry, it is highly unlikely that the performance of the pulp, paper and printed products sector is negative.

Second, electricity consumption increased very significantly in 2012. If in the first nine months of 2011, the electricity sector enjoyed production growth of 5.85 percent, it grew by 10.15 percent in the same period of 2012 according to state power company PT PLN. BPS, however, reported the growth rate at only 5.56 percent.

Third, the statistics of GDP have been based on the survey of 2000, when many new industries did not yet exist.

New industries, such as diapers, have been growing very rapidly and currently stand at Rp 6 trillion in value. In fact, Procter and Gamble is currently investing US$1 billion to build a diaper company in Indonesia.

The rapid growth of automotive components might not have been accurately captured by the 2000 survey. So, what may be reported so far by the statistics is more similar to “same store growth”, while the performance of new stores has been largely ignored.

These factors lead me to believe that the Indonesian manufacturing industry has been blossoming at such a rapid rate that other sectors followed suit.

The writer is an Indonesian consultant for Global Source Partners in New York.

Jakarta Post

Malaysia's main market index ends year at all time high; advances 10.34% in 2012.

Tuesday January 1, 2013

Malaysia's main market index ends year at all time high

By TEE LIN SAY
linsay@thestar.com.my

Local bourse advances 10.34% in 2012

PETALING JAYA: The FBM KLCI finished 2012 with a 10.34% gain to close at an all-time high of 1,688.95 as election concerns, defensive trading and high cash holding continued to dominate the equity scene in Malaysia. For the day, the local bourse was up 7.62 points on volume of RM1.31bil shares.

The KLCI's gains were mostly done in the last 15 minutes of trading on selected key blue chip stocks.

Kuala Lumpur Kepong Bhd was the biggest gainer of the day, closing RM2.06 to RM24, pushing up the KLCI by 3.39 points while Malayan Banking Bhd rose 12 sen to RM9.02 and nudged the index by 2.25 points. AEON Co (M) Bhd was on the gainers list, up RM1.42 to close at RM14.12.

Nonetheless, the KLCI is still one of the underperformers when compared with its regional peers. It is only ahead of the Shanghai Composite Index, Taiwan and South Korea, which recorded year to date gains of 3.17%, 8.87% and 9.38%, respectively.

Not surprisingly, it was the smaller Ace market counters that hogged the gainers list for the year.

These included Microlink Solutions Bhd with a 308% gain to 51 sen andBorneo Aqua Harvest Bhd with a 118.18% gain to 72 sen.

Among the bigger stocks that did well included KLCC Property Holdings Bhd which gained 99.37% to RM6.28 on plans to form a stapled real estate investment trust (REIT).

KLCC Property's restructuring exercise will involve the company acquiring the remaining 49.5% stake in Midciti Resources Sdn Bhdwhich owns the Petronas Twin Towers from KLCC Holdings Bhd for RM2.86bil. Following that, KLCC Property will inject three properties into KLCC REIT.

The properties are the Twin Towers, Menara ExxonMobile and Menara 3 Petronas. Thus once the restructuring is completed, KLCC Property shareholders will own shares and units in both KLCC Property and KLCC REIT.

The best performing stock on the Main Market for the year was Bright Packaging Industry Bhd, which was up 230.58% on a year to date basis.

It closed at RM2, which is also its 10-year high, on news that the company may see a change in its board and management.

Bright manufactures aluminium foil packaging materials which are mainly supplied to the tobacco industry. Last week, the company told Bursa Malaysia that four substantial shareholders with a collective stake of 31.2% had requested an EGM to remove existing directors and appoint new ones.

Over in the Ace market, the best performing stock and overall best performing stock for whole of Bursa Malaysia for 2012 was Green Ocean Corp Bhd.