UK student property getting popular in Malaysia

March 18, 2016, Friday

London Spring Place is a new purpose-built student housing project comprising 386 fully managed en-suite rooms and self-contained studio suites.

KUALA LUMPUR: Cornerstone International Properties has launched the second phase of the London Spring Place (LSP) project in Malaysia following the sell-out launch of Phase 1 in Malaysia in 2015. London Spring Place is a purpose built student accommodation in the UK.

In a press statement to The Borneo Post yesterday, it stated that Phase 1 of LSP, which sold out within months, was a runaway success in Malaysia, a sign that more Malaysians are seeing the viability and benefit of investing in UK student property, especially in light of the ringgit volatility and local and global economic uncertainty.

“Traditionally reserved for institutional investors, UK student property is now open to individual and private investors and has grown in popularity in Malaysia,” said Cornerstone International Properties director Virata Thaivasigamony.

“We are firm believers in this investment type as it has proven to be recession-proof and the strongest performing asset class in the UK with annual nett yields as high as 8 per cent, superseding the meagre 4 per cent and 2.5 per cent gross yields from residential rental projects in Kuala Lumpur and London, respectively,” said Virata, citing Felda’s investment in a student property in the UK in 2015 in a move to diversify assets.

“We saw a sharp increase in our UK student property sales numbers compared to residential property in Malaysia. In 2015 alone, 73 per cent of our inventory sold to Malaysians was UK student property. Our top-selling student property project, London Spring Place (Phase 1) which was extremely popular among Malaysian investors, sold out last year.

“In fact, Cornerstone International Properties sold an impressive 80 student units for the developer of London Spring Place alone! We just launched Phase 2 early this month and the take up rate has been extremely positive.”

Cornerstone International Properties is the exclusive marketing agent for LSP in Malaysia. LSP units come furnished with a fully equipped gym, cinema room, communal study and games rooms, onsite laundry, and high-speed WiFi in every room.

The popularity of UK student property is largely attributed to its strong performance, the strongest performing asset class in the UK since 2011, surpassing all other property asset types, according to Knight Frank. The risks are low as there is an acute undersupply of purpose built student accommodation in the UK. Default in rent is rare as a result of parental guarantee, thus investors are assured of regular and timely rental returns.

Malaysians investing in UK student property are excused from capital gains tax in addition to relief from rental income tax.
The London Spring Place Phase 2 roadshow will be in Sabah and Sarawak from 10am – 7pm this Saturday and Sunday (March 19 & 20), at Le Meridian Hotel Kota Kinabalu, Sabah; Pullman Hotel in Kuching, Sarawak; and RH Hotel in Sibu, Sarawak. For details call 016-228 9150 or 016- 228 8691.

Read more: http://www.theborneopost.com/2016/03/18/uk-student-property-getting-popular-in-malaysia/#ixzz43iDL4ulZ

Malaysian capital market continues to expand in 2015 despite headwinds — SC

March 11, 2016, Friday

Ranjit said RM86 billion was raised through the issuance of private debt securities (PDS) and RM4 billion via initial public offerings.

KUALA LUMPUR: Notwithstanding various headwinds, the Malaysian capital market continued to expand in 2015 to reach RM2.82 trillion in size compared with RM2.76 trillion in 2014, the Securities Commission said.

Growth was driven by the equity market which grew from RM1,651 billion in 2014 to RM1,695 billion by end-2015 while the bond market improved to RM1,125 billion against RM1,110 billion registered in the previous year, said Chairman Datuk Seri Ranjit Ajit Singh in the SC Annual Report 2015.

“Such expansion attests to the sustained ability of issuers to obtain long-term financing from the Malaysian capital market, as fundraising activity remained robust throughout the year,” he said.

Ranjit said RM86 billion was raised through the issuance of private debt securities (PDS) and RM4 billion via initial public offerings (IPOs), bringing the total funds raised through the primary market to RM90 billion in 2015 compared with RM92 billion in 2014.

Meanwhile, a sustained expansion in buy-side liquidity over the year also contributed towards the relative resilience of the capital market, with assets under management (AUM) by fund management companies rising by six per cent to RM668 billion in 2015 from RM630 billion in 2014.

Unit trust funds continued to be the largest source of clients’ AUM with net asset value of RM347 billion by end-2015 compared with RM343 billion in 2014.

The unit trust industry, which is an important proxy for retail investor confidence in the capital market, also recorded surplus sales over redemptions, with the number of units in circulation growing from 425 billion in 2014 to 458 billion in 2015.

While the capital market recorded net portfolio outflows in 2015 in line with global emerging market trends, the value of foreign ownership in the corporate bond market increased slightly from RM13.9 billion in 2014 to RM14.0 billion by end-2015.

Liquidation of foreign portfolio positions in the equity market also took place at a measured pace, with the FBMKLCI recording a decline of -3.9 per cent compared with the MSCI Emerging Markets index which fell -17 per cent over the same period, said the report.

In 2015, Ranjit said the SC continued to diversify channels for financing and investments while broadening access to the capital market by pursuing measures to deepen existing market segments and nurturing new growth areas.

One such area of focus was the Islamic capital market, where Malaysia had firmly established its reputation as a global leader in Islamic finance and the world’s largest issuer of sukuk.

He said extensive work was underway in formulating a roadmap which articulated the SC’s strategy to establish Malaysia as a global Islamic fund and wealth management hub, the release of which was slated for 2016.

Another key market developmental thrust is SC’s ongoing efforts to facilitate access to market-based financing for early and growth-stage companies.

“One of our first initiatives in this regard is the establishment of a regulatory safe harbour for equity crowdfunding (ECF), a class of fundraising activity which enables entrepreneurs to obtain market-based financing for start-ups and early-stage companies,” Ranjit said.

In February 2015, SC became the first regulator in the region to introduce a framework for ECF, with six applicants subsequently approved to become registered ECF platform operators in Malaysia.

Also, as a long-standing champion of initiatives to strengthen the quality of corporate governance in Malaysia, the SC recently concluded the implementation period of the Corporate Governance Blueprint 2011 with 83 per cent of its recommendations already fully implemented.

Moving forward, near-term deliverables included revisions to the Malaysian Code on Corporate Governance 2012, as well as, the release of the Corporate Governance Priorities 2020 which will detail SC’s initiatives for the next five years, he added. — Bernama

Read more: http://www.theborneopost.com/2016/03/11/malaysian-capital-market-continues-to-expand-in-2015-despite-headwinds-sc/#ixzz43iC2FzXt

Help young M’sian graduates own houses, urges INCEIF deputy dean

March 21, 2016, Monday

KUALA LUMPUR: Young Malaysian graduates, especially those who kick off their working lives in the major cities, usually face tough obstacles in terms of sustaining their daily costs of living.

The average monthly salary of fresh graduates, mainly degree holders, is only around RM3,000 and for diploma holders lower.

With the current house prices, which are appreciating, it is impossible for the young graduates to own houses in the Klang Valley and other major cities.

The house values in these areas are over 100 times the monthly income of a fresh degree holder. Thus, more graduates have opted for depreciating assets, including cars and motorcycles, to fulfil their desires to own assets.

Associate Professor Dr Mohd Eskandar Shah Mohd Rasid said this trend was unhealthy for the graduates, especially in their long-term financial journey.

The International Centre for Education in Islamic Finance (INCEIF) School of Graduate Studies deputy dean, said the government, as the regulator, may need to find a solution to help these graduates own something that would help them move up in the value chain as the time goes by.

By purchasing only the depreciating assets, he said, it would be harder for them to improve their standards of living in the future.

“One thing the government can do is to look at subsidising the purchase of properties as we are currently subsidising quite a lot in terms of (other) consumption.

“Maybe the savings that we have from removing all these subsidies can be channelled into subsidising property purchases because it’s so important for the young graduates to own something (appreciating assets) in the country and build up their life,” he told

Bernama.

By allowing graduates to own a house at a subsidised price for a start, Mohd Eskandar said, it would eventually help them in their long-term financial journey, as well as moving away from debt-based society to ownership society.

“Another way the government can do is maybe to make the car prices more competitive, which in turn could free up some of their financing to make them available to purchase a house,” he said.

Mohd Eskandar said a study on housing subsidy was needed.

“There must be a mechanism so that only the right group of people would benefit from the incentive.

“We have to undertake the study. If you do not do it properly than the people can also abuse the subsidy. We don’t want that to happen,” he said.

Mohd Eskandar also suggested the government adopt the Singapore Housing and Development Board model, which, in a way, provided subsidy for its people in purchasing houses.

“By allowing people to own the appreciating assets, it would allow them (in the future) to move into a better houses.

Rather than setting the standard (house price) too high, we should allow the people to own something first.

“Without taking the first step, they will not be able to move to higher step,” he said.

Meanwhile, Mohd Eskandar said, INCEIF was concerned the saving rate among Malaysians was going down, and that they were borrowing a lot.

“It is not a good sign of sustainable economy. We need to change that. Maybe the reason people are not saving is that they are not getting the value for their savings,” he said.

He said this is where Islamic finance could play the role.

“When you follow the Islamic finance value, which is more of risk sharing, you take higher risk to get higher return.

And if the banking system can  provide better value for the investments rather than looking at the customers as depositors but investors and give better value, they might encourage more people to save,” he said.

The scholar said creating wealth was important in Islamic finance, as well as chanelling wealth through zakat and waqaf. — Bernama

Read more: http://www.theborneopost.com/2016/03/21/help-young-msian-graduates-own-houses-urges-inceif-deputy-dean/#ixzz43i71qqDT

Money to burn? China firms seek new investors

March 22, 2016, Tuesday

SHANTOU, CHINA: The Guangdong Yixiang Folk Culture Co has a licence to print money – thousands of lookalike US dollars roll off its clattering presses every minute, intended as burnt offerings for the heavenly bank accounts of Chinese ancestors.

But in the earthly realm, small- and medium-sized companies like this have a devil of a time getting a loan from China’s big state-owned banks, which prefer to lend to large, often state-owned, firms.

Business is booming, says general manager Xu Shaohong, and it is ready to expand its products from ‘Bank of Hell’ currency to paraphernalia for events earlier in the cycle of life, such as weddings and births.

Like thousands of other capital-starved enterprises in the upside-down world of Chinese corporate finance, it has applied to list on the National Equities Exchange and Quotations (NEEQ), a little-known stock market based in Beijing.

The NEEQ, also known as the ‘New Third Board’, has exploded, growing from 356 companies at the end of 2013 to more than 6,000 today – with nearly 1,000 joining since January 1.

It already has twice as many listings as the Shanghai and Shenzhen stock exchanges combined and is expected to add as many as 5,000 more by the end of 2016.

“It’s the next NASDAQ,” Xu said, referring to the US exchange favoured by technology startups.

As the world’s second-largest economy falters, Beijing is counting on small, private companies to help move it away from dependency on heavy industry and plodding state-owned enterprises.

Guangdong Yixiang is a prime example. Its offices in the southern city of Shantou are bright and modern.

It has almost 80 employees and mostly exports to Hong Kong and diaspora Chinese communities across Asia.

Documents submitted to NEEQ as part of its listing application show three years of healthy profits – more than two million yuan (US$300,000) in 2015.

With reliable income from one of life’s two certainties, it would seem to be an attractive borrower.

For years, China has promised to make it easier for such firms to access capital, and last year Premier Li Keqiang urged the country’s banks to increase financing for them.

But lenders remain risk-averse, said Suzie Wu, a managing partner at Tianxing Capital, which invests in NEEQ-quoted firms.

“They actually only support the big companies,” she said, leaving companies like Guangdong Yixiang to turn to ‘shadow banks’, unofficial lenders that often charge exorbitant, profit-sapping interest rates.

“Until the NEEQ market came, it was very difficult for the small, medium enterprises to get financial support.”

There were 2,565 share issues on NEEQ last year, generating US$18.7 billion, according to data from the exchange, with another US$4.07 billion raised in the first two months of this year.

But unlike most major global stock exchanges, joining NEEQ does not of itself provide corporate funding, as new listings do not necessarily sell shares in an initial public offering.

When Chinese and Asian football champions Guangzhou Evergrande Taobao – one of the most high-profile companies quoted on NEEQ – listed last year, it simply declared its shares to be worth 40 yuan apiece.

It was not until this January that it sold new investors a little more than five percent of itself, raising 869 million yuan – giving it a market capitalisation close to that of Manchester United.

More than half the listed companies have never recorded a single share sale on the board, data on the NEEQ website shows.

But companies who cannot find buyers can still use their shares as ‘collateral for loans’, said Christopher Balding, of Peking University’s HSBC Business School in Shenzhen.

As such “being on the New Third Board is better than not being on the New Third Board”, explained Yang Peng, a consultant for Guangdong Yixiang.

If nothing else “it will definitely make it much easier to get a bank loan”.

Loose listing requirements are another large part of the NEEQ’s appeal, a contrast to the heavily regulated flotation process in Shanghai and Shenzhen.

Until now, companies wanting to go public in China have generally had to show years of profitability, but the New Third Board asks them to demonstrate little more than two years of existence and that their business activities are legal.

As such, Balding said, the bourse does not require “full and accurate disclosure” of the “financial risks that investors might be facing”.

But Xu, the banknote printer, had no qualms, imagining a future financed by NEEQ investors, with automated production lines and orders fulfilled online.

Who knows, she said, “maybe we can even make tombstones”. — AFP

Read more: http://www.theborneopost.com/2016/03/22/money-to-burn-china-firms-seek-new-investors/#ixzz43i6UdkX3

A plea for help: How China asked the Fed for its stock crash play book

 March 22, 2016, Tuesday

WASHINGTON: Confronted with a plunge in its stock markets last year, China’s central bank swiftly reached out to the US Federal Reserve, asking it to share its play book for dealing with Wall Street’s ‘Black Monday’ crash of 1987.

The request came in a July 27 email from a People’s Bank of China official with a subject line: “Your urgent assistance is greatly appreciated!”

In a message to a senior Fed staffer, the PBOC’s New York-based chief representative for the Americas, Song Xiangyan, pointed to the day’s 8.5 per cent drop in Chinese stocks and said “my Governor would like to draw from your good experience.”

It is not known whether the PBOC had contacted the Fed to deal with previous incidents of market turmoil.

The Chinese central bank and the Fed had no comment when reached by Reuters.

In a Reuters analysis last year, Fed insiders, former Fed employees and economists said that there was no official hotline between the PBOC and the Fed and that the Chinese were often reluctant to engage at international meetings.

The Chinese market crash triggered steep declines across global financial markets and within a few hours the Fed sent China’s central bank a trove of publicly-available documents detailing the US central bank’s actions in 1987.

Fed policymakers started a two-day policy meeting the next day and took note of China’s stock sell-off, according the meeting’s minutes. Several said a Chinese economic slowdown could weigh on America.

Financial market contagion from China was one of the reasons cited by the Fed in September when it put off a rate hike that many analysts had expected, a sign of how important China has become both as an industrial powerhouse and as a financial market.

The messages, which Reuters obtained through an Freedom of Information Act request, show how alarmed Beijing has become over the deepening financial turmoil and offer a rare insight into one of the least understood major central banks.

The exchanges also show that while the two central banks have a collegial relationship, they might not share secrets even during a crisis.

“Could you please inform us ASAP about the major measures you took at the time,” Song asked the director of the Fed’s International Finance Division, Steven Kamin in the July 27 email.

The message registered in Kamin’s account just after 11 a.m. in Washington. Kamin quickly replied from his Blackberry: “We’ll try to get you something soon.”

What followed five hours later was a 259-word summary of how the Fed worked to calm markets and prevent a recession after the S&P 500 stock index tumbled 20 percent on Oct. 19, 1987.

Kamin also sent notes to guide PBOC officials through the many dozens of pages of Fed transcripts, statements and reports that were attached to the email.

All of the attached documents had long been available on the Fed’s website and it is unclear if they played a role in shaping Beijing’s actions.

Kamin’s documents detail how the Fed began issuing statements the day after the market crash, known as Black Monday, pledging to supply markets with plenty of cash so they could function.

By the time Song wrote to Kamin, China had spent a month fighting a stock market slide and many of the actions taken by the PBOC and other Chinese authorities shared the contours of the Fed’s 1987 game plan. — Reuters

Read more: http://www.theborneopost.com/2016/03/22/a-plea-for-help-how-china-asked-the-fed-for-its-stock-crash-play-book/#ixzz43i5QBQDZ

Warren Buffett - It is Your Future

Q&A: what are negative interest rates?

European Central Bank has cut the interest rate banks receive when they deposit money with the ECB

The ECB has cut its headline interest rate to a new record low of 0.15%, and also imposed negative interest rates of -0.1% on eurozone banks – to encourage them to lend to small firms rather than to hoard cash.

How do negative interest rates work?

Instead of earning interest on money left with the ECB, banks are charged by the central bank to park their cash with it. The ECB cut its deposit rate to -0.1% on Thursday and the hope is that this will encourage the banks to stop hoarding money, and instead lend more to each other, to consumers, and to businesses, in turn boosting the broader economy.

Will it work?

No one knows. In theory it sounds attractive but it has never been attempted by the eurozone and could have unpredictable and unintended consequences. Those consequences include the possibility that banks will pass on to customers the costs they incur for depositing money with the ECB.

A broad risk is that a negative return on parking funds with the central bank might encourage banks to invest in riskier assets to secure a return, potentially driving new asset bubbles and more pain further down the line.

As part of this bid to find alternative investments, banks are likely to increase their purchases of government bonds. However, this has potentially serious consequences if banks are holding bonds to such an extent that government borrowing costs are artificially low. If a financial shock occurs, the banks and governments could find themselves so intertwined and interdependent that they drag each other - and the economy - down.

Has it happened before?

Sweden and Denmark have introduced negative deposit rates on a temporary basis in recent years. In Denmark, the aim was to cap an unwanted rise in its currency, which was pushed higher when foreign money flooded into the country as investors looked for safe havens outside the crisis-ridden eurozone. The move to negative deposit rates did not cause financial meltdown, with the Danish central bank issuing plenty of advance warning. Nor did it lead to a noticeable change in the interest rates charged by banks for bank loans. But then again negative deposit rates have never been tried by an economy on the scale of the eurozone, and the fear is that the Danish example will have little read-through for the 18-member bloc.

What would it mean for me?

Very little in terms of the detail of the policy and any impact on retail banking rates. However, if it provided the desired boost to the eurozone economy and put it on the path to a sustainable recovery, that would be good news for the UK economy too. On the flipside, if there were some nasty unintended consequences, including a shock to the eurozone banking system, Britain's economic recovery could potentially be undermined.

Negative Interest Rates

Less Than Zero

By Jana Randow and Simon Kennedy | Updated Mar 10, 2016 10:19 AM EST

Imagine a bank that pays negative interest. Depositors are actually charged to keep their money in an account. Crazy as it sounds, several of Europe’s central banks have cut key interest rates below zero and kept them there for more than a year. Now Japan is trying it, too. For some, it’s a bid to reinvigorate an economy with other options exhausted. Others want to push foreigners to move their money somewhere else. Either way, it’s an unorthodox choice that has distorted financial markets and triggered warnings that the strategy could backfire. If negative interest rates work, however, they may mark the start of a new era for the world’s central banks.

The Situation

The Bank of Japan surprised markets by adopting negative interest rates in January, more than a year and a half after the European Central Bank became the first major institution of its kind to venture below zero. With other options to stimulate the economy limited, more policy makers are willing to test the technique. They acknowledge that sub-zero rates can crimp the ability of banks to make money or lead them to take additional risks in search of profit. The ECB cut rates again March 10, charging banks 0.4 percent to hold their cash overnight. At the same time, it offered a premium to banks that borrow in order to extend more loans. Sweden also has negative rates, Denmark is using them to protect its currency’s peg to the euro and last year Switzerland moved its deposit rate below zero for the first time since the 1970s. Janet Yellen, the U.S. Federal Reserve chair, said in November that a change in economic circumstances could put negative rates “on the table” in the U.S. Since central banks provide a benchmark for all borrowing costs, negative rates spread to a range of fixed-income securities. By February, more than $7 trillion of government bonds worldwide offered yields below zero. That means investors buying bonds and holding to maturity won’t get all their money back. While most banks have been reluctant to pass on negative rates for fear of losing customers, a few began to charge large depositors.

Source: Bloomberg

The Background

Negative interest rates are an act of desperation, a signal that traditional policy options have proved ineffective and new limits need to be explored. They punish banks that hoard cash instead of extending loans to businesses or to weaker lenders. Rates below zero have never been used before in an economy as large as the euro area. While it’s still too early to tell if they will work, ECB President Mario Draghi said in January 2016 that there are “no limits” on what he will do to meet his mandate. Europe’s central bank chose to experiment with negative rates before turning to a bond-buying program like those used in the U.S. and Japan. Policy makers in both Europe and Japan are trying to prevent a slide back into deflation, or a spiral of falling prices that could derail the economic recovery. The euro zone is also grappling with a shortage of credit and unemployment is only slowly receding from its highest level since the currency bloc was formed in 1999.

Source: European Central Bank

The Argument

In theory, interest rates below zero should reduce borrowing costs for companies and households, driving demand for loans. In practice, there’s a risk that the policy might do more harm than good. If banks make more customers pay to hold their money, cash may go under the mattress instead, robbing lenders of a crucial source of funding. But there’s mounting concern that when banks absorb the cost of negative rates themselves, that squeezes the profit margin between their lending and deposit rates, and might make them even less willing to lend. The Bank for International Settlements warned in a March 2016 report of “great uncertainty” if rates stay negative for a prolonged period. And if more and more central banks use negative rates as a stimulus tool, there’s concern the policy might ultimately lead to a currency war of competitive devaluations.

The Reference Shelf

• A Bloomberg comic explains how negative interest rates aim to put money to work.
• The Bank for International Settlements published a March 2016 report on negative rates.
• An analysis of the impact of negative rates in 2015 from Sweden’s central bank.
• Blog posts from Francesco Papadia, a former director general for market operations at the ECB, on whether the central bank should have negative rates, and a discussion about where rates could go.
• A speech by Benoit Coeure, a member of the ECB Executive Board, on monetary policy and the challenges of the zero lower bound.
• A Bloomberg News article outlining the pros and cons of a deposit rate of zero or below and a QuickTake on the ECB’s debate over quantitative easing.
• An ECB research paper on non-standard monetary policy and a Bank of England study of negative rates.

http://www.bloombergview.com/quicktake/negative-interest-rates

How to consistently profit in the Stock Market

3 Keys to a Winning Method to Consistently Profit in the Stock Market

Written by Adam Khoo

If you were to randomly buy stocks just because you got a “hot tip” or a “gut feel”, your chances of being profitable will be 50% at best. Since a stock either goes up or down, you only have a 50/50 chance of being right.

Of course, with some luck, you could still make money. However, money that is made from a lucky streak never ever lasts. Eventually, luck will run out and you will end up losing everything and much more. This is why people who gamble at casinos or try their luck at the stock market will end up losing everything.

But when you have a method that gives you an edge over the market, you can confidently be right 70% – 80% of the time. (You can never be right 100% of the time because many factors in the world of investing that are out of our control – e.g. a sudden economic crisis can cause stock prices to fall temporarily.)

A winning method of investing should consist of 3 key components:

Knowing…

1. What to buy
2. When to buy
3. When to sell

Let us go through all three in detail.

#1 What to Buy

When you buy a share of stock, you are actually buying a share of a public listed company. You become a part owner (albeit a very small one) of a business.

We only want to invest in shares of very good businesses. Using fundamental analysis, we need to learn how to study the financial reports of companies to determine which are the most profitable and valuable ones.

There are many factors that make a company’s stock a good investment. Let me highlight two important ones:

• Consistently increasing sales revenue and net income
• Positive long-term growth rate

I only invest in companies that have a track record of consistently increasing sales revenue and net income, together with positive future growth potential. When a company has these fundamental qualities, its share price will have a greater potential to rise over time.

Similarly, I avoid buying stocks of companies with inconsistent or declining sales revenue and net income. Stocks of companies that have weak revenue and net income growth usually have flat of declining stock prices.

Of course, there are many more financial data and ratios we can look at to determine that it is a great company. I also look at stuff like:

• Insider activity
• Return on equity
• Statement of cash flows
• Debt-equity ratio
• Current ratio
• Gross and net margins
• Working capital versus revenue growth
• Cash conversion cycle

It is essential to do enough research on the right company’s stock to buy. They have to meet all the critical fundamental criteria!

#2 When to Buy

It is not good enough to know which companies’ stocks to buy. You need to also know exactly WHEN to make your investment. I know many people who invest in great stocks.

Unfortunately, they buy it at the wrong time and see their investments go down in value for a long time before it starts recovering. Knowing WHEN to buy is even more important than knowing just WHAT to buy. I emphasise this concept a lot when I am going through them during my workshops.

Buy When Stock Price Is below its Intrinsic Value

So, WHEN is it a good time to invest? Well, you should only buy a stock when its price is below its intrinsic value. This means that the stock is selling at a price below what it is actually worth.

I use an intrinsic value calculator to determine the true value of a stock, based on the company’s cash flow from operations, growth rate, total debt and cash holdings. The intrinsic value of a stock will also give you an indication of where the share price can potentially reach in the short term.

For example, I made an investment in Google (GOOG) on Jan 2012, a stock that has delivered consistent growth in revenue and net income. Although it seemed pricey at $575, it was actually way below its intrinsic value of $1,065. The intrinsic value of GOOG gave me the confidence that I could potentially double my investment when GOOG reaches its true value.

Wealth Academy Intrinsic Calculator

Sure enough, a year later (2013), Google (GOOG) reached $1,100 per share, giving me a nice 91.3% gain! I am covering more of these case studies during my workshops in Malaysia as well.

Chart: Think or Swim – Prophet Charts®

Buy When the Stock is on an Uptrend

Besides analyzing a stock’s intrinsic value, it is also very important to only buy a stock when its price is on an uptrend. Never buy a stock when the price is on a downtrend, no matter how good the stock is or how cheap the price may seem. When a stock’s price is on a downtrend, you never know how low it can go before it starts to recover. A cheap stock may become even cheaper in the short term.

An uptrend is characterized by a series of stock prices making higher high points and higherlow points. On an uptrend, stock prices still go up and down. However, every time prices go down, they move up even higher subsequently.

Chart: Think or Swim – Prophet Charts®

When a stock is on an uptrend, it means that investors are getting more optimistic about it. This causes upward price momentum that drives the stock higher and higher. This will keep happening until a major news development changes the trend. It definitely makes sense to only buy a stock when it is on an uptrend because the probability is that it will keep going higher. This is why there is an old Wall Street saying, “the trend is your friend”.

#3 When to Sell

Knowing when to sell your investment is the most important part of your strategy. Many investors lose money or fail to maximize their profits despite knowing WHAT to buy and WHEN to BUY. This is because they failed to know WHEN to SELL.

No matter how great a stock is, it will not go up forever. Nothing great lasts forever. If you fall too much in love with a stock and fail to sell it when it reverses to a downtrend, all your profits could be wiped out!

Winning investors strictly follow their sell rules without compromise. They understand that if they do not sell at the right time, mistakes can turn into huge losses and potential winning investments can turn into losing ones.

Two investors who buy the same stock at the same time can get very different results depending on WHEN they sell.

You should hit the sell button when…

The stock price reverses to a downtrend

This is to protect the profits we have made.  A downtrend is characterized by a series of stock prices making lower high points and lower low points. On a downtrend, stock prices still go up and down. However, every time prices go up, they move down even lower subsequently.

Chart: ChartNexus

When a stock is on a downtrend, it means that investors are getting more and more pessimistic. This causes downward price momentum that drives the stock lower and lower.

The stock price falls 5% – 8% below your purchase price

This is known as your stop loss price. It is an important strategy to limit your losses when you are wrong. I always use an automated stop loss order for this. Remember that no matter how great your strategy is, you can never be right 100% of the time. A stop-loss ensures that losses are limited in those instances when the stock price does not move up as expected.

If you consistently follow these three keys, WHAT to buy, WHEN to buy and WHEN to sell, you will be able to achieve a high probability of success in the stock market.

Margin and Buying on Margin

What is buying on margin?

Borrowing from your broker to buy a security (stock, bond or futures contract) is referred to as buying on margin.

You use the security or other securities in your portfolio as collateral.

When you borrow to buy on margin, you pay margin interest rates set by the broker.  This is usually a fairly high rate, though not as high as a credit card.


Why do investors buy on margin?  

Margin buyers are trying to buy larger positions than they can afford out of pocket in order to get more exposure - leverage - from their investments.

To buy on margin, you must set up a margin account with your broker.

This involves depositing a certain amount and signing several forms indicating you understand the terms and conditions.

This can be done online with online brokers.

Not all securities are marginable.  Some low-price or risky stocks do not qualify for margin buying.


Buying on Margin

When you buy a security on margin, you must have enough collateral to make the purchase.

A margin requirement of 50% for stocks is required in the US, set by the Federal Reserve.

That means you must have at least 50% of the entire purchase available in your account as cash or equity.  This is to prohibit you from borrowing too much.

This 50% requirement only applies to the initial purchase.  After that, rules set by your broker apply.


Margin Call

There is a minimum maintainance requirement below which your equity portion will trigger a sale or a request for more equity (cash) to be whole.  This is a margin call.

A typical minimum maintainance requirement is 35%, meaning that once your equity falls below 35% of the entire stock position, you get the call.

For example, if you buy 1000 shares of a $1 stock for $1000, you can borrow $500 of the $1000.  If the stock drops below the point where the equity portion of the investment is 35%, you will trigger the call.


What is that price when you get a margin call?

The formula is:    Borrowed Amount / (1 - Maintainance Requirement).

If the maintainance requirement is 0.35 and you borrowed $500, the formula would give you the total securities value to match 35%, in this case $500/(0.65), or $769.23.

That means that if your $1 stock goes down to 76.9 sen, you will get a margin call.

Margin positions are evaluated each night for sufficient equity.

The calculation of margin sufficiency is more complex with multiple securities in an account.

The above example applies to stocks; the initial and maintainance margin requirements are differnt for commodities.


What you should know about buying on margin?

Margin can add power to your investment portfolio.

Like any other borrowings, it can be DANGEROUS, and should be treated accordingly.

Margin interest rates, while moderately high, can be lower than some other forms of short-term borrowing, so it might make sense to use margin to get some cash from your investment account for certain purposes.

On a larger scale, when stock margin borrowing levels increase in aggregate, it is a sign that too many people are speculating on stocks and that a bubble might be forming, leading to a bust later on.





Reference:

101 Economics by Peter Sanders