How Many Mutual Funds Routinely Rout the Market? Zero

The bull market in stocks turned six last Monday, and despite some rocky stretches — like last week, when the market fell — it has generally been a very pleasant time for money managers, who have often posted good numbers.

Look more closely at those gaudy returns, however, and you may see something startling. The truth is that very few professional investors have actually managed to outperform the rising market consistently over those years.

In fact, based on the updated findings and definitions of a particular study, it appears that no mutual fund managers have.

I wrote about the initial findings of that study last summer. It is called “Does Past Performance Matter? The Persistence Scorecard,” and it is conducted by S.&P. Dow Jones Indices twice a year. The edition of the study that I focused on began in March 2009, the start of the bull market.

It included 2,862 broad, actively managed domestic stock mutual funds that were in operation for the 12 months through 2010. The S.&P. Dow Jones team winnowed the funds based on performance. It selected the 25 percent of funds with the best returns over those 12 months — and then asked how many of those funds actually remained in the top quarter in each of the four succeeding 12-month periods through March 2014.

The answer was remarkably low: two.

Just two funds — the Hodges Small Cap fund and the AMG SouthernSun Small Cap fund — managed to hold on to their berths in the top quarter every year for five years running. And for the 2,862 funds as a whole, that record is even a little worse than you would have expected from random chance alone.

In other words, if all of the managers of the 2,862 funds hadn’t bothered to try to pick stocks at all — if they had merely flipped coins — they would, as a group, probably have produced better numbers. Instead of two funds at the end of five years, basic probability theory tells us there should have been three. (If you’re curious, I explained how the math works in a subsequent column, “Heads or Tails? Either Way, You Might Beat a Stock Picker.”

The study seemed to support the considerable body of evidence suggesting that most people shouldn’t even try to beat the market: Just pick low-cost index funds, assemble a balanced and appropriate portfolio for your specific needs, and give up on active fund management.

The data in the study didn’t prove that the mutual fund managers lacked talent or that you couldn’t beat the market. But, as Keith Loggie, the senior director of global research and design at S.&P. Dow Jones Indices, said in an interview last week, the evidence certainly didn’t bolster the case for investing with active fund managers.

“Looking at the numbers, you can’t tell whether there is skill involved in what they do or whether their performance is just a matter of luck,” Mr. Loggie said. “I believe that many of them do have skill. But even if they do have it, based on how they’ve done in the past you really can’t predict how they will perform in the future.”

Still, those two funds did manage to perform splendidly in that study. Their stubborn persistence at the top of the heap over that five-year period suggested that there was some hope for active fund managers. If they could do it, after all, others could, too.

But we’re now about two weeks away from the completion of another 12 months since the end of that study, and it’s been a mediocre stretch, at best, for those two mutual funds. When the month is over, to borrow from Agatha Christie, it looks as though we’ll be saying: And then there were none.

Here are the dismal statistics: The SouthernSun Small Cap fund has actually lost money for investors over the 12 months through Thursday. It was down 3.2 percent, according to Morningstar, and for the nine months through December, it was in the bottom quartile of funds in the S.&P. Dow Jones study. The Hodges Small Cap fund has done better, gaining almost 6 percent through Thursday. S.&.P. Dow Jones Indices says that put it in the third quartile — or second-to-worst one — through December. While it’s mathematically possible, it is highly unlikely that either will climb to the top quartile in the next few weeks, Mr. Loggie said.

Michael W. Cook, the lead manager of the SouthernSun Small Cap fund and the founder of the firm that runs it, was traveling last week and was unavailable to comment for this column. Craig Hodges, manager of the family-run Hodges Small Cap fund in Dallas, spoke to me on the telephone and told me that he wasn’t surprised that his fund had stumbled. “We’re not that good,” he said. “It was going to happen sooner or later. We’ve never expected to outperform all of the time.” And despite disappointing recent returns, both funds are still beating the market handily over the last five years.

Late last year, Mr. Hodges said, his fund was hurt by falling energy prices, which pulled down the returns of several of its holdings. “That kind of thing will happen,” he said. “You can expect that.” Last summer, he told me that over the long run — which he said is probably 50 years or more — he expects that his fund will do better than average. And he reiterated that view last week. “We’ll come out all right in the end,” he said. “I think if you pick a good manager, someone you believe in and you think you can trust, you’ve got to stick with him for a long time, and if he’s good, he’ll perform for you.”

Mr. Loggie and his crew are continuing their regular monitoring of mutual fund performance. Right on schedule, they did another winnowing of mutual funds through the five years that ended in September — and they will do another one for the five years ending this month.

The September performance derby produced more funds that ended up consistently in the top quartile — nine of them, Mr. Loggie said. “That’s not surprising,” he said. “Some periods you have more funds, some periods you have less.”

But what you never have, he said, is any indication that past performance predicts future returns. “It’s possible that any one of these funds will beat the market over the long term,” he said. “Some of them will do that. But the problem is that we don’t know which of them will do that in advance.” And that, in a nutshell, is the kernel of the argument for buying index funds.


http://www.nytimes.com/2015/03/15/your-money/how-many-mutual-funds-routinely-rout-the-market-zero.html?rref=collection%2Fcolumn%2Fbusiness-strategies

Warren Buffett’s Awesome Feat at Berkshire Hathaway, Revisited

Warren Buffett is taking a victory lap, and on the 50th anniversary of his reign at Berkshire Hathaway he is entitled to it. From a failing New England textile company, Berkshire became the vehicle for one of capitalism’s greatest investing feats.

Mr. Buffett is one of the world’s richest men — and he has made his shareholders an astounding amount of money. How much, exactly? He cast a spotlight on that question in his annual letter to shareholders, issued on Feb. 28. In a break with tradition, the letter included a table on its second page that enumerates the market return of Berkshire shares, year by year.

Until now, he has favored another method for measuring success: the change in the book value of the shares. That’s an accounting metric. It is, basically, net assets, and he has said it is better than Berkshire’s transitory market price at tracking the company’s true worth.

However you analyze it, Berkshire’s long-term performance has been awesome. Using market value, he says, its shares gained 21.6 percent annually compared with 19.4 percent for book value and 9.9 percent for the Standard & Poor’s 500-stock index, with dividends. Using market returns, the shares gained a cumulative 1,826,163 percent since he took control.

Consider that at the end of 2014, an investment of $100 in the 1965 Berkshire shares would be worth $1,826,163. For the same period, $100 in the index, with dividends, would have grown to $11,196. That’s not shabby. But it’s a lot less than the Berkshire investment — $1,814,967 less.

So it may seem churlish to quibble. But it’s worth raising some questions, if only because Mr. Buffett has invited them. Performance is critical. He says that if he doesn’t outperform the market, investors shouldn’t trust him with their money.

Until this year, he has invoked book value: Page 2 of his letter would include the book value return, the S.&P. return and a third column, “relative results,” which showed how he was doing in comparison with the index. Now that comparison is gone. If that column existed in the current report, it would show that he trailed the S.&.P. again, using book value.

In fact, counting 2014, Mr. Buffett has underperformed the S.&P. 500, using book value, in five of the last six years. That hasn’t happened before. His 2010 letter to shareholders showed Berkshire’s returns over five-year rolling periods. In every single such period until then, he had outperformed the S.&.P., using book value.

By shifting to the market value metric — for the first time in 50 years — his returns look better. Would he have added a table on his golden anniversary showing market value if it had been a bad year for Berkshire in the stock market, whose judgment he has often disdained? I don’t know. Mr. Buffett declined to comment.

In the current letter, Mr. Buffett says that book value and intrinsic value — his estimate of the true value of the company, which he will not publicly reveal — have diverged since Berkshire’s early years. (Intrinsic value, which is at the core of his investing, represents “the discounted value of the cash that can be taken out of a business during its remaining life,” in his words. That calculation is subjective, depending on judgments about factors like a business’s prospects, its management’s ability now and in the future, and the likely path of interest rates and the economy.)

In that letter, he says: “Our emphasis has shifted in a major way to owning and operating large businesses. Many of these are worth far more than their cost-based carrying value. But that amount is never revalued upward no matter how much the value of these companies has increased. Consequently, the gap between Berkshire’s intrinsic value and its book value has materially widened.”

That makes sense. Berkshire’s subsidiaries, like See’s Candies, Geico, the Burlington Northern Santa Fe Railway and Berkshire Hathaway Energy Company, are being carried on Berkshire’s books at a fraction of their real value, he says. On the other hand, retained earnings from those companies, which are reinvested, do, in large part, show up elsewhere in the ledger. That’s why, over the long run, he has said, book value is a worthwhile metric.

His long-term performance is remarkable, using book value, too. He has handily beaten the market over a long career. Still, in a column last year, relying primarily on a rigorous statistical analysis by Salil Mehta, a statistician, author and blogger, I pointed out that Mr. Buffett’s market-beating heroics had dimmed. Last week Mr. Mehta did preliminary crunching of the new numbers. He still found that Mr. Buffett’s performance had declined.

“The new numbers don’t change my probability analysis,” Mr. Mehta said. “Warren Buffett has been an extraordinary investor. But he hasn’t been doing as well recently.”

Mr. Mehta’s calculations show that over his first 25 years at Berkshire, Mr. Buffett’s average annual return was 24 percent using book value and 30 percent using market value, compared with 10 percent for the S.&P. 500. Over his second 25 years, his performance was still outstanding: 15 percent for book value, 14 percent for market value and 10 percent for the index. The last six years reveal a different picture: 13 percent for book value, 15 percent for market value and 17 percent for the index. That’s no disaster, but Mr. Buffett didn’t meet his own standard: He frequently underperformed the market.

There’s no shame in that. Virtually everyone underperforms the market sometimes. To outperform it consistently, as Mr. Buffett has done over most of his career, is exceedingly rare. That’s worth celebrating, even if it’s also worth asking why the recent years haven’t been extraordinary.


http://www.nytimes.com/2015/03/08/your-money/warren-buffetts-awesome-feat-at-berkshire-hathaway-revisited.html?rref=collection%2Fcolumn%2Fbusiness-strategies



Buffett's remarkable performance over the last 50 years.

“The new numbers don’t change my probability analysis,” Mr. Mehta said.  “Warren Buffett has been an extraordinary investor. But he hasn’t been doing  as well recently.” Mr. Mehta’s calculations show that over his first 25 years at Berkshire, Mr. Buffett’s average annual return was - 24 percent using book value and 30 percent using market value, compared  with 10 percent for the S.&P. 500.  Over his second 25 years, his performance was still outstanding: - 15 percent for book value, 14 percent for market value and 10 percent  for the index. The last six years reveal a different picture: -  13 percent for book value, 15 percent for market value and 17 percent for  the index. That’s no disaster, but Mr. Buffett didn’t meet his own standard: He frequently underperformed the market.

Saved $1 million and living my dream retirement

Roy Nash long dreamed of retiring at the age of 55.

A self-taught investor, he diligently stashed all the savings he could in stocks and mutual funds. So by 2009, when he did turn 55, he says he had more than $800,000 saved -- enough to step away from his nearly three decade long career at a natural gas distributor in St. Louis.  

Now Nash is 61 and his smart investment choices have helped him grow his retirement savings to more than $1 million.

This sizable nest egg allows him to live the lifestyle he wants. He takes four trips a year to places like Chile and Jamaica and, during the rest of the time, he's volunteering around town, driving the elderly to doctor's appointments or helping poor families file their income taxes.  Now Nash is 61 and his smart investment choices have helped him grow his retirement savings to more than $1 million.

How did he do it?

Nash said he learned about the importance of saving from his mother, who raised him in Marianna, Ark.

"My mom told me when I was real small I should learn how to save some money, because my father was a spendthrift," said Nash. "I took it to heart and went beyond saving. I became an investor."

At the age of 22, he moved to St. Louis and eventually went to work as a controller for the largest natural gas distributor there.

During his free time, he taught himself to invest by reading Money and SmartMoney magazines. That's how he learned to love dividend stocks, high-yield, closed-end funds and mutual funds. He also invests in open-end funds and index funds.

Every year, he socked away between 10% and 15% of his income into his 401(k) plan. Additionally, he also saved another $300 a month in investing accounts with Fidelity.

"I wouldn't consider my savings a sacrifice. I had a good paying job and a budget," Nash said. "I disciplined myself."

And he was mindful about looking after his money and reinvesting gains back into funds and stocks.

"I always reinvested my capital gains," Nash said.

In the beginning, he worked with a brokerage to invest his money. But now he manages his own portfolio.

Nash said he's in an informal retirement club, mostly other retired friends from the office, who he loves teasing about their money managers.

Roy Nash on vacation with his family

"They're paying these guys 1.2% to 2% in fees!" Nash said.

Nash said he collects a healthy sum each year in dividend payouts from his investments in high-yield closed-end mutual funds and preferred stocks.

But still he keeps things simple, living on around $50,000 a year.

Too young for Medicare, Nash gets health insurance through Obamacare, "which has been fantastic," he said.

His retirement income is also enough to satisfy his lust for travel. He takes several trips each year. Often it's just visiting family and friends in Arkansas. But this year, he went to Mardi Gras in New Orleans. He's going to Jamaica in the spring and Santiago, Chile later in the year.

Most days, Nash fills his time by offering his services to the community. During the tax season, he helps the poor prepare their tax forms. And he volunteers for the county, driving housebound elderly residents on much-needed medical errands to doctor's appointments and the pharmacy.

He also plays golf and likes to go fishing, hunting and boating. And he works out at least five days a week, either on a treadmill or a bicycle for between 20 and 30 minutes a day.

"The most important thing I do, is live an active lifestyle," Nash said. "That keeps my doctor bills down."

He has two kids and six grandchildren, ages 3 to 15. Lately, he's become his family's go-to, back-up childcare for sick grandkids.

"If the kids are sick, I go and pick them up, so it doesn't disrupt their parents' work," he said.

And he takes pride in telling his story throughout the community, to help young people learn the importance of saving regularly and early.

"If your income is equal to your expenses, you're not going to save anything," Nash said. "I think anyone making $40,000 a year should be able to save money in St. Louis." 

http://money.cnn.com/2015/03/09/retirement/dream-retirement-million-dollar-saving/index.html?iid=SF_PF_River

Author of “The Millionaire Next Door” dies — 7 key insights from his book

You may not know the name Thomas Stanley, but chances are you’ve heard of “The Millionaire Next Door,” the blockbuster book Stanley cowrote in the mid-1990s.

The book sold more than two million copies and spawned a slew of spin-offs, including “Millionaire Minds” and “Millionaire Women Next Door.” Sadly, Stanley died last week at the age of 71 in a car accident near his home in Marietta, Ga. At the time of his death, he and his daughter, Sarah Fallaw, a psychologist, were working together on the latest iteration of the “Millionaire” series, with a fresh look at millionaires in post-recession America, according to the Atlanta Journal-Constitution.  

Although Fallaw said she would continue her father’s work posthumously, it will be a while before the results of their research are published.

In the meantime, we decided to crack open “The Millionaire Next Door” and revisit some of Stanley and co-author William D. Danko’s findings.

When the duo set out to create a composite of the modern American millionaire, they conducted their own survey of 1,000 high-net-worth individuals. At the time, Stanley was a professor of marketing at Georgia State University and Danko was Stanley’s former research assistant who would go on to become a marketing professor in his own right. What they found was that most millionaires shared seven key traits in common, all of which create a lifestyle “conducive to accumulating money,” they write:  

1. They live well below their means.

• In their research, Stanley and Danko found most millionaires weren’t heavy spenders. 
• The majority spent less than $200 on shoes and only half could justify paying more than $235 for a wristwatch. 
• Another surprising finding: two-thirds of the millionaires they surveyed said they followed a household budget.

2. They allocate their time, energy and money efficiently, in ways conducive to building wealth. 

• For example, the authors found that millionaires were more likely to invest time planning their household finances than, say, shopping for a car. 
• On the flipside, most people would have a lot more fun allocating time comparing car prices than sitting down with a financial planner and figuring out how much more money they have to save to be able to stop working at a certain age.

3. They believe that financial independence is more important than displaying high social status. 

• “They inoculate themselves from heavy spending by constantly reminding themselves that many people who have high-status artifacts, such as expensive clothing, jewelry, cars, and pools, have little wealth,” the authors wrote.  

4. Their parents did not provide “economic outpatient care.”

• Millionaires rarely become millionaires in their own right if their parents are constantly financing their lives. 
• Otherwise, they risk becoming too financially dependent to make their own way.

5. Their adult children are financially self-sufficient.

• Teaching kids to be self-sufficient not only encourages them to create their own financial security but ensures that they won’t be draining their parents’ finances later on.

6. They are proficient in targeting market opportunities.

• Essentially, the wealthy become wealthy often by targeting occupations that serve other wealthy people (that’s their “market”). 
• That’s where the real money is, Stanley and Danko argue. Jobs that serve the wealthy — for example, estate planning, law, accounting — often come with bigger paychecks.

7. They chose the right occupation. 

• The authors found that roughly half of the millionaires they interviewed owned a business of some sort, but the vast majority said they would not encourage their children to follow in their footsteps. 
• Millionaire couples with children were five times more likely to send their children to medical school than other parents in America and four times more likely to send them to law school, according to their findings.

Stanley and Danko’s findings may still ring true today, but the audience couldn’t be more different. When the book was published in 1996, the economy was booming and most people we were blissfully unaware of the pending dot-com bubble and bust. And no one knew that in just over a decade, the Great Recession would squeeze the middle class beyond recognition and deeply divide the rich and the poor.

“The Millionaire Next Door” encourages the view that the real millionaires of America — the frugal spenders, the self-made entrepreneurs, the savers “next door” who don’t seek attention or flaunt their wealth — haven’t actually done anything all that extraordinary to achieve financial success.

But, if we learned anything from the Great Recession, it’s that unanticipated setbacks — a job loss, an unlucky diagnosis, a bad mortgage loan, a spouse’s unexpected death — can send anyone’s personal finances teetering. Not to mention factors beyond most people’s control, such as lagging wage growth and rapidly increased fixed costs like housing, health care and education. Despite all we’ve been through, however, the message that anyone can accumulate wealth if they put the work in is one that still sells in America. Books like Stanley's can help inspire good financial habits, but the reality facing most workers today is that they’ll need much more than a seven-step guide to get them there.

http://finance.yahoo.com/news/author-of-%E2%80%9Cthe-millionaire-next-door%E2%80%9D-dies-%E2%80%94-7-key-insights-from-his-book-213300777.html

The Most Successful Dividend Investors of all time

The Most Successful Dividend Investors of all time

Dividend investing is as sexy as watching paint dry on the wall. Defining an entry criteria that selects quality dividend stocks with rising dividends over time and then patiently reinvesting these dividends while sitting on your hands is not exciting. While active traders have a plethora of hedge fund managers on the covers of Forbes magazine there are not many well-publicized successful dividend investors. Even value investing has its own superstars – Ben Graham and Warren Buffett.

I did some research and uncovered several successful dividend investors, whose stories provide reassurance that the traits of successful dividend investing I outlined in a previous post are indeed accurate.

The first investor is Anne Scheiber, who turned a $5,000 investment in 1944 into $22 million by the time of her death at the age of 101 in 1995. Anne Scheiber worked as an IRS auditor for 23 years, never earning more than $3150/year. The one important lesson she learned auditing tax returns was that the surest way to become rich in America is by accumulating stocks. She accumulated stocks in brand name companies she understood andthen reinvested dividends for decades. She never sold, in order to avoid paying taxes and commissions. She also never sold even during the 1972-1974 bear market as well as the 1987 market crash because she had high conviction in her stocks picks. She also held a diversified portfolio of almost 100 individual securities in brand names such as Coca-Cola (KO), PepsiCo (PEP), Bristol-Myers (BMY), Schering Plough (acquired by Pfizer in 2009). She read annual reports with the same inquisitive mind she audited tax returns during her tenure at the IRS and also attended annual shareholders meetings. Anne Scheiber did her own research on stocks, and was focusing her attention on strong franchises which have the opportunity to increase earnings and pay higher dividends over time.

In her later years she reinvested her dividends into tax free municipal bonds, which is why her portfolio had a 30% allocation to fixed income at the time of her death. At the time of her death, her portfolio was throwing off $750,000 in dividend and interest income annually. She donated her whole fortune to Yeshiva University, even though she never attended it herself.

The second investor is Grace Groner, who turned a small $180 investment in 1935 into $7 million by the time of her death in 2010. Ms Groner, who worked as a secretary at Abbott Laboratories for 43 years invested $180 in 3 shares of Abbott Laboratories (ABT) in 1935. She then simply reinvested the dividends for the next 75 years. She never sold, but just held on to her shares.

She was frugal, having grown up in the depression era, and was the classical millionaire next door type of person who was not interested in keeping up with the Joneses. Grace Groner left her entire fortune to her Alma Mater. Her $7 million donation is generating approximately $250,000 in annual dividend income. 

The reason why dividend investors are not highly publicized is because dividend investing is not sexy enough to be featured in the financial mainstream media. In addition to that, it is not profitable for Wall Street to sell you into the idea that ordinary investors can invest on their own. Compare this to mutual funds, annuities and other products which generate billions in commissions for Wall Street, despite the fact that they might not be in the best interest of small investors.

The third dividend investor is Warren Buffett, the Oracle of Omaha himself. In a previous article I have outlined the reasoning behind my belief that Buffett is a closet dividend investor. He explicitly noted in his 2009 letter that "the best businesses by far for owners continue to be those that have high returns on capital and that require little incremental investment to grow". His investment in See's Candy is the best example of that.

Some of Buffett's best companies/stock that he has owned such as Geico, Coca Cola , See's Candy are exactly the types of investments mentioned above. He has mentioned that at Berkshire he tries to stick with businesses whose profit picture for decades to come seems reasonably predictable. Per Buffett the best businesses by far for owners continue to be those that have high returns on capital and that require little incremental investment to grow. In addition, his 2011 letter discussed his dividend income from all of Berkshire Hathaway investments, including his prediction that Coca Cola dividends will keep on increasing, based on the pattern of historical dividend increases.

In this article I outlined three dividend investors, who managed to turn small investments into cash machines that generated large amounts of dividends. They were able to accomplish this through identifying quality dividend growth companies at attractive valuations, patiently reinvesting distributions and in two out of three cases maintaining a diversified portfolio of stocks. These are the lessons that all investors could profit from.

Relevant Articles:

- Diversified Dividend Portfolios – Don’t forget about quality
- Dividend Reinvestment is important
- Warren Buffett – A Closet Dividend Investor
- Build your own Berkshire with dividend paying stocks

http://www.dividendgrowthinvestor.com/2012/06/most-successful-dividend-investors-of.html

How Anne Scheiber Amassed $22 Million From Her Apartment

How Anne Scheiber Amassed $22 Million From Her Apartment

By Joshua Kennon
Investing for Beginners


In the mid 1940’s, Anne Scheiber retired from the IRS where she worked as an auditor. Using a $5,000 lump sum she had saved, and a pension of roughly $3,150, over the next 50+ years, she built a fortune from her tiny New York apartment that exceeded $22,000,000 upon her death in 1995 when she left the funds to Yeshiva University for a scholarship designed to help support deserving women. Here are some of the lessons we can learn from this ordinary woman that achieved extraordinary wealth.


1. Do your own research

Sheiber was burnt by brokers during the 1930’s so she resolved to never rely on anyone for her own financial future. Using her experience with the Internal Revenue Service, she analyzed stocks, bonds, and other assets. The result: She owned only companies with which she was comfortable. When markets collapse, one of the best ways to stay the course and maintain your investment program is to know why you own a stock, how much you think it is worth, and if the market is undervaluing it in your opinion.


2. Buy shares of excellent companies

When you’re really in this for the long-haul, you want to own excellent businesses that have durable competitive advantages, generate lots of cash, high returns on capital, have owner-oriented management, and strong balance sheets. Think about everything that has changed in the past one hundred years! We went from horse and buggies to cars to space travel, the Internet, nuclear knowledge, and a whole lot more. Yet, people still drink Coca-Cola. They still shave with Gillette razors. They still chew Wrigley gum. They still buy Johnson & Johnson products.


3. Reinvest your dividends

One of the biggest flaws with both professional and amateur investors is that they focus on changes in market capitalization or share price only. With most mature, stable companies, a substantial part of the profits are returned to shareholders in the form of cash dividends . That means you cannot measure the ultimate wealth created for investors by looking at increases in the stock price.

Famed finance professor Jeremy Siegel called reinvested dividends the “bear market protector” and “return accelerator” as they allow you to buy more shares of the company when markets crash. Over time, this drastically increases the equity you own in the company and the dividends you receive as those shares pay dividends; it’s a virtuous cycle. In most cases, the fees or costs for reinvesting dividends are either free or a nominal few dollars. This means that more of your return goes to compounding and less to frictional expenses.


4. Don’t be afraid of asset allocation

According to some sources, Anne Scheiber died with 60% of her money invested in stocks, 30% in bonds, and 10% in cash. For those of you who are unfamiliar with the concept of asset allocation , the basic idea is that it is wise for non-professional investors to keep their money divided between different types of securities such as stocks, bonds, mutual funds, international, cash, and real estate. The premise is that changes in one market won’t ripple through your entire net worth.



5. Add to your investments regularly

Regular saving and investing is important because it allows you to pick up additional stocks that fit your criteria. In addition to the first investment Scheiber made, she regularly contributed to her portfolio from the small pension she received.



6. Let your money compound uninterrupted for a very long time

Probably the biggest reason Anne Scheiber was able to amass such as substantial fortune was that she allowed the money to compound for of half a century. No, that doesn’t mean you have to live the life of a monk or deny yourself the things you want. What it means is that you learn to let your money work for you instead of constantly striving to scrape by, barely meeting expenses and maintaining your standard of living.

To learn about the power of compounding, read Pay for Retirement with a Cup of Coffee and an Egg McMuffin. With only small amounts, time can turn even the smallest sums into princely treasures.




http://beginnersinvest.about.com/od/investorsmoneymanagers/a/Anne_Scheiber.htm

Petronas Dagangan

The stock price has risen from MR 2.00 in 2000 to MR 4.00 in 2005.

It has risen from MR 4.00 in 2005 to MR 8.00 in 2010.

From MR 8.00 in 2010, it has risen to MR 17.00 in 2015..

From 2000 to 2015, this stock has delivered multi-bagger returns.

Between 2000 to 2015, there were 3 big dips in the price of the stock, in 2001, 2009 and recent months.

Don't forget to add the GROWING dividends!

Latest February 2015  Special Dividend  0.22 

18 Nov 2014	0.12 Dividend
21 Aug 2014	0.14 Dividend
21 May 2014	0.12 Dividend
20 Feb 2014	0.175 Dividend
14 Nov 2013	0.175 Dividend
4 Sep 2013	0.175 Dividend
10 Jun 2013	0.175 Dividend
7 Mar 2013	0.175 Dividend
12 Dec 2012	0.175 Dividend
4 Sep 2012	0.175 Dividend
4 Jun 2012	0.175 Dividend
8 Mar 2012	0.15 Dividend
7 Dec 2011	0.15 Dividend
24 Aug 2011	0.15 Dividend
1 Aug 2011	0.35 Dividend
9 Dec 2010	0.30 Dividend
24 Feb 2005	2: 1 Stock Split
* Close price adjusted for dividends and splits.

3 Aug 2010	0.15 Dividend
7 Dec 2009	0.15 Dividend
5 Aug 2009	0.33 Dividend
10 Dec 2008	0.12 Dividend
1 Aug 2008	0.33 Dividend
14 Dec 2007	0.12 Dividend
12 Dec 2005	0.05 Dividend
17 Aug 2005	0.10 Dividend
30 Nov 2004	0.10 Dividend
5 Aug 2004	0.20 Dividend
10 Dec 2003	0.20 Dividend
23 Jul 2003	0.10 Dividend
22 Jul 2003	0.10 Dividend
* Close price adjusted for dividends and splits.

Comments:  5.2.2015

Revenue - Lower due to Decrease in Sales volume

Group Operating Profit  -  Lower due to lower gross margin and higher operating expenditure.

1.  Lower gross profit margin - Lower due to higher product cost due to unfavourable timing differences of the Mean of Platts Singapore ("MOPS" prices compared to corresponding quarter last year.

2.  Higher operating expenditure - mainly attributed to manpower expenses, ICT maintenance charges, advertising and promotion and net loss on foreign currency as US dollar weakened against Malaysian Ringgit during the current period compared to net gain on foreign currency during the corresponding period last year.

Increase in revenue - due to higher selling price 

Decrease in revenue - due to decrease in sales volume, despite a higher average selling price.


The downward trend in global oil prices has an adverse impact on PDB's margins.  

PDB's business is expected to be challenging as long as the downward trend is expected to continue.


How to defend its overall market leadership position?

1. Grow its business domestically - further strengthening its brand, sweating existing assets and continuosly enhancing customer relationship management.

2.  Continue its cost optimisation efforts - enhancement of supply and distribution efficienecy, improvement of terminal operational excellence to further improve cost of operations.



NOTE:  

Results of PDB will be affected adversely when:

1.  US currency is weakening.  

2.  The global oil price is trending downwards.    


Do you think the fundamentals of PDB are permanently damaged or they are facing a temporary period of difficulties or challenges?   


How can PDB delivers better results?

1.  Increasing its volume sold.
2.  Lower average selling prices may lead to increase in volume sold.
3.  Operational efficiency - cost and expense minimisation - leading to increasing profit margins.
4.  When US dollar is appreciating or getting stronger.
5.  When global oil price is stabilised or increasing in price trend.

Amongst the millions of questions regarding financial matters, the most popular one is undoubtedly “How do I save my money?”. Here are 3 common ways that could help you save a sizable amount for when it’s time to retire.

1) Contribute to EPF, do NOT withdraw

For Malaysians, EPF is undoubtedly the easiest way to save your money. Your personal contribution of 11% aside, your employer’s mandatory contribution of 13% (for employees earning less than RM5,000 monthly salaries) makes it a total of 24% of your monthly wages saved under your name each and every month.

To top it off, EPF’s average return of 5% per year is significantly higher than any fixed deposit interests in the market right now.

Tips: Firstly, get employed at a company that contributes to EPF. Try to keep your money in your EPF account for as long as possible because there simply aren’t any other bank deposits with higher interest rates in the market. If you can help it, DO NOT use any of your EPF sub accounts to pay for your home or buy a computer, so you can take full advantage of EPF’s high interest rate to maximize your returns.

2) Put your money aside the good old fashion way

Saving your money requires determination and discipline. If you aren’t already doing so, try putting aside a small percentage of your salary every month-end and save it in a separate bank account, preferably one without any easy withdrawal facilities (eg. ATM).

When you have a moderate amount, transfer the money to a high-interest fixed deposit account so it can generate greater interests whilst stopping you from accessing the funds every time you feel like getting a new handphone or a new pair of shoes.

To find the best fixed deposits in the market right now, check out our fixed deposit comparison table.

Tips: Like many other things in life, saving is an endeavour that many find hard to adopt especially in the beginning. To ease yourself into your money-saving journey, you may wish to start off with a moderate amount (say 5-10% of your wages) so that it does not affect your cash flow to the extend of making you give up altogether. Over time, you can try to increase the amount as the act of saving becomes a habit. Also, when it comes to saving, it helps to start as young as possible so you can reap the benefits of compound interest over the long run.

3) Use your money to invest in something

If you have moderate tolerance to risk, are not close to retirement age and have a sizable amount in your savings or fixed deposit account, you’ll probably want to consider using some of the monies you have for investment purposes.

Be it in shares, gold or real estate; investment is a great way to save even MORE money because the potential returns are usually much greater than, say, putting your money into a bank. The downside, however, is that investment involves RISKS – the risk of non-performance from your investments, or in certain cases, the risk of total evaporation of value for your investments caused by adverse market conditions.

Tips: Not all categories of investments are born equal, so you are advised to do your homework well before you engage with any kind of investment. For example: properties are considered medium-risk investments; they generally enjoy consistent growth but they also have low liquidity (i.e. not easily turned to cash). Shares, on the other hand, are considered high-risk investments; they are prone to fluctuations in value caused by volatile market, which basically means you could potentially GAIN a lot or LOSE a lot. Whichever form of investment you choose, it is best to make a genuine effort to learn about it before you commit.

Love this article? You might also wish to read about the importance of diversification in investment.

How To Save Money: 3 Common Methods

By Ching . 3 April 2013 . Money Management

The two things investors must do now, according to the Nobel laureate.

Shiller's back, and he has more depressing news

CNBC
By Alex Rosenberg
Feb 14, 2015 2:08 PM

The two things investors must do now, according to the Nobel laureate.

Nobel Prize-winning economist Robert Shiller has a grim message for investors: Save up, because in the years ahead, assets aren't going to give you the type of returns that you've become accustomed to. In his third edition of "Irrational Exuberance," which will drop later this month, the Yale professor of economics warns about high prices for stocks and bonds alike. "Don't use your usual assumptions about returns going forward." Shiller recommended to investors in a Thursday interview on CNBC's " Futures Now ." He says that stock valuations look rich. In fact, Shiller's favorite valuation measure, the cyclically adjusted price-earnings ratio (which compares current prices to the prior 10 years' worth of earnings) is "higher than ever before except for the times around 1929, 2000, and 2008, all major market peaks," he writes in his new preface to the third edition. "It's very hard to predict turning points in markets," Shiller said on Thursday. His CAPE measure of the S&P 500 (CME:Index and Options Market: .INX) "could keep going up. ... But it's definitely high. By historical standards, it's up there." Meanwhile, Shiller said that bond yields, which move inversely to prices, "can't keep trending down" and "could [reach] a major turning point in coming years." It's no surprise, then, that Shiller expects little in the way of asset returns-meaning Americans will have to rely more heavily on the piggy bank.

Shiller warns bond investors: Beware of 'crash'! Given the current state of the stock and bond markets, "you might want to save more. A lot of people aren't saving enough. And incidentally, people are living longer now and health care is improving, you might end up retired for 30 years-people are not really preparing for that," he said. The other pillar of his advice is a classic tenant of responsible investing, with a global twist. "Diversify, because that helps reduce risk," Shiller said. "And you can diversify outside the United States. Some people would never invest in Europe-I think that's a mistake." Shiller adds that emerging markets can also provide attractive values. And indeed, valuations in much of the world are far lower than in the United States, given that investors are more optimistic about economic prospects in America than in nearly any other country. But perhaps people shouldn't base their investing decisions quite so heavily on predictions. "The future is always coming up with surprises for us, and the best way to insulate yourself from these surprises is to diversify," Shiller said.

PE multiple is rooted in discounting theory

Valuation using multiples has its fundamentals rooted in discounting.  It is a shortcut to valuation.

In this method, all factors considered in a general DCF including cost of capital and growth rates are compressed in one figure, namely the multiple figure.  Multiples are also market-based.


Let's look at PE in detail.

PE =  Price / Earnings

Price
= PE x Earnings
= Earnings / (1/PE)


Compare this with the time-value of money equation:

PV = FV / (1+r)^n

or the dividend growth model:

PV = Div1 / (r-g)


Thus a PE multiple of 5 should nearly imply a discount rate of 20%.

The same goes for other kinds of multiples used in the financial markets:
EV/EBITDA multiples
EV/Sales
Price/Cash flow.

They are all short cuts for discounting.  The EBITDA, Sales and Cash flows are all proxies of the free cash flow.

DEFINITION OF 'DISCOUNTED CASH FLOW - DCF'

A valuation method used to estimate the attractiveness of an investment opportunity. Discounted cash flow (DCF) analysis uses future free cash flow projections and discounts them (most often using the weighted average cost of capital) to arrive at a present value, which is used to evaluate the potential for investment. If the value arrived at through DCF analysis is higher than the current cost of the investment, the opportunity may be a good one.

Calculated as:

Also known as the Discounted Cash Flows Model.

Reference:  Finance for Beginners  by Hafeez Kamaruzzaman