Thursday, 6 September 2018

Buying a home? Be financially mindful.

Excellent podcast.
Click here:

Desmond Chong, Credit Counselling and Debt Management Agency (AKPK)

06-Sep-18 10:37

Desmond points out some financial and non-financial factors that have to be taken into consideration when purchasing property.

Presented by: Tan Chung Han

Tags: Mortgage, Debt, Home, House, Rent, Freehold, Leasehold, Property, Financial Services, Personal Finance

Wednesday, 5 September 2018

How to be successful in using technical analysis

To be successful, the technical approach involves taking a  position contrary to the expectation of the crowd.

This requires the patience, objectivity and discipline to acquire a financial asset at a time of depression and gloom, and liquidate it in an environment of euphoria and excessive optimism.

The level of pessimism or optimism will depend on the turning point.

Short-term peaks and trough are associated with more moderate extremes in sentiment than long-term ones.

Knowing the technical characteristics to be expected at all of these market turning points, particularly the major ones, allow you to assess them objectively.

Technical analysis in Practice

In practice, it is impossible to buy and sell consistently at exactly the turning points, but the enormous potential of this approach still leaves plenty of room for error, even when commission costs and taxes are included in the calculation. 

The rewards for identifying major market junctures and taking the appropriate action can be substantial.

In the days of the old market, participants had a fairly long time horizon, stretching over months or years.  There have always been short-term traders and scalpers, but the technological revolution in communications has shortened the time horizon of just about everyone involved in markets.

When holding periods are lengthy, it is possible to indulge in the luxury of fundamental analysis, but when time is short, timing is everything.  In such an environment, technical analysis really comes into its own.

Originally, technical analysis was applied principally in the equity market, but its popularity has gradually expanded to embrace commodities, debt instruments, currencies, and other international markets.

Technical Analysis Defined

The technical approach to investment is essentially a reflection of the idea that prices move in trends that are determined by the changing attitudes of investors toward a variety of economic, monetary, political and psychological forces.

The art of technical analysis, for it is an art, is to identify a trend reversal at a relatively early stage and ride on that trend until the weight of the evidence shows or proves that the trend has reversed.  The evidence in this case is represented by the numerous scientifically derived indicators.

Human nature remains more of less constant and tends to react to similar situations in consistent ways.  By studying the nature of previous market turning pints, it is possible to develop some characteristics that can help to identify market tops and bottoms.  

Therefore, technical analysis is based on the assumption that people will continue to make the same mistakes they have made in the past.  

Human relationships are extremely complex and never repeat in identical combinations.  The market,s which are a reflection of people in action, never duplicate their performance exactly, but the recurrence of similar characteristics is sufficient to enable technicians to identify juncture points.  

Since no single indicator has signaled, or indeed could signal, every top or bottom, technical analysis have developed an arsenal of tools to help isolate these points.

A study of the market can also reveal much about human nature, both from observing other people in action and from the aspect of self-development.

There is no reason why anyone cannot make a substantial amount of money in the financial markets, but there are many reasons why many people will not.

The key to success is knowledge and action.  

  • Knowledge of the internal working of the markets and of investing is important.  
  • Action is dependent on the patience, discipline and objectivity of the individual investor. 

Today, numerous charting sites have sprung up on the Internet, so virtually anyone now has the ability to practice technical analysis.  As a consequence of the technological revolution, time horizons have been greatly shortened.

  • This may not be a good thing because short-term trends experience more random noise than longer-term ones.  
  • This means that the technical indicators are not as effective.

Nothing has really changed in the last 100 years.  The same true and tried principles in technical analysis are as relevant today as they always were.  There is no doubt whatsoever that this will continue to be so in the future.

  • Thus, technical analysis could be applied in New York in 1850, in Tokyo in 1950 and in Moscow in 2150.  
  • This is true because price action in financial markets is a reflection of human nature, and human nature remains more or less constant.  
  • Technical principles can also be applied to any freely traded entity in any time frame.  
  • A trend reversal signal on a 5-minute bar chart is based on the same indicators as one on a monthly chart; only the significance is different.  Shorter time frames reflect shorter trends and are therefore less significant.   

Since the 1970s, the time horizon of virtually all market participants has shrunk considerably.

  • As a result, technical analysis has become very popular for implementing short-term timing strategies.  
  • This use may lead to great disappointment.

There is a rough correlation between the reliability of the technical indicators and the time span being monitored.

  • Even short-term traders with a 1- to 3-week time horizon need to have some understanding of the direction and maturity of the main or primary trend.  
  • This is because mistakes are usually made by taking on positions that go against the direction of the main trend.  
  • If a whipsaw is going to develop, it will usually arise from a contra-trend signal.

To be successful, technical analysis should be regarded as the art of assessing the technical position of a particular security with the aid of several scientifically researched indicators. 

  • Although many of the mechanistic techniques offer reliable indications of changing market conditions, all suffer from the common characteristic that they can, and often do, fail to operate satisfactorily.  
  • This attribute present no problem to the consciously disciplined investor or trader, since a good working knowledge of the principles underlying major price movements in financial markets and a balanced view of the overall technical position offer a superior framework within which to operate.  

There is no substitute for independent thought.

  • The action of the technical indicators illustrates the underlying characteristics of any market and it is up to the analyst to put the pieces of the jigsaw puzzle together and develop a working hypothesis.
  • The task is by no means easy, as initial success can lead to overconfidence and arrogance.  
"Pride of opinion caused the downfall of more men on Wall Street than all the other opinions put together."  Charles H. Dow, the father of technical analysis.

This is true because markets are essentially a reflection of people in action.

  • Normally, such activity develops on a reasonably predictable path.  
  • Since people can and do change their minds, price trends in the market can deviate unexpectedly from their anticipated course.  
  • To avoid serious trouble, investors, and especially traders, must adjust their attitudes as changes in the technical position emerge.

A study of the market can also reveal much about human nature, both from observing other people in action and from the aspect of self-development.  
  • As investors react to the constant struggle through which the market will undoubtedly put them, they will also learn a little about their own makeup.  

"Little minds are taxed and subdued by misfortune but great minds rise above it."  Washington Irving.

Martin J. Pring
Technical Analysis Explained

Investing basics: Key constituents of an annual report

An annual report is probably among the most viewed company publications. It is the most comprehensive means of communication between a company and its shareholders. It is a report that each company must provide to each of its shareholder at the end of the financial year. To put it differently, it is a report that each shareholder must read.

But what is its use if one does not understand or refer to it?

As a shareholder of a company, you need to know its performance over the past financial year and the management's view on the same. You also need to know what is the company's future plan and strategies. As a shareholder, you need to know what does the management intends to do to attain those targets.

We present to you a brief on what the key constituents of an annual report are.

Key constituents of an Annual Report

Director's report: The director's report comprises the events that take place in the reporting period. This includes a summary of financials, analysis of operational performance, details of new ventures and business, performance of subsidiaries, details of change in share capital, and details of dividends. In short, shareholders can get a gist of the fiscal year from this section.

Management discussion and analysis (MD&A): More often than not, the MD&A starts off with the management giving its view on the economy. It is then followed by a perspective on the sector in which the company is present. Any major changes like inflation, government policies, competition, tax structures, amongst others are highlighted and discussed in this report. It also includes the business strategy the management intends to follow. Details regarding different segments are provided in this section. The company also gives a brief SWOT (strength, weakness, opportunity, and threat) analysis and business outlook for the coming fiscal.

This can aid the shareholder to understand what major changes are likely to affect the company going forward. However, as mentioned earlier, an investor should not blindly believe what the management has to say. While it tends to paint a rosy picture, one needs to judge the sanity behind the rationale.

Report on corporate governance: The report on corporate governance covers all aspects that are essential to the shareholder of a company and are not part of the daily operations of the company. It includes details regarding the directors and management of a company. These include details such as their background and their remuneration. This report also provides data regarding board meetings - how many directors attended the how many meetings. It also provides general shareholder information such as correspondence details, details of annual general meetings, dividend payment details, stock performance, details of registrar and transfer agents and the shareholding pattern.

Financial statements and schedules: Finally, we arrive at the crux of the annual report, the financial statements. Financial statements, as you are aware, provide details regarding the operational performance of a company during the reporting period. In addition, it also depicts the financial strength of a company. The key constituents of the financial statement include the profit and loss account, the balance sheet, the cash flow statement and the schedules.

This article is authored by, India’s leading independent equity research initiative

Monday, 3 September 2018

Managing Risks and Benefiting from Risks


There are numerous risks involved in investing in the stock market.
- Knowing that these risks exist should be one of the things an investor is constantly aware of.
- The money you invest in the stock market is not guaranteed.

For instance, you might buy a stock expecting a certain dividend or rate of share price increase.
- If the company experiences financial problems it may not live up to your dividend or price growth expectations.
- If the company goes out of business you will probably lose everything you invested in it.
- Due to the uncertainty of the outcome, you bear a certain amount of risk when you purchase a stock.

Stocks differ in the amount of risks they present.
- For instance, Internet stocks in 2000 have demonstrated themselves to be much more risky than utility stocks.

One risk is the stocks reaction to news items about the company.
- Depending on how the investors interpret the new item, they may be influenced to buy or sell the stock.
- If enough of these investors begin to buy or sell at the same time it will cause the price to rise or fall.

Managing risks

One effective strategy to cope with risk is diversification.
- This means spreading out your investments over several stocks in different market sectors.
- Remember the saying: “Don’t put all your eggs in the same basket”.

As investors we need to find our “Risk Tolerance”.
- Risk tolerance is our emotional and financial ability to ride out a decline in the market without panicking and selling at a loss.
- When we define that point we make sure not to extend our investments beyond it.

Benefiting from risks

The same forces that bring risk into investing in the stock market also make possible the large gains many investors enjoy.
- It’s true that the fluctuations in the market make for losses as well as gains but if you have a proven strategy and stick with it over the long term you will be a winner!

The Internet has make investing in the stock market a possibility for almost everybody.
- The wealth of online information, articles, and stock quotes gives the average person the same abilities that were once available to only stock brokers.
- No longer does the investor need to contact a broker for this information or to place orders to buy or sell.
- We now have almost instant access to our accounts and the ability to place on-line orders in seconds.
- This new freedom has ushered in new masses of hopeful investors.

Still this in not a random process of buying and selling stock. We need a strategy for selecting a suitable stock as well as timing to buy and sell in order to make a profit.

Bull Market – Bear Market

1.  Bull Market and Bear Market. What do they mean?

(a)  What is a bull market?

A bull market is defined by steadily rising prices. 

The economy is thriving and companies are generally making a profit.

Most investors feel that this trend will continue for some time.

(b)  What is a bear market?

By contrast a bear market is one where prices are dropping. 

The economy is probably in a decline and many companies are experiencing difficulties.

Now the investors are pessimistic about the future profitability of the stock market.

Since investors’ attitudes tend to drive their willingness to buy or sell these trends normally perpetuate themselves until significant outside events intervene to cause a reversal of opinion.

2.  Investing in a bull market

In a bull market the investor hopes to buy early and hold the stock until it has reached it’s high.

Obviously predicting the low and high is impossible. 

Since most investors are “bullish” they make more money in the rising bull market.

They are willing to invest more money as the stock is rising and realize more profit.

3.  Investing in a bear market

Investing in a bear market incurs the greatest possibility of losses because the trend in downward and there is no end in sight.

An investment strategy in this case might be short selling. 

Short selling is selling a stock that you don’t own.

You can make arrangements with your broker to do this.

You will in effect be borrowing shares from your broker to sell in the hope of buying them back later when the price has dropped.

You will profit from the difference in the two prices. 

Another strategy for a bear market would be buying defensive stocks. 

These are stocks like utility companies that are not affected by the market downturn or companies that sell their products during all economic conditions.

Sunday, 2 September 2018

Investments and Risk Reward Ratio

It is always interesting that there are so many different types of investments around us, ranging from regulated investments such as bonds and stocks, all the way to unregulated investment vehicles such as collectibles, antiques and many others. In this post, I’m slightly more inclined to talk about some common investments, mainly money markets, bonds, stocks and derivatives as well as their risk-reward relationships. To illustrate this, let’s start with a picture.

Risk Return
I do hope that the picture is pretty clearcut. Basically, it says that the higher the return, the higher the risk. Note that in the picture, derivatives has lower return, but higher risk and I will explain why it is so in the picture. I am actually taking into account expected rewards, which is different from potential rewards. Potential rewards mean the high end spectrum of what is achievable, whereas expected rewards basically mean the aggregate returns of all investors who participate in the investing of the instrument.

Now, after having explained my definition, let’s look at the investments and their risk rewards ratio. It is seen from the diagram that for taking more risk, the expected rewards is greater, with the exception of derivatives. The explanation is that derivatives are theoretically zero sum games, which means that when someone makes money, another has to lose it. After commissions, spreads and other charges, they are practically negative sum games.

I have friends who said that stock markets are negative sum games too, because the same principle applies. However, they missed an important point, which is the fact that wealth is created through the stock market and the evidence is in the issuance of dividends. For example, I bought a stock at $10 and sell it for $9.50. I may seem to have lost money, but what if I got a dividend payout of $1.00 while holding the stock? From this example, we can see that the purchase of stocks is not a zero sum game and that the general direction of the stock market in the long run is an uptrend. Of course, I am assuming that there is no large scale war or natural disaster that will destroy a significant amount of wealth. Even if there is though, wealth will be recreated as long as humans survived.

Just like stocks, bonds and money markets are also both not zero sum games, since there is an effective yield that you can get. While some of them may default their payments, we are looking at the aggregate of all investments in the instrument, which makes it a positive sum game.

For derivatives though, it is a clear cut zero sum game, because there is absolutely no payouts linked to the instrument. You don’t get dividends for holding options or futures. However, I would like to argue from another standpoint that perhaps it is not really that much of a zero sum game. The reason I would like to input this perspective is the prevalence of people who like to hedge their investments. Therefore, they may have holdings of stocks and buying options to offset the downside. Hedging in such a way often gives them an effective yield almost equilvalent to the risk-free rate. Therefore, they may not care if their derivative products lose money, since their overall portfolio gives them the desired return that they want.

This seems to get quite complicated, but I am suggesting that if there are really quite a number of hedgers out there in the financial world, it is possible that they are all holding the derivatives that lose money. Consequently, this may mean that it may be slightly easier to profit from derivatives than a strict zero sum game, since some people participate in the game without the intention of winning. Of course, if we aggregate all the positions, we are still back to a strict zero sum game. :)

However, my purpose in this post is only to bring about another perspective that perhaps not everybody wants to make money from every market. Some people may participate in some markets and lose constantly but still persist because they satisfy them in some other way. Therefore, it may mean that for those who are serious about making money in the markets, the chances are slightly higher. After all, it is easier to win in a race against leisure runners than national runners who are committed to getting that next medal.

Of course, with everything said, it’s just my hypothesis and it may or may not be right. :)

This article was first posted on 24.11.2011.

Friday, 31 August 2018

Warren Buffett Says, "I'm Buying Stocks".

@1.00 min to 1.39 min

I am buying stock and I am not buying because I think the stock is going up next year.

I am buying because I think the stock will be worth a bit more money 10 or 20 years from now.

I don't know whether they are going to go up or down tomorrow, next week, next  month or next year.

I do know good business is, in relation .... you have to measure investments in relation to each other.... and the alternative for most people it is fixed income and you get 3.02% or something like that for 30 years.

So, would you be better to invest in a company that is earning 15 to 20% on the invested capital and compound it or have a 3% bond which can never earn more than 3% while you own it?

Tuesday, 28 August 2018

Saturday, 25 August 2018

Should You Sell Company ABC At This PE Ratio of 36.4x?

Should You Sell Company ABC At This PE Ratio?

ABC is trading with a trailing P/E of 36.4x, which is higher than the industry average of 23.5x.

  • While ABC might seem like a stock to avoid or sell if you own it, it is important to understand the assumptions behind the P/E ratio before you make any investment decisions. 
  • You should understand what the P/E ratio is, how to interpret it and what to watch out for. 

1.   Breaking down the P/E ratio

The P/E ratio is one of many ratios used in relative valuation. 

  • By comparing a stock’s price per share to its earnings per share, we are able to see how much investors are paying for each dollar of the company’s earnings.

P/E Calculation for ABC

Price-Earnings Ratio = Price per share ÷ Earnings per share

On its own, the P/E ratio doesn’t tell you much; however, it becomes extremely useful when you compare it with other similar companies.

  • Your goal is to compare the stock’s P/E ratio to the average of companies that have similar attributes to ABC, such as company lifetime and products sold. 
  • A quick method of creating a peer group is to use companies in the same industry
  • ABC’s P/E of 36.4x is higher than its industry peers (23.5x), which implies that each dollar of  ABC’s earnings is being overvalued by investors. Therefore, according to this analysis, ABC is an over-priced stock.

2.  Assumptions to watch out for

Before you jump to the conclusion that ABC should be banished from your portfolio, it is important to realise that your conclusion rests on two assertions. 

(a)  Firstly, your peer group contains companies that are similar to ABC.

  • If this isn’t the case, the difference in P/E could be due to other factors. 
  • For example, if you compared lower risk firms with ABC, then investors would naturally value it at a lower price since it is a riskier investment. 

(b)  The second assumption that must hold true is that the stocks we are comparing ABC to are fairly valued by the market.

  • If this is violated, ABC’s P/E may be lower than its peers as they are actually overvalued by investors.

3.   What this means for you:

(a)  Are you a shareholder? 

You may have already conducted fundamental analysis on the stock as a shareholder, so its current overvaluation could signal a potential selling opportunity to reduce your exposure to ABC.

Now that you understand the ins and outs of the PE metric, you should know to bear in mind its limitations before you make an investment decision.

(b)  Are you a potential investor? 

If you are considering investing in ABC, looking at the PE ratio on its own is not enough to make a well-informed decision.

You will benefit from looking at additional analysis and considering its intrinsic valuation along with other relative valuation metrics like PEG and EV/Sales.

PE is one aspect of your portfolio construction to consider when holding or entering into a stock. But it is certainly not the only factor. 

Another limitation of PE is it doesn’t properly account for growth, you can use a list of stocks with a high growth potential and see if their PE is still reasonable.

The thought process using Relative Valuation

Price based on past earnings
PE 36.4x
ABC is overvalued based one earnings compared to the industry average.
ABC is overvalued based on earnings compared to the local market.

Price based on expected growth
PEG 3.0x
ABC is poor value based on expected growth next year.

Price based on value of assets
P/B 15.3x
ABC is overvalued based on assets compared to the industry average

Thursday, 23 August 2018

Investing in Foreign Shares

There are many stock markets in the world.

All of them are susceptible to both good and bad news.

Every market's behaviour is dictated by global events.

Each market presents diverse opportunities for one to invest and realise financial gains.

What are some of the reasons for investing in foreign markets?

1.  The high transaction values in certain markets
  • High transaction values indicate the dynamic volume and value of the shares traded.
  • Bursa Malaysia in 2011 (Jan to Nov) had a market turnover of about USD 126b (RM410,507.51 million).
  • Here are 4 markets in the world's top 10 Stock Exchanges and their rankings in term of transaction values in 2011 are:
                                     a)  NYSE  USD 20,161b
                                     b)  Nasdaq USD 13,552b
                                     c)  HKEX USD 1,447b
                                     d)  ASX USD 1,197b

2.  Some countries are homes to many multinational companies and major financial institutions.  

3.  Some countries maybe a proxy for another country's economic growth

  • For example, Hong Kong HKEX being the proxy for China.

4.  Some countries have stronger currencies than our home country and the disparity in currency strength between the two currencies will most likely continue to widen over time.

  • For example, some invest in SGX listed shares because of the strength of the Singapore Dollar (SGD).  
  • In 1993, the RM was trading at RM 1.55 against the SGD.  In Sept 2013, it was trading at RM 2.58.

5. Greater opportunity to discover undervalued companies due to more choices.

  • Combined, the NYSE, NASDAQ, ASX, HKEX and SGX have almost 10,000 companies while Bursa Malaysia has about 1000.
  • With more choices, there is greater opportunity to discover an undervalued company that suits your investment needs.

6.  Some stock markets lag behind others.

  • You can invest in one market first, and then shift your funds to another stock market which is lagging behind the former and make your second round of profit.  
  • You can also invest in one industry first, then move to another industry within the same stock market.

7.  Owning a world-class brand.   

  • Most of these shares are mainly listed in the foreign stock exchanges.
  • They offer you the chance to own world-class companies and participate in their global growth.

8.  Owning a piece of the cutting edge technology.

  • Listed in the NASDAQ are many start-up internet and biotechnology companies at the forefront of new technology or new drug discoveries.

9.  Shares in a foreign stock exchange may have dividend yields better than your current FD rate.

  • However, the dividend yield should never be the sole factor affecting your investment decision.

10.  Hedge against global economic uncertainties.

  • The USD will always be the 'safe haven' currency in times of economic turmoil.  Owning shares in USD does help to pare down losses during such times.
  • Similarly, the HKD being traded against the USD within a narrow band, can be an alternative 'safe haven' currency.


Be brave and open your mind.

You can always find an undervalued company in any stock market if you are meticulous in your stock selection.

A value investor seeks a company that is undervalued with great potential to grow its business, locally and globally.

Wednesday, 22 August 2018

Always look at the risks before looking at the rewards in your long term investing

In investing, always look at the risks before looking at the rewards.

Understand the risks you are taking and then decide for the potential rewards you can hope to get, whether this reward/risk ratio makes business or investing sense.

Also, determine what is the likelihood of the reward appearing, its quantum and when.

Remember, "a bird in the hand today is worth two or more in the bush tomorrow."

How to look at risks in investing?

Back to the teaching of Warren Buffett's 4 tenets of his investing method.

1.  Understand the business.
2.  A business having durable competitive advantage.
3.  Managed by people with integrity.
4.  Available at fair price (margin of safety).

His tenets are very simple, and yet so few are following these.

If the business is too hard to understand, avoid investing into it.  You need to be able to understand the business.  What are the products or services it is selling?  Who are its customers?  How are its revenues generated?  Its profit margins?  Who are its competitors?  Only invest into a company you understand.  This is having business sense.

A company with durable competitive advantage enjoys certain unique advantages that allow it to compete in its competitive business environment.  The company may be selling a unique product or service, protected by patents or it enjoys a brand that people like for a long time.  Perhaps, the business is the lowest cost producer, or the cost of switching by its customers to another competitor is high.  Some businesses enjoy networking effect.  Avoid businesses with no durable competitive advantage.

People with integrity can be difficult to judge with certainty.  In general, a reputation build up slowly over 30 years can disappear over 5 minutes.  Anyone whom you have even a slight suspicion of his integrity, just avoid investing into that company.

When all the above 1, 2, and 3 tenets are met, you can then determine the price to buy and how much to buy?  You need to be patient.  The market is volatile and stock prices are volatile.  These market volatility and price volatility reflect the fluctuating sentiments of the investors and players in the market.  Don't time the market, always price the market.  You buy when the price is right.  Avoid when the price is obviously too high.  Invest when a great company is available at a fair price or even a slightly above fair price.  Be greedy and invest a lot, when a great company is available rarely at a huge bargain price.

Managing risks

The above few paragraphs explore how you will manage risks as applied to each tenets of Buffett in your stock investing.  In a very general sense, risks can be managed in 4 ways:

1.  Avoid
2.  Retain or embrace
3.  Reduce
4.  Transfer.

Whenever you are prospecting a new stock, you will need to determine that this stock meets the 4 business tenets of Buffett.  At each stage, you should avoid this stock altogether if you determined its risk is too high.
  • Note that not able to understand the company's business is high risk too and you will need to avoid investing into it.  
  • Not able to determine what confers to it its long term durable competitive advantage, is also another investing risk that should be avoided or perhaps embraced sometimes, but you need to have a very good reason.  
  • Of course, avoid counters managed by people whose integrity you doubt.  
  • Not able to value the business either because it is too complex to understand or its accounting is too difficult to fathom, you are better to avoid investing into this company.

Eventually, you are left with those stocks which you understand very well.
  • QUALITY OF THE COMPANY (QUALITATIVE ASSESSMENT):  You understand their businesses, their durable competitive advantages and their management.  
  • VALUATION OF THE COMPANY (QUANTITATIVE ASSESSMENT):  And, you too understand how to value them and this gives you an advantage to buy and own them at a reasonable, fair or good prices.  

Every stock you own has gone through this thorough risk analysis and also the reward potential analysis.  For the stocks you have in your long term portfolio, you have retain and embrace the risks associated with investing in them and also have a very clear idea of their reward potentials.  You know their risk/reward ratios over the long term and the probability of their investing returning  predictable positive returns (driven by the durable competitive advantage possessed by these companies).

When the stocks in your portfolio are priced too high during certain market situations, you may, if you wish to, also reduce the risks or transfer the risks using various strategies.

Through managing your risks, you avoid losses or minimise your losses and the modest positive returns from the other stocks in your portfolio will translate into reasonable returns.

Investing is fun and profitable in the long run.

Good luck to all.

Determining the Payback Period. When are borrowings excessive?

In the balance sheet, the total liabilities exceed the total equity overwhelmingly.  What does this mean?

There are 3 possible types of scenarios when this happens:

1.  The company has excessive long term borrowings.
2.  The company has excellent business that uses very little equity and its business is funded mainly by its creditors.
3.  The low equity is due to accumulated deficit, the result from continuing losses in operations.

Let us look at scenario No. 1:  The company has excessive long term borrowings.

Companies normally borrow money from financial institutions to fund their expansion.

  • This is even more prevalent in an environment where the interest rates are low.
  • Some companies will also refinance their debt by taking advantage of the low interest rate so that they can enjoy some savings in the interest payable.
  • Yet others will refinance their debt with a higher interest rate to extend the maturity date of the debt.
All the above make business sense, when the return on capital is higher than the cost of capital.  

But, if the business continues to suffer despite the injection of additional funds through borrowings, then the company could be in dire straits.

When are borrowings excessive?  How do you determine this?

The key is in the payback period.

Look at the amount of long-term borrowings (normally found under the heading of Non-Current Liabilities) and then the Net Profit (found in the Income Statement).

Assuming that the company can utilise ALL its Net Profits in its present financial year to pay off its long term borrowings AND the SAME Net Profit recurs every year, you have this formula:

Payback Period in years = Long Term Borrowings /Net Profit.

The resulting answer is the payback period for the long-term borrowings.

A prudent KPI for the payback period is not more than 5 years.

Yes, you can argue that the company can achieve tremendous profit growth in the next few years.  If that happens, the number of years required to pay off its debts can be reduced dramatically.  

By the same argument, what if the economy suffers and a loss is incurred?

Tuesday, 21 August 2018

F&N’s earnings to be driven by export growth, cost efficiency

F&N’s earnings to be driven by export growth, cost efficiency
August 20, 2018, Monday

KUCHING: Analysts project the future earnings of Fraser & Neave Holdings Bhd (F&N) to be driven by the continued strong export growth and improved cost efficiency as a result of cost optimisation efforts and better economies of scale.

Following a visit to F&N Dairies Manufacturing plant in Selangor Halal Hub, the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) highlighted that F&N targets total export revenue to reach RM800 million by 2020.

According to MIDF Research, as of the first nine months of financial year 2018 (9MFY18), export contributes 16 per cent of total revenue whilst for F&N’s Malaysia and Thailand segments, these grew 20 per cent year on year (y-o-y) and 10 per cent y-o-y respectively.

“We estimated export revenue to contribute between the range of RM642.9 million to RM710.6 million for FY18,” the research arm said.

“Assuming the same rate of growth, F&N poised to achieve its total export revenue target before 2020.”

MIDF Research noted that F&N’s two main segments, the Malaysian and Thailand segments, which contribute 57.1 per cent and 42.9 per cent respectively to total revenue (including export) are currently facing intense completion.

The research arm further noted that F&N’s domestic market share for sweetened condensed milk has slipped from 59 per cent in FY14 to 52.4 per cent as of the first half of FY18 (1HFY18).

“Despite the declining market share, revenue dropped marginally by 0.4 per cent y-o-y and 0.3 per cent y-o-y in the 9MFY18.

“Nevertheless, we expect a stronger revenue growth due to pre-sales and services tax (SST) purchase and new innovative products set to be launched in Malaysia and Thailand market next year.”

Monday, 20 August 2018

Internal Rate of Return

Internal Rate of Return (IRR)

  • is the discount rate that generates a zero net present value for a series of future cash flows
  • it equates the present value of the future net cash flows from an investment project with the initial cash outflow of the project
  • it is calculated by employing trial and error method
  • a higher cost of capital lowers the value of NPV and vice versa
  • it takes into account the concept of time value of money
  • project with IRR more than the required rate of return is considered as acceptable and profitable.
IRR > Required rate of return, accept the project
IRR < Required rate of return, reject the project

IRR = DISCOUNT RATE for positive NPV  + [DISCOUNT RATE DIFFERENCE x (Positive NPV / (Positive NPV - Negative NPV)]


Initial Investment 160,000
Cash flows of constant 55,000 for year 1 to year 5.
Given that the discount rate or required rate of return is 18%.
Total Present Value 171,994.41 #
Total Investment  (160,000)

Net Present Value 11,994.41

IRR is the discount rate that generates zero NPV.
Increasing the discount rate will lower the NPV.
To generate negative NPV, we have to increase the discount rate.
Let this discount rate or cost of capital to be 24%.

Using discount rate of 24%, the values are as follow:

Initial Investment 160,000
Cash flows of constant 55,000 for year 1 to year 5.
Given that the discount rate or required rate of return is 24%
Total Present Value 150,996.15 #
Total Investment  (160,000)

Net Present Value -9,003.85



= DISCOUNT RATE for positive NPV  + [DISCOUNT RATE DIFFERENCE x (Positive NPV / (Positive NPV - Negative NPV)]
= [18% + (24% - 18%) {11,994/(11,994-(-9,003.85)}] x 100%
= 18% + 3.4%
= 21.4%

As the cost of capital for this project is 21.4% and the firm will only receive 18% for each dollar invested, the company should not accept this project.

# Note:  The total present value can be calculated thus
CF1/[(1+r)^1]  + CF2/[(1+r)^2] + CF3/[(1+r)^3] + .... CF3/[(1+r)^n]

Net Present Value and Profitability Index

Net Present Value (NPV)

  • an indicator of how much value an investment could contribute to the firm
  • takes into account the concept of time value of money
  • the Present Value Interest Factor (PVIF) Table can be used to calculate present value
  • the criteria below should be considered before accepting for rejecting a project or an investment:
NPV > 0  

The investment would add value to the firm.
The project should be accepted.

NPV < 0

The investment would subtract value from the firm, that means the project reduces shareholder wealth.
The project should be rejected.

NPV = 0

The investment would neither gain nor lose value for the firm.
We would be indifferent in the decision whether to accept or reject the project.  This project adds no monetary value.  Decision should be made based on OTHER CRITERIA.

Total Present Value = sum of the discounted value of all future cash flows.

NPV =  Total Present Value - Total Investment.

Probability Index 

The project is not profitable when its profitability index (PI) is less than 1.00

PI = Total Present Value / Total Investment

Payback Period

Payback Period (PBP) is the period of time required for the cumulative expected cash flows to equalize the initial investment or cash outflow.

1.  Equivalent or constant cash inflow.

PBP = Initial Investment / Cash Inflow

2.  Unequal Cash Inflow

PBP = N + [ (Initial Investment - Accumulated Cash Inflow for Year N)/Cash Flow for Year M ]

N = the number of years for the accumulated cash flows that had not exceeded the capital or investment.

M = the year where the total accumulated cash flow is equal to or more than the capital or investment.

Accounting Rate of Return or Average Rate of Return (ARR)

Accounting Rate of Return or Average Rate of Return (ARR)
  • a financial ratio used in capital budgeting
  • does not take into account the concept of time value of money
  • calculates the return generated from net income of the proposed capital investment.

1.  Investment without scrap value

Depreciation = Total Investment / Useful Life

ARR = [(Average Cash Flow - Depreciation) / Initial Investment] x 100%

2.  Investment with a scrap value

Depreciation = (Total Investment - Scrap Value) / Useful Life

ARR = [(Average Cash Flow - Depreciation) / Initial Investment] x 100%

Sunday, 19 August 2018

Project Evaluation

The decisions of where to invest the company's resources have a major impact on the future competitiveness of the company.

Trying to get involved in the right projects is worth an effort, both to

  • avoid wasting the company's time and resources in meaningless activities, and 
  • to improve the chances of success.

Project evaluation is a process used to determine whether a firm's investments are worth pursuing.

Producing new products, buying a new machine and investing in a new plant are examples of firm's investment.

Investing in those activities involves a major capital expenditure, and management needs to use capital budgeting techniques to determine which projects will yield the most return over an applicable period of time.

Capital Budgeting Factors

Factors involved in capital budgeting are:

1.  Initial Cost
The initial investment or cash capital required to start a project.

2.  Cash In Flow
The estimated cash amount that flows into a business due to operations of the project or business.

3.  Investment Period
The duration of the project and when it is estimated to be completed.

4.  Discount Factor
The value of interest that will be received or charged during the period of the project's execution and it will affect the present value of cash in flows for different years.

5.  Time Value of Money
The idea that a ringgit now is worth more than a ringgit in the future, even after adjusting for inflation, because a ringgit now can earn interest or other appreciation until the time the ringgit  in the future would be received.This theory has its base in the calculation for present value.

Factors influencing investment decision

A firm must make an investment decision to improve or increase the incomes of the company in order to compete in the market.

Investment environments include:

1.  Product development/enhancement
2.  Replacing equipment/machinery
3.  Exploration of new fields or business.

Project Evaluation Methods

Common methods used in evaluating projects, investments or alternatives are:

1.  Payback Period (PBP)
2.  Accounting Rate of Return/Average Rate of Return (ARR)
3.  Net Present Value (NPV)
4.  Profitability Index (PI)
5.  Internal Rate of Return (IRR)

In choosing an investment or project, select the project which generates HIGHER ARR, NPV, PI and IRR; and SHORTER PBP.


Saturday, 18 August 2018

Turning investing principles into good investing habits

So just what is a habit?

A habit is:
  • a recurrent, often unconscious pattern of behaviour that is acquired through frequent repetition, and,
  • an established disposition of mind or character.
As an investor,you need to not only learn to do it well but also to do it with some consistency, and do it without struggling to remember what you did last time.  

As a low volatility investor, you are not likely to be as active trading in the markets as some other investors, and you may not watch as closely.

Any investor - active, inactive, aggressive or low volatility - has a duty to keep up with his or her investments.

For the low volatility investor and others, it is important to develop certain habits, routines, or thought processes for:
  • choosing investments,
  • watching and managing investments, and
  • selling or replacing investments.
With the right habits, you will increase the chances of success.

Turning principles into habits

Investors have obvious goals:  to produce wealth and to preserve capital.

Anything an investor does should address both goals, preferably simultaneously.

As an investor, you are motivated to succeed and, over time, you build a set of strategies and tactics to help you achieve those goals.

"Motivation is what gets you started.  Habit is what keeps you going."

It is easy to get motivated.  It is harder to learn the ropes - the skills and techniques - required to become a good investor.  

But what may be hardest of all, once you gain experience and enjoy some investing success, is to turn those skills into habits.

Habits that become built in, second nature, repeatable and predictable, and not only lead to good results but help you avoid bad ones.

Without consistent habits, low volatility investors will make mistakes and find themselves off in the weeds. 

Good investing habits are like a good golf swing: apply those habits to every investment choice and you won't succeed every time, but your chances for success will brighten considerably.

The thought processes in building a portfolio that works.

You want an investment portfolio that meets your financial objectives. 

Investors have obvious goals:  to produce wealth and to preserve capital.

You also want that portfolio to accomplish those goals quietly, with a minimum of upsets, a minimum of nerves, a minimum of complex mathematics, and most likely, a reasonable amount of effort on your part, because you are busy doing other things in life too.

The tiered portfolio is divided into three primary tiers:

1.  The Foundation portfolio
2.  The Rotational portfolio
3.  The Opportunistic portfolio.

The Foundation portfolio (80%)

This is set up to meet or slightly beat expected market returns, often with stable and somewhat defensive investments.

Dividend-paying stocks with rising dividends and growing prospects while at the same time exhibiting low downside risk and volatility are a pretty good fit.

These investments can be stocks or funds, and can be augmented by fixed-income securities, real estate, or other investments that meet this general profile.

Rotational (10%) and Opportunistic (10%) portfolio

The purpose of these is to achieve better-than-market returns, perhaps with more volatility, but these portfolios are small enough to contain risk and to avoid consuming too much of your investing time and bandwidth.

Putting together your portfolio

How your portfolio is put together is entirely up to you, not only because the portfolio needs to suit your tastes, intuitions and the facts at the time, but also because many of the investments (and the mix of investments) may not even be available, or priced right, at the time.

Building a tiered portfolio

This tiered portfolio has three segments:

1.  Foundation investments
2.  Rotational investments
3.  Opportunistic investments.

Foundation investments (80%)

These are like dividend-paying stocks that produce market (or better) returns with relatively less risk.

Rotational investments (10%)

These are mostly ETFs and inverse investments.  They add some defense and sector diversification to your portfolio.

Opportunistic investments (10%)

These employ a little more risk to boost returns.


The net result should be a portfolio that generates above-market returns with below-market risk.

The most bang for your buck

You want to select investments carefully to eke out those one, two or three extra percentage points of excess return. 

You are trying to add investments that is, at the highest possible return level for the amount of risk taken.  

You are trying actively to manage volatility and risk - avoid, reduce, retain or transfer risk.

Essentially, you want the most bang for your buck.

Smart diversification is the key. The smart investors are focus Investors.

True investors are not random stock pickers.

They take out risk by understanding the investments and their intrinsic value, rather than by spreading the risk across more companies.

Smart investors are focus investors who drive toward deep understanding of their investments without diluting possible returns through diversification.

They see danger in owning too many investments, which may be beyond the scope of what they can manage or keep track of.

Here's the paradox:  Instead of reducing risk through diversification, risk may actually increase as it becomes harder to follow the fortunes of so many businesses.

That is why Buffett and others reject diversification per se as an investment strategy.

They prefer to reduce risk by watching a few companies and investments more closely.

"Diversification is for people who don't know what they're doing."  Warren Buffett.

Friday, 17 August 2018

Volatility, Risk and You as an Investor. "Take no risk" is not an option.

As an investor, you have to know something about volatility and risk, where it comes from and how it can affect your investment performance.

If you avoid volatility altogether, example, keeping your money in fixed deposits or risk free saving deposits, you will eventually be sorry in all but the most remote black swan scenarios.

What are you to do?  

You will have to face the risk and decide how you want to go forward in your investing.  There are at least four things you can do about risk, to manage it.

1.  Avoid risk:  accept risk-free returns of 2% or less.
2.  Retain risk:  know it's there, know its dangers, and deal with them.
3.  Reduce risk:  be smart about what you are doing by taking the necessary precautious
4.  Transfer risk:  make contrarian investments or buy derivatives -another scary concept, to insure your portfolio.

The best investing approach to risk taking

The best investing approach overall is some combination of the four.

Warren Buffett's strategy was primarily to reduce risk by knowing what he was doing.  We can embrace a lot of what he has to say, though we cannot all be so masterful.

We may want to avoid risk with certain portions of our investments, like an emergency or college fund as we approach our children's college years.

We will retain risks, knowing it is hard to quantify or measure just how much risk we want to retain.

We will reduce risks by being smart, which means knowing where the risks come from and taking steps, like doing smart, forward-looking research to reduce them.

There are ways to transfer some of the risks by buying and selling certain types of options to trade a relatively more volatile future for certain cash today or to insure a portfolio outright.

"Take no risk" is not an option.

If you have money, you will take risk.

If you want your money to work for you some day, you have to take a little more risk, especially in view of long-term inflation.

If you embrace and manage the risk properly and stay within yourself, you won't lose sleep at night.  

What is risky is what makes you lose sleep at night.

This is anything that's psychologically upsetting or distracting that causes you not to be wholly focused or effective on the rest of what's gong on around you.

Risk checklist

Here is a short risk checklist:

  • If you cannot sleep at night, you are taking too much risk.
  • If you cannot function normally without being distracted; if you are irritable or angry or pensive or withdrawn, you are probably taking too much risk.
  • If you are risking something greater than you can afford to lose, you are taking too much risk.
  • If you are truly worried about your long-term financial security, you are taking too much risk.
  • The converse is true too.  If you are truly worried about long term financial security, you may not be taking enough risk; you are sacrificing too much return.


In the end, it all depends on how much risk you want to take and how you feel about risk to achieve a balance you are comfortable with.

Low volatility investing is the acceptance and management of some investing risk to produce better-than-market returns while minimizing exposure to the wealth-destroying sharp downturns that can have long-term effects on investing performance.

Small losses versus Big losses. They are different stories.

Small Losses

Small hits or losses are alright, so long as they aren't persistent or don't last forever.  That said, we cannot take 10% or even 5%, losses ongoing and forever.  Even if we under-perform the markets by a few percentage points, we can lose out on considerable gains once the power of compounding sets in.

Big Losses

Big losses are a different story.  We can tolerate the 10% corrections and even ignore the 10% twitter, but if we are exposing ourselves to 50% losses on individual investments - or worse, on substantial portions of our portfolios - look out!  It will take a lot to turn that ship around and get it back to where it went off course.

Fluctuations, minor corrections and bear market

There is a big difference between fluctuations, minor corrections (considered to be 10% pullbacks by most market professions), and an all-out bear market, usually considered a plunge of 20% or more.  The prudent investor senses the difference between fluctuations, corrections and the more destructive bear markets.

The high cost of an untimely hit.

Volatility can be expensive, especially, if it goes beyond normal investment noise into creating a significant downturn, especially at the beginning of an investing period.

The principles and effects of compounding makes a difference not just how much we succeed but also WHEN we succeed in the markets.

The general principle is that the more we can earn SOONER - to unleash the power of compounding to a greater degree over a longer time - the better off we are.

Conversely, if our investment capital takes a hit in the early going, it takes a lot just to get back to even, let along to get ahead.

Limitations on using the past data approach. The past does not predict the future.

There are two general categories of limitations on using the past data approach:

1.  The past doesn't predict the future.

No matter how much math you apply to how much data, you're still looking backward.

Trying to say what's going to happen based on what has happened is a dangerous game, particularly with anything involving as many non-quantifiable variables as investing.

The best thing you can do with the models is to gain a better understanding of what happened in the past, but you can't be sure it will happen again in much the same way; in fact, you can be pretty sure it won't happen the same way again.

2.  There are too many moving parts.

External, internal and personal factors all come into play, and no model can take everything into account.  

A stock may have played predictably in the past (and a company's earnings may have played predictably, too, thus the stock price predictability), but what happens when something changes?

What happens when customers suddenly decide they don't like a product anymore or, for that matter, when investors decide they don't like a stock (or gold or corn or a bond or real estate) anymore, or as much as they did?

You can't predict all the factors that influence the future.  Nobody can.  Again, if you could, who would take the other side of the trade?

Thursday, 16 August 2018

In investing, it is more important to be able to measure and conceptually understand what is going on than doing a lot of complex quantitative analysis..

Investing is not, and never will be, a formula.

There are no equations to determine the best investments.

There are theoretical approximations but we cannot depend on them 100%.

For a host of reasons, they don't tell all, and they don't always work.

The point is to be able to measure and conceptually understand what's going on.

You are probably better off knowing what questions to ask and making big-picture look-out-the-window risk/reward decisions than getting bogged down trying to calculate the risk of the investment yourself.

You can look at the numbers, particularly comparative numbers, to get an idea whether an investment more or less accomplishes your objectives.

You can also look at a chart to get a quick view or vision of the volatility without knowing the precise numbers within.

At the end of the day, quantitative measures are important mostly for comparison.


Some of your best investment calls will occur by simply looking out the window.

What is important is to grasp the concept and then with a few measures to help assess risk/reward and especially to compare it.

Informed common sense

Remember the past doesn't predict the future.

There are also too many variables you cannot quantify, like human behaviour and economic sentiment.

Some of the investing models are pretty cool but they are far from perfect; and they may sidetrack you from making the right decisions.

INFORMED COMMON SENSE will help you more in making the right decisions.

Monday, 13 August 2018

Housing is a volatile investment indeed, at least for most people.

Statistics show that housing on the whole is a relatively tame investment:

  • Average annual percent change:  3.1%
  • Number of years positive:  15
  • Number of years negative:  5
  • Number of years between 0 and 10% positive:  13.
  • Number of years more than 20 percent positive: 0
  • Number of years more than 20 percent negative: 0
[Housing is thus an example of low volatility investment, with a tame and steady 3.1% annual gain with 15 positive years out of 20 and no 20% annual fluctuations.  Also, you get to live in it.]

Two caveats.  

Caveat number one is:  the price of a house is very large.  So a 5% (or $10,000) move on a $200,000 asset is significant and a 20% (or $40,000) move is gigantic.  Volatility as a percentage should naturally attenuate as the base of an index rises.  Sometimes the opposite happens when bubbles go into correction.

The second caveat is: leverage magnifies volatility.  Suppose you buy a $200,000 house and that you, like most others do, borrowed 80% of the value.  Your equity is $40,000.  A 5% or $10,000 price decrease now translates into a 25% ($10,000/$40,000) change.  [The mathematics:  if your equity is only a fifth of the asset value, you must multiply the volatility figures by 5x.]

Here are the housing volatility figures, this time assuming an 80% mortgage:
  • Average annual percent change:  15.5%
  • Number of years positive:  15 
  • Number of years negative:  5
  • Number of years between 0 and 10% positive:  2
  • Number of years more than 20% positive:  10
  • Number of years more than 20% negative: 2
Note especially the decline in the number of years between 0 and 10 percent positive:  from 13 to 2.  Looked at it in this light, housing is a volatile investment indeed, at least for most people.

[Remember too the impact of leverage on volatility.  This comes into play, too, when looking at companies to invest in.  If they've borrowed a lot of to finance the business, that, too, can lead to higher volatility.]

Volatility and Leverage: A vicious circle?

Where leverage is involved, a small loss is magnified into a big one.

That bigger loss creates considerable indigestion for the losers.

They see what's happening and rush to deleverage; that is, to sell assets to reduce exposure to volatility.

That rush to the exits creates more volatility.

The cycle continues.

This deleveraging cycle goes a long way to explain the 2008 financial crisis:  the volatility that created it and that it created.

When we look at the causes and consequences of volatility, we can see how it frequently can become a self-fulfilling prophecy, particularly where leverage is involved.

What went wrong for Turkey? Its economy is 'in the midst of a perfect storm'

What went wrong for Turkey? Its economy is 'in the midst of a perfect storm'

August 13, 2018 16:17 pm +08

(Aug 13): The free fall in the Turkish lira has stoked fears of an economic fallout that could spill over into other emerging markets and the banking systems in Europe.

Turkish President Recep Tayyip Erdogan blamed the plunge in the currency on "an operation against Turkey" and dismissed suggestions that the country's economy was facing troubles. But strategists from J.P. Morgan Asset Management said the NATO member has found itself "in the midst of a perfect storm" of worsening financial conditions, shaky investor sentiment, inadequate management of the economy and tariff threats from the U.S.

"Turkish assets have been under severe pressure," the strategists wrote in a Friday note. "While Turkey makes up a small percentage of the global economy and financial markets, investors are worried about the issues in Turkey causing damage in other markets around the world, particularly Europe."

In the immediate term, policy decisions out of Washington have sparked Turkey's currency crash: The lira plunged as much as 20 percent against the dollar on Friday after President Donald Trump said he approved doubling metals tariffs on Ankara. But the cracks in Turkey's economic foundation were already spreading before the American president made his move.

How did Turkey get here?

Turkey has in recent years been one of the fastest-growing economies in the world, even outperforming economic giants China and India last year. In the second quarter of 2018, the country reported 7.22 percent growth in its gross domestic product.

That expansion, however, was fueled by foreign-currency debt, analysts said. At a time when central banks around the world were pumping money to stimulate their economies after the global financial crisis, Turkish banks and companies were racking up debt denominated in U.S. dollars, they said.

That borrowing, which fueled consumption and spending, resulted in Turkey running deficits in both its fiscal and current accounts. The former happens when government spending exceeds revenue, while the latter essentially means a country buys more goods and services than it sells.

The country's foreign currency debt now stands at more than 50 percent of its GDP, according to estimates by the International Monetary Fund.

Implications of Turkey's debt

Turkey is not the only economy with "twin" deficits and high amounts of foreign currency debt. Indonesia, for example, also runs fiscal and current account deficits and its foreign currency borrowing is roughly 30 percent of GDP.

But unlike Indonesia, Turkey doesn't have large enough reserves to rescue the economy when things go wrong, said Richard Briggs, an analyst from research firm CreditSights.

According to Briggs, Turkey's reserves are notably low compared to its $181 billion in short-term debt denominated in currencies other than the lira. On top of that, much of the foreign currency in Turkey is held by banks, and those funds could be withdrawn by customers, he added.

That means when the lira falls, Turkey may not be able to buy up its currency to prevent it from spiraling further. If that situation worsens, the country would have to find other ways to finance its debt, including possibly getting bailed out by the International Monetary Fund.

Economic mismanagement

To many analysts, Turkey wouldn't have gotten into the current predicament if its central bank had been left to do its job.

The Turkish economy has been "overheating" with inflation — at 16 percent in July — way exceeding the central bank's target of 5 percent. Raising interest rates could have helped to stem such a massive increase in consumer prices: Higher rates tend to attract foreign investors, who would need the lira to buy Turkish assets. That could in turn support the currency, which makes imports cheaper and lessens the burden of paying back foreign debt.

But Erdogan has said he's in favor of lower interest rates to continue driving growth. His influence over the country's central bank has undermined investor confidence, experts have said.

"President Erdogan continues to prioritize growth and lower rates which will extend the current crisis, rather than allowing the economy to rebalance. He is here to stay, and markets don't have confidence in him. That's a dangerous mix," Briggs wrote.

What's next for Turkey?

Without raising interest rates, Turkey has few other options to get out of its economic problems, said Eric Robertsen, global head for foreign exchange, rates and credit research at Standard Chartered Bank.

Turkey earlier said it was limiting banks' foreign exchange swap transactions but it wasn't implementing capital controls. Those measures are merely "baby steps" and won't do much unless interest rates are raised, Robertsen told CNBC's "Squawk Box."

"The interest rates policy is kind of the critical line of defense," he said. "What they have to do is make sure that currency doesn't leave the country in a full-fledged capital flight ... it has to be a combination of currency measures and interest rates, there's no way around that."

Thursday, 9 August 2018

A Horrifying Storm Is Brewing Inside the Stock Market

A Horrifying Storm Is Brewing Inside the Stock Market

The markets continue to hover around record highs. But there could be a storm brewing investors need to watch.
Aug 8, 2018

Don't forget risk.

Leverage remains insanely high at $647 billion, 55% higher than at the 2007 double housing and stock bubble peak and 116% higher than the 2000 tech mania peak. Total margin debt has exceeded 3% of Gross Domestic Product only three times; in 1929 as the madness of the Roaring Twenties peaked, last year and this year.

Leverage may seem like magic on the way up but the effects are horrifying when prices fall. The unwinding of margin debt between 1929-1932 resulted in a economic depression as the phenomenal wealth driving the nation's economy evaporated.

Stock prices fell as much as 90% after soaring 4.2-fold in only nine years and four months. The damage was so extensive that the Dow Industrials did not fully recover until 26 years later in 1955.

Thus, we look at today's stock market and worry about the similarities. In only nine years and four months from the previous bear market bottom in March 2009, the Dow Jones Industrial Average has now surged 4.1-fold, almost exactly the same as the run into the 1929 peak.

While we do not expect an exact repeat of the 1929-32 period when excessive leverage led to a crash and a collapse into an economic depression, the current environment is way too similar to past manias and in certain aspects — primarily leverage — is far worse than the prior two peaks in March 2000 and October 2007. Given our long term target of Dow 14,719, down 43% from today, we have zero comfort for the long side.

Meanwhile, total dollar trading volume (DTV) now stands at yet another new record high. Over the last 12 months, total DTV is now $81.24 trillion, up nearly 15% from last years record, roughly 75% higher than at the 2007 double bubble peak and 150% higher than at the tech mania peak.

The trend to trade more has kept average holding periods for U.S. stocks to just over four months. When stocks are held for the long term, valuation becomes a primary consideration. The shorter period one holds stocks, the less likely one is to rely on valuations, hence valuation methodologies are now routinely shunned and scorned in favor of chasing momentum.

Sentiment is perhaps the most significant driver of price, but it is not mere excessive optimism that makes the current environment so dangerous. Excessive valuations have been in place for so long that they are now accepted as entirely normal.

In the same way that buying stocks for 10% down in 1929 was regarded as normal, in the same way the "Nifty Fifty" one decision stocks in 1972 were considered normal, in the same way Nasdaq at a 250 P/E multiple in 2000 was considered normal, today's environment is accepted as normal and forecasts of higher prices abound.

In a CNBC survey of 19 top Wall Street firms, every strategist forecast higher prices and an average gain of another 10.6% through the remainder of the year. We are far more comfortable on the other side of the fence. Risks on the long side continue to be insanely high.

History has shown 30% downturns occur on average, roughly once every nine years. We are astonished how little attention is paid to risk parameters, even at this point when it is so ridiculously obvious how much leverage is built into stock prices and how overvalued stocks are.

We expect as bear market and our target remains Dow 14,719. Be careful. A storm is brewing.

By: Alan Newman, editor of CrossCurrents. Via MoneyShow.

Saturday, 4 August 2018

A massive losing bet on bitcoin futures has investors buzzing

A massive losing bet on bitcoin futures has investors buzzing
Friday, 3 Aug 2018

HONG KONG: A huge wrong-way bet on Bitcoin has left an unidentified futures trader unable to cover their losses, putting counterparties at risk and threatening to dent confidence in one of the world’s largest cryptocurrency venues.

The more than US$400mil long position in Bitcoin futures was amassed on OKEx, a Hong Kong-based exchange that’s ranked No. 4 on’s list of the biggest crypto platforms, according to a person familiar with the matter, who asked not to be named because he isn’t authorized to speak about the issue with the media.

While OKEx has moved to liquidate the position, it has so far been unable to cover the trader’s shortfall amid a down market for Bitcoin this week, the person said.

If the shortfall still exists at the 4 pm settlement time in Hong Kong on Friday and exceeds the size of the exchange’s insurance fund, futures traders who have unrealized profits on OKEx may be forced to absorb the losses, in line with a “clawback” policy detailed on OKEx’s website, the person said. OKEx doesn’t expect the issue to affect the exchange’s ability to function, he said.

“Everyone is talking about it,” said Jake Smith, a Tokyo-based adviser to, in reference to the OKEx trade. Smith said the systemic risks were likely contained, but that the episode could have some ripple effects on the market. “The main question is how will OKEx handle this,” he said.

Lennix Lai, a director at OKEx, said via email that the exchange may issue a statement on Friday. Lai didn’t answer an emailed list of questions from Bloomberg News.

In a statement on its website last month, OKEx outlined planned changes to its margin rules and liquidation procedures that it said would “vastly minimize the size of bankruptcy positions” and make clawbacks less frequent. The exchange, which allows clients to leverage their positions by as much as 20 times, said it would start rolling out the changes in September. Before clients can begin trading futures, they’re required to pass a quiz on OKEx’s rules.

Clawbacks are unique to crypto markets and expose the exchanges who use them to reputational risks when clients are forced to absorb losses, said Tiantian Kullander, a former Morgan Stanley trader who co-founded crypto trading firm Amber AI Group. “It’s a weird mechanism,” Kullander said.

Bitcoin, the biggest cryptocurrency by market value, dropped 3.2% to US$7,309 at 3:20 pm Hong Kong time on Friday, extending its decline this week to 11%. It has slumped 49% this year. - Bloomberg


F&N shares rise on higher profit

F&N shares rise on higher profit

Friday, 3 Aug 2018

KUALA LUMPUR: Shares in Fraser & Neave Holdings Bhd (F&N) rose on Friday boosted by a 51% profit increase in the third quarter ended June 30.

The counter rose 16 sen, or 0.43% to RM37.56. In the past one year, F&N shares have appreciated 54.09%.

F&N’s third quarter net profit jumped 51% to RM104.5mil, from RM69.37mil a year earlier, thanks to positive contributions from Malaysia and Thailand.

Revenue, however, was slightly lower by 1% to RM1.03bil, from RM1.04bil in 3QFY17.

Kenanga Research said F&N’s 9M18 core net profit of RM318.8mil (-6%) and the absence of dividend was within expectations.

New products are seen as key drivers for the group, amidst slow spending trends and high production costs.

“The high cost, however, could be mitigated by the group’s improving efficiency following capital investments and restructuring,” it said.

Kenanga has maintained its underperform and target price of RM32.15 on F&N.


Caring Pharmacy Group

Caring profit sends shares up 9%

Wednesday, 25 Jul 2018

KUALA LUMPUR: Caring Pharmacy Group is the top performer on Bursa Malaysia with shares up 9% in early trade after it posted a higher profit.

The counter rose 15 sen, or 9.09% to RM1.80, its highest since late-January.

Caring Pharmacy’s net profit for the fourth quarter ended May 31 rose 34.6% to RM5.86mil from RM4.36mil recorded a year ago.

Revenue for the quarter rose 8.2% to RM129.35mil from RM119.5mil, driven by the higher sales generated from existing outlets due to aggressive and extensive promotional campaign launched during the quarter under review.

For the full financial year ended May 31,Caring’s net profit soared 41.4% to RM18.56mil on revenue of RM508.27mil.