Genting SP ,
ex-rights 18/09/2009,
trading of PAL 28/09/2009,
cease quotation: 12/10/2009,
last day payment: 20/10/2009.
Monday, September 28, 2009
Wednesday, September 23, 2009
How to analyse an annual report
Personal Investing - By Ooi Kok Hwa
MANY of us receive a lot of annual reports every year.
Even though we are aware that there is a lot of important information in the reports, not many of us are willing to spend time going through those reports before buying stocks.
Besides, it is quite difficult for some investors, especially those who lack proper financial training, to analyse the financial information.
In this article, we will provide a quick guide on how to analyse an annual report.
Given that there are many ways to dissect an annual report, the following six pointers are just a quick check on the financial health of any listed companies.
Income statement is the financial statement that shows the effects of transactions completed over a specific accounting period.
In this statement, we have three key pointers: the current level of revenue; high growth in revenue; and the profits made in proportion to the level of revenue.
The current level of revenue indicates the size of a company. A company with revenue or sales of RM1bil is definitely bigger than one that has revenue of only RM100mil.
In Malaysia, companies with revenue of RM500mil and above should be considered as more established companies.
High growth in revenue implies that the company has been expanding over the past period.
Assuming the high growth in revenue will eventually translate into high growth in profits, we should invest in companies with higher growth in revenue because this may lead to higher stock prices.
If the overall economy is expanding, avoid those companies that are showing a decline in revenue.
This might imply that the overall operating activities of the companies are declining.
The profits made in proportion to the level of revenue indicates whether this company has high or low profit margins in its products. The profits here refer to the profit after tax or net income.
We should invest in high profit margin companies because high profit margins will provide a cushion to the sudden change in operating environment. A company with revenue of RM1bil and profits of RM10mil is more likely to face tougher challenges in a stiff price competition environment compared with a company with revenue of RM100mil and profits of RM10mil.
Balance sheet is the financial statement that shows a company’s assets, liabilities and owners’ equity at a point in time. The two main pointers in this statement are cash in hand and total borrowings.
Cash in hand refers to the cash or cash equivalent like fixed deposits. If possible, we should invest in companies with high cash in hand and zero borrowings. High cash in hand may imply that the company has high chances of rewarding shareholders with higher dividend payments.
Besides, companies with high cash in hand have more financial stability than companies with very tight level of cash. This explains why most investment gurus like to invest in cash-rich companies.
Total borrowings include the short- and long-term borrowings. Here, we should check whether the company has reported any sharp increase in borrowings during the financial periods. Most companies need to increase borrowings to support their capital expenditure on any business expansion.
However, if a company has been increasing its borrowings each year and the level has far exceeded one to two times the shareholders’ funds, unless its operating activities are able to support the repayments, the company faces very high financial risk.
Cash flow statement shows the sources and uses of cash over the period. One very important pointer in this statement is the operating cash flow.
High operating cash flow implies that the company is generating cash from its operating activities. A healthy company should show high operating cash flow because this number will indicate how much actual cash the company has generated from operations during the period.
We need to be careful of the companies that are showing profits but at the same time generating negative operating cash flows every year. This may imply that these companies have very high receivables. Any economic downturn may cause a sharp increase in provisions on bad debts.
Lastly, investors need to understand that the above six pointers are just a quick guide to analysing any annual report. Serious investors should not only analyse these six pointers. They are advised to scrutinise the reports further for more details.
MANY of us receive a lot of annual reports every year.
Even though we are aware that there is a lot of important information in the reports, not many of us are willing to spend time going through those reports before buying stocks.
Besides, it is quite difficult for some investors, especially those who lack proper financial training, to analyse the financial information.
In this article, we will provide a quick guide on how to analyse an annual report.
Given that there are many ways to dissect an annual report, the following six pointers are just a quick check on the financial health of any listed companies.
Income statement is the financial statement that shows the effects of transactions completed over a specific accounting period.
In this statement, we have three key pointers: the current level of revenue; high growth in revenue; and the profits made in proportion to the level of revenue.
The current level of revenue indicates the size of a company. A company with revenue or sales of RM1bil is definitely bigger than one that has revenue of only RM100mil.
In Malaysia, companies with revenue of RM500mil and above should be considered as more established companies.
High growth in revenue implies that the company has been expanding over the past period.
Assuming the high growth in revenue will eventually translate into high growth in profits, we should invest in companies with higher growth in revenue because this may lead to higher stock prices.
If the overall economy is expanding, avoid those companies that are showing a decline in revenue.
This might imply that the overall operating activities of the companies are declining.
The profits made in proportion to the level of revenue indicates whether this company has high or low profit margins in its products. The profits here refer to the profit after tax or net income.
We should invest in high profit margin companies because high profit margins will provide a cushion to the sudden change in operating environment. A company with revenue of RM1bil and profits of RM10mil is more likely to face tougher challenges in a stiff price competition environment compared with a company with revenue of RM100mil and profits of RM10mil.
Balance sheet is the financial statement that shows a company’s assets, liabilities and owners’ equity at a point in time. The two main pointers in this statement are cash in hand and total borrowings.
Cash in hand refers to the cash or cash equivalent like fixed deposits. If possible, we should invest in companies with high cash in hand and zero borrowings. High cash in hand may imply that the company has high chances of rewarding shareholders with higher dividend payments.
Besides, companies with high cash in hand have more financial stability than companies with very tight level of cash. This explains why most investment gurus like to invest in cash-rich companies.
Total borrowings include the short- and long-term borrowings. Here, we should check whether the company has reported any sharp increase in borrowings during the financial periods. Most companies need to increase borrowings to support their capital expenditure on any business expansion.
However, if a company has been increasing its borrowings each year and the level has far exceeded one to two times the shareholders’ funds, unless its operating activities are able to support the repayments, the company faces very high financial risk.
Cash flow statement shows the sources and uses of cash over the period. One very important pointer in this statement is the operating cash flow.
High operating cash flow implies that the company is generating cash from its operating activities. A healthy company should show high operating cash flow because this number will indicate how much actual cash the company has generated from operations during the period.
We need to be careful of the companies that are showing profits but at the same time generating negative operating cash flows every year. This may imply that these companies have very high receivables. Any economic downturn may cause a sharp increase in provisions on bad debts.
Lastly, investors need to understand that the above six pointers are just a quick guide to analysing any annual report. Serious investors should not only analyse these six pointers. They are advised to scrutinise the reports further for more details.
Sunday, September 20, 2009
"Dogs of the Dow" and the "Foolish Four"
The "Dogs of the Dow" is a stock picking strategy that has been the subject of a great deal of attention in the last few years. Proponents of the strategy cite the fact that it has outperformed the Dow Jones Industrial Average and other indexes by significant margins. Many cite figures for the last 25 years with others going back even farther. As a result, thousands of investors have proceeded to invest in various "Dogs of the Dow" strategies, either individually, or through packaged funds. Unfortunately, while the track record is undeniably impressive, there are a number of reasons for those considering the strategy to waiver and for those who have already taken the bait, to rethink.
Strategies of investing in unpopular stocks in the DJIA are nothing new. In fact, an astute reader of Benjamin Graham's all-time classic The Intelligent Investor will find a reference to a study by H. G. Schneider published in the June 1951 issue of the Journal of Finance that documents a strategy of investing in unpopular DJIA issues from 1917-1950. A second study noted in the book covers the years 1933-1969. The studies looked at strategies of buying either the six or ten issues in the DJIA selling at the lowest earnings multiples and rebalancing at holding periods ranging from one to five years. The strategy proved unprofitable from 1917-1933 but from 1937-1969 a strategy of investing in the low multiple ten soundly and consistently beat the high multiple ten and the DJIA.
The recent excitement has been focused on high dividend yield stocks in the DJIA. Outperformance of high dividend Dow stocks was apparently discovered by John Slatter in the late 1980's. The strategy began to increase in popularity in the early nineties following Michael O'Higgins book Beating The Dow. The Dow-10 strategy consists of buying the ten highest yielding dow stocks and rebalancing annually. Some proponents "tweak" the Dow-10 strategy by ranking those ten according to price and selecting the lowest priced of the five. The Motley Fool has endorsed their modification (The Foolish Four) in The Motley Fool Investment Guide. "The Foolish Four" consists of investing 40% of a portfolio in the second lowest priced of the ten and 20% each in the third, fourth, and fifth lowest priced. The rational for "The Foolish Four" strategy is back-tested results showing the strategy to have yielded 25.5% annually over a twenty year period.
The 11th chapter of The Motley Fool Investment Guide addresses arguments against the strategy, and its there that counter arguments begin to appear. The first issue is volatility and diversification. Both the Foolish Four and the Dow-10 are likely to be more volatile and riskier than investing in the DJIA or a broader index (more on this later). The second issue is the relevance of the twenty year period. On that page, the Gardners disclose that a staff member had indeed run the numbers back to 1961. Say goodbye to the 25% returns unless you happened to start investing in the strategy precisely at the right time. The longer term results brought the annual rate down to 18.35% - still a healthy lead over the market's 10.02% but not nearly as impressive (there are apparently no investors claiming to have actually used the strategy for either period).
The third issue discussed in The Motley Fool Investment Guide is "Overpopularity." They argue that "sales of our book are not going to wreak havoc" with the market. Ironically, they probably underestimated their own future success, having gone on to become extremely popular on many fronts. But the issue is much larger. The Motley Fool was, after all, only elaborating on O'Higgin's book and they were only one of many organizations hyping the strategy. Barron's (which coined the phrase "Dogs of the Dow") and many others had also documented the strategy and numerous mutual funds and trusts have sprouted up that are attempting to cash in. The Select-10, a unit trust (actually made up of a number of funds) that invests in the Dow-10 and is offered by Merrill Lynch and other full-service brokers has grown to over $14 billion and several commentators have estimated that over $20 billion is investing in Dow dividend strategies. With countless individuals investing on their own, the issue is without a doubt significant. According to Andrew Bary's December 28, 1998 column in Barron's (titled "Bound for the Pound?"), the Select 10 trust has become the largest holders of Dow Dogs J.P. Morgan, International Paper, and Kodak.
Incidentally, at the start of 1998, the Motley Fool "modified" The Foolish Four formula. The second variation invests equally in the four lowest priced of the Dow-10 over 18 month periods, however if the lowest priced of the ten is also the highest yielding stock, it is thrown out and the second through fifth lowest priced are used. The new version was described in You Have More Than You Think. The Foolish Four was modified a third time some time later. See the Foolish Four Evolves, Explained, and History. As for O'Higgin's, he no longer invests in the Dow Dogs at all according to an article in the 12/8/97 issue of Time. The article (The Dow Dogs Won't Hunt) quotes O'Higgins as noting that the Dow Dogs "have become too popular and the market has become too high" for the gambit to keep working. His latest book is titled Beating the Dow With Bonds (see also The Bond Bard by Scott Burns from Worth - 6/99).
A rigorous analysis of the Dow strategies topic was published in the July/August 1997 issue of the Financial Analysts Journal. In "Does the 'Dow-10 Investment Strategy' Beat the Dow Statistically and Economically?" Grant McQueen, Kay Shields and Steven R. Thorley thoroughly analyzed the strategy from 1946 to 1995 and deal with the issues of risk, taxes, transactions costs, and the potential problems of "investor learning" and "data mining" (Abstract). The authors found that the Dow-10 did in fact produce significant excess returns over the 50 year period. The average annual return (arithmetic mean) for the Dow-10 was 16.77% versus 13.71% for the Dow-30. Higher risk as measured by standard deviation (19.10% versus 16.64%) accompanied the higher returns.
The authors point out that more of the Dow-10 returns come from dividends (as you would expect) which can not be deferred and are taxed at a higher rate. Further the Dow-10 strategy requires annual rebalancing exposing taxable accounts to taxes on gains. The Dow-10 authors state that a formal analysis of the tax differences is not possible because the tax payments will depend on each individual's tax rate and other considerations. However, transactions costs and risk explain most of the Dow-10 excess return, and they believe that most if not all of the remaining excess return would have gone to the IRS. The authors also looked at subperiods and found that during some extended periods the strategy outperformed, but during other long stretches (decades) the authors suggest that economically, an investor would have been better off (after adjusting for risk, transactions costs, and taxes) in the Dow-30.
The authors then discuss the impact of "investor learning" (see "Overpopularity" above) or the tendency for investors following the strategy to drive up the price of the stocks thereby reducing or eliminating excess returns. The Dow-10 authors also discuss an issue referred to as "data mining" or the "file drawer problem." This is the possibility that certain correlations between variables will occur randomly in financial and other data purely by chance. If one searches long enough these chance or random correlations will be found. However, "the true significance of successful investment strategies can be assessed only after quantifying the number of unreported or unpublished failures gathering dust in the file drawers of stock market analysts, traders, and researchers."
Professors McQueen and Thorley followed up on the Dow Dogs article by examining the Motley Fool's Foolish Four. "Mining Fool's Gold" appeared in the March/April 1999 issue of the Financial Analysts Journal and the Professors have posted a "lighthearted" version of the paper on the BYU server. The data used in the study can be downloaded here. See the Data Mining page for a discussion of the paper.
The June 16, 1997 Issue of Business Week included a commentary by Peter Coy titled "He who mines data may strike fool's gold." The article discussed data mining and the fact that patterns will occur in data by pure chance, particularly if you consider many factors. Many cases of data mining are immune to statistical verification or rebuttal. In describing the pitfalls of data mining, Coy cited an example from David J. Leinweber, Ph.D. who "sifted through a United Nations CD-ROM and discovered that historically, the single best predictor of the Standard & Poor's 500-stock index was butter production in Bangladesh." The lesson to learn according to Coy is a "formula that happens to fit the data of the past won't necessarily have any predictive value." See also What's the Stock Market Got to Do with the Production of Butter in Bangladesh? from Money (March 1998).
James O'Shaughnessy (author of What Works on Wall Street) is another proponent of the Dow Dogs and has researched the strategy back to 1929. His latest book (How to Retire Rich) includes a table of annual Dogs of the Dow returns from 1929 through 1996. He found that "The Dogs of the Dow compounded at 12.7 percent a year, while the S&P grew at 9.89% a year." O'Shaughnessy Funds, Inc. offers a "Dogs of the Market Fund" that invests half of the portfolio in the Dogs of the Dow and the other half in high-yield, large-cap stocks. See also returns of the Dogs of Dow strategy from 1929 to 1997.
Louis Rukeyser, the popular host of Wall $treet Week, discussed the Dogs of the Dow on his 2/5/99 show. His comments included the following:
Let's recall the wisdom of late financial genius G. M. Loeb who once told me "Lou, whenever you think you've found the key to the market, some SOB changes the lock." Lately a lot of new comers to finance have been trumpeting an alleged sure-fire way to beat the averages by buying the so-called Dogs of the Dow. The problem is, as a little research reveals, that in more years than not of late, they really were dogs . . . By the way, it used to be that the real Dogs of the Dow were simply the indexes ten worst performers of the prior year, but that theory didn't work as promised. So supporters apparently figured that this way would give them a better shot . . . Vast amounts of phony commentary have been paraded on this subject and mutual funds and Unit Investment Trusts have been formed to exploit the market. But the reality is, as with so many so-called sure-fire theories, that just about the time you hear about it, somehow it stops working.
According to Rukeyser, the Dogs of the Dow have underperformed the DJIA more often than not in the past ten years and its compounded return over the period has lagged the DJIA.
An interesting discussion of the Dow Dogs theory is also included in Peter Tanous' 1997 book Investment Gurus. In it, Tanous and Nobel Laureate William Sharpe discuss the strategy in the context of value investing. Sharpe makes the point that on one hand, if you search hard enough with a large number of random data sets, you will eventually "find some strategy that would have made you a fortune." On the other hand, the results from the strategy could be the value stock effect. An argument can be made in favor of the Dow Dividend strategy given the scores of studies that have documented outperformance of "value" stocks (See Fundamental Anomalies).
Andrew Tobias also addressed the Dogs of the Dow and Foolish Four in his daily comments (Playing the Fool 1/23/97 and Motley Fool Dog Track - Revisited 1/30/97) on the Ceres Securities site (now Ameritrade). Tobias focused on the tax issue and argued that it seems aggressive and optimistic to assume that the strategies will outperform an index fund by significant margins (5% or more) in the future. While acknowledging that the strategy is not a crazy speculation, Tobias argued that "backtested systems rarely are the winners going forward that they were when 'discovered' by looking back" and because "the Dogs of the Dow strategy entails considerable annual turnover, it must appreciably outperform the index funds (unless you're investing through tax-deferred accounts) just to keep up."
Recent changes in the tax law are another issue that Dow Dividend strategy investors should consider in evaluating these strategies. Capital gains tax rates are lower for longer holding periods and lengthening the holding period of any strategy in order to take advantage of the new rate is certainly a worthwhile consideration.
Perhaps the greatest cause for concern with the Dow Dividend strategies is the central assumption inherent in these strategies. That is, the assumption that the future will be like the past. Unfortunately, past experiences with disappearing anomalies, the impact of the $ billions already invested according to the strategies, and the inconsistent performance of the Dow strategies over significant subperiods (see Morningstar link below) imply that this may be dangerous assumption. The irony is that the strategy is based on the idea that unpopular stocks outperform. Yet, given the publicity of the Dow strategies, the Dow Dogs now seem to be just the opposite (popular). Keep in mind, that the phrase "past performance is no guarantee of future performance" is nothing more than a legal disclaimer. The phrase "past performance may be no indication of future performance" is a more appropriate description in some cases.
While its clearly possible that the Dow-10 (and derivative strategies) will outperform in the future, its apparent that many investors have overly optimistic expectations (based on rear-view mirror, back-tested returns for specific time periods) and haven't accounted for the added risk, transactions, and tax costs inherent in the strategy. The strategy's consistency with other value approaches is certainly appealing, but current and future funds committed to the strategies may end up reducing or eliminating any future outperformance. The Dow-10 authors concluded their article by asking whether Dow-10 investors will "reap any adjusted (for risk, transaction costs, and taxes) premiums in the future?" Their response - "We wouldn't bet on it."
Strategies of investing in unpopular stocks in the DJIA are nothing new. In fact, an astute reader of Benjamin Graham's all-time classic The Intelligent Investor will find a reference to a study by H. G. Schneider published in the June 1951 issue of the Journal of Finance that documents a strategy of investing in unpopular DJIA issues from 1917-1950. A second study noted in the book covers the years 1933-1969. The studies looked at strategies of buying either the six or ten issues in the DJIA selling at the lowest earnings multiples and rebalancing at holding periods ranging from one to five years. The strategy proved unprofitable from 1917-1933 but from 1937-1969 a strategy of investing in the low multiple ten soundly and consistently beat the high multiple ten and the DJIA.
The recent excitement has been focused on high dividend yield stocks in the DJIA. Outperformance of high dividend Dow stocks was apparently discovered by John Slatter in the late 1980's. The strategy began to increase in popularity in the early nineties following Michael O'Higgins book Beating The Dow. The Dow-10 strategy consists of buying the ten highest yielding dow stocks and rebalancing annually. Some proponents "tweak" the Dow-10 strategy by ranking those ten according to price and selecting the lowest priced of the five. The Motley Fool has endorsed their modification (The Foolish Four) in The Motley Fool Investment Guide. "The Foolish Four" consists of investing 40% of a portfolio in the second lowest priced of the ten and 20% each in the third, fourth, and fifth lowest priced. The rational for "The Foolish Four" strategy is back-tested results showing the strategy to have yielded 25.5% annually over a twenty year period.
The 11th chapter of The Motley Fool Investment Guide addresses arguments against the strategy, and its there that counter arguments begin to appear. The first issue is volatility and diversification. Both the Foolish Four and the Dow-10 are likely to be more volatile and riskier than investing in the DJIA or a broader index (more on this later). The second issue is the relevance of the twenty year period. On that page, the Gardners disclose that a staff member had indeed run the numbers back to 1961. Say goodbye to the 25% returns unless you happened to start investing in the strategy precisely at the right time. The longer term results brought the annual rate down to 18.35% - still a healthy lead over the market's 10.02% but not nearly as impressive (there are apparently no investors claiming to have actually used the strategy for either period).
The third issue discussed in The Motley Fool Investment Guide is "Overpopularity." They argue that "sales of our book are not going to wreak havoc" with the market. Ironically, they probably underestimated their own future success, having gone on to become extremely popular on many fronts. But the issue is much larger. The Motley Fool was, after all, only elaborating on O'Higgin's book and they were only one of many organizations hyping the strategy. Barron's (which coined the phrase "Dogs of the Dow") and many others had also documented the strategy and numerous mutual funds and trusts have sprouted up that are attempting to cash in. The Select-10, a unit trust (actually made up of a number of funds) that invests in the Dow-10 and is offered by Merrill Lynch and other full-service brokers has grown to over $14 billion and several commentators have estimated that over $20 billion is investing in Dow dividend strategies. With countless individuals investing on their own, the issue is without a doubt significant. According to Andrew Bary's December 28, 1998 column in Barron's (titled "Bound for the Pound?"), the Select 10 trust has become the largest holders of Dow Dogs J.P. Morgan, International Paper, and Kodak.
Incidentally, at the start of 1998, the Motley Fool "modified" The Foolish Four formula. The second variation invests equally in the four lowest priced of the Dow-10 over 18 month periods, however if the lowest priced of the ten is also the highest yielding stock, it is thrown out and the second through fifth lowest priced are used. The new version was described in You Have More Than You Think. The Foolish Four was modified a third time some time later. See the Foolish Four Evolves, Explained, and History. As for O'Higgin's, he no longer invests in the Dow Dogs at all according to an article in the 12/8/97 issue of Time. The article (The Dow Dogs Won't Hunt) quotes O'Higgins as noting that the Dow Dogs "have become too popular and the market has become too high" for the gambit to keep working. His latest book is titled Beating the Dow With Bonds (see also The Bond Bard by Scott Burns from Worth - 6/99).
A rigorous analysis of the Dow strategies topic was published in the July/August 1997 issue of the Financial Analysts Journal. In "Does the 'Dow-10 Investment Strategy' Beat the Dow Statistically and Economically?" Grant McQueen, Kay Shields and Steven R. Thorley thoroughly analyzed the strategy from 1946 to 1995 and deal with the issues of risk, taxes, transactions costs, and the potential problems of "investor learning" and "data mining" (Abstract). The authors found that the Dow-10 did in fact produce significant excess returns over the 50 year period. The average annual return (arithmetic mean) for the Dow-10 was 16.77% versus 13.71% for the Dow-30. Higher risk as measured by standard deviation (19.10% versus 16.64%) accompanied the higher returns.
The authors point out that more of the Dow-10 returns come from dividends (as you would expect) which can not be deferred and are taxed at a higher rate. Further the Dow-10 strategy requires annual rebalancing exposing taxable accounts to taxes on gains. The Dow-10 authors state that a formal analysis of the tax differences is not possible because the tax payments will depend on each individual's tax rate and other considerations. However, transactions costs and risk explain most of the Dow-10 excess return, and they believe that most if not all of the remaining excess return would have gone to the IRS. The authors also looked at subperiods and found that during some extended periods the strategy outperformed, but during other long stretches (decades) the authors suggest that economically, an investor would have been better off (after adjusting for risk, transactions costs, and taxes) in the Dow-30.
The authors then discuss the impact of "investor learning" (see "Overpopularity" above) or the tendency for investors following the strategy to drive up the price of the stocks thereby reducing or eliminating excess returns. The Dow-10 authors also discuss an issue referred to as "data mining" or the "file drawer problem." This is the possibility that certain correlations between variables will occur randomly in financial and other data purely by chance. If one searches long enough these chance or random correlations will be found. However, "the true significance of successful investment strategies can be assessed only after quantifying the number of unreported or unpublished failures gathering dust in the file drawers of stock market analysts, traders, and researchers."
Professors McQueen and Thorley followed up on the Dow Dogs article by examining the Motley Fool's Foolish Four. "Mining Fool's Gold" appeared in the March/April 1999 issue of the Financial Analysts Journal and the Professors have posted a "lighthearted" version of the paper on the BYU server. The data used in the study can be downloaded here. See the Data Mining page for a discussion of the paper.
The June 16, 1997 Issue of Business Week included a commentary by Peter Coy titled "He who mines data may strike fool's gold." The article discussed data mining and the fact that patterns will occur in data by pure chance, particularly if you consider many factors. Many cases of data mining are immune to statistical verification or rebuttal. In describing the pitfalls of data mining, Coy cited an example from David J. Leinweber, Ph.D. who "sifted through a United Nations CD-ROM and discovered that historically, the single best predictor of the Standard & Poor's 500-stock index was butter production in Bangladesh." The lesson to learn according to Coy is a "formula that happens to fit the data of the past won't necessarily have any predictive value." See also What's the Stock Market Got to Do with the Production of Butter in Bangladesh? from Money (March 1998).
James O'Shaughnessy (author of What Works on Wall Street) is another proponent of the Dow Dogs and has researched the strategy back to 1929. His latest book (How to Retire Rich) includes a table of annual Dogs of the Dow returns from 1929 through 1996. He found that "The Dogs of the Dow compounded at 12.7 percent a year, while the S&P grew at 9.89% a year." O'Shaughnessy Funds, Inc. offers a "Dogs of the Market Fund" that invests half of the portfolio in the Dogs of the Dow and the other half in high-yield, large-cap stocks. See also returns of the Dogs of Dow strategy from 1929 to 1997.
Louis Rukeyser, the popular host of Wall $treet Week, discussed the Dogs of the Dow on his 2/5/99 show. His comments included the following:
Let's recall the wisdom of late financial genius G. M. Loeb who once told me "Lou, whenever you think you've found the key to the market, some SOB changes the lock." Lately a lot of new comers to finance have been trumpeting an alleged sure-fire way to beat the averages by buying the so-called Dogs of the Dow. The problem is, as a little research reveals, that in more years than not of late, they really were dogs . . . By the way, it used to be that the real Dogs of the Dow were simply the indexes ten worst performers of the prior year, but that theory didn't work as promised. So supporters apparently figured that this way would give them a better shot . . . Vast amounts of phony commentary have been paraded on this subject and mutual funds and Unit Investment Trusts have been formed to exploit the market. But the reality is, as with so many so-called sure-fire theories, that just about the time you hear about it, somehow it stops working.
According to Rukeyser, the Dogs of the Dow have underperformed the DJIA more often than not in the past ten years and its compounded return over the period has lagged the DJIA.
An interesting discussion of the Dow Dogs theory is also included in Peter Tanous' 1997 book Investment Gurus. In it, Tanous and Nobel Laureate William Sharpe discuss the strategy in the context of value investing. Sharpe makes the point that on one hand, if you search hard enough with a large number of random data sets, you will eventually "find some strategy that would have made you a fortune." On the other hand, the results from the strategy could be the value stock effect. An argument can be made in favor of the Dow Dividend strategy given the scores of studies that have documented outperformance of "value" stocks (See Fundamental Anomalies).
Andrew Tobias also addressed the Dogs of the Dow and Foolish Four in his daily comments (Playing the Fool 1/23/97 and Motley Fool Dog Track - Revisited 1/30/97) on the Ceres Securities site (now Ameritrade). Tobias focused on the tax issue and argued that it seems aggressive and optimistic to assume that the strategies will outperform an index fund by significant margins (5% or more) in the future. While acknowledging that the strategy is not a crazy speculation, Tobias argued that "backtested systems rarely are the winners going forward that they were when 'discovered' by looking back" and because "the Dogs of the Dow strategy entails considerable annual turnover, it must appreciably outperform the index funds (unless you're investing through tax-deferred accounts) just to keep up."
Recent changes in the tax law are another issue that Dow Dividend strategy investors should consider in evaluating these strategies. Capital gains tax rates are lower for longer holding periods and lengthening the holding period of any strategy in order to take advantage of the new rate is certainly a worthwhile consideration.
Perhaps the greatest cause for concern with the Dow Dividend strategies is the central assumption inherent in these strategies. That is, the assumption that the future will be like the past. Unfortunately, past experiences with disappearing anomalies, the impact of the $ billions already invested according to the strategies, and the inconsistent performance of the Dow strategies over significant subperiods (see Morningstar link below) imply that this may be dangerous assumption. The irony is that the strategy is based on the idea that unpopular stocks outperform. Yet, given the publicity of the Dow strategies, the Dow Dogs now seem to be just the opposite (popular). Keep in mind, that the phrase "past performance is no guarantee of future performance" is nothing more than a legal disclaimer. The phrase "past performance may be no indication of future performance" is a more appropriate description in some cases.
While its clearly possible that the Dow-10 (and derivative strategies) will outperform in the future, its apparent that many investors have overly optimistic expectations (based on rear-view mirror, back-tested returns for specific time periods) and haven't accounted for the added risk, transactions, and tax costs inherent in the strategy. The strategy's consistency with other value approaches is certainly appealing, but current and future funds committed to the strategies may end up reducing or eliminating any future outperformance. The Dow-10 authors concluded their article by asking whether Dow-10 investors will "reap any adjusted (for risk, transaction costs, and taxes) premiums in the future?" Their response - "We wouldn't bet on it."
Saturday, September 12, 2009
The Parable of the Talents (Matthew 25:14-30; Luke 19:12-28)
Did you put your money at work ?
The Parable of the Talents (Matthew 25:14-30; Luke 19:12-28)
13 “Therefore stay alert, because you do not know the day or the hour.
14 For it is like a man going on a journey, who summoned his slaves and entrusted his property to them.
15 To one he gave five talents, to another two, and to another one, each according to his ability. Then he went on his journey.
16 The one who had received five talents went off right away and put his money to work and gained five more.
17 In the same way, the one who had two gained two more.
18 But the one who had received one talent went out and dug a hole in the ground and hid his master’s money in it.
19 After a long time, the master of those slaves came and settled his accounts with them.
20 The one who had received the five talents came and brought five more, saying, ‘Sir, you entrusted me with five talents. See, I have gained five more.’
21 His master answered, ‘Well done, good and faithful slave! You have been faithful in a few things. I will put you in charge of many things. Enter into the joy of your master.’
22 The one with the two talents also came and said, ‘Sir, you entrusted two talents to me. See, I have gained two more.’
23 His master answered, ‘Well done, good and faithful slave! You have been faithful with a few things. I will put you in charge of many things. Enter into the joy of your master.’
24 Then the one who had received the one talent came and said, ‘Sir, I knew that you were a hard man, harvesting where you did not sow, and gathering where you did not scatter seed,
25 so I was afraid, and I went and hid your talent in the ground. See, you have what is yours.’
26 But his master answered, ‘Evil and lazy slave! So you knew that I harvest where I didn’t sow and gather where I didn’t scatter?
27 Then you should have deposited my money with the bankers, and on my return I would have received my money back with interest!
28 Therefore take the talent from him and give it to the one who has ten.
29 For the one who has will be given more, and he will have more than enough. But the one who does not have, even what he has will be taken from him.
30 And throw that worthless slave into the outer darkness, where there will be weeping and gnashing of teeth’”
(Matthew 25:13-30). 271
The Parable of the Talents (Matthew 25:14-30; Luke 19:12-28)
13 “Therefore stay alert, because you do not know the day or the hour.
14 For it is like a man going on a journey, who summoned his slaves and entrusted his property to them.
15 To one he gave five talents, to another two, and to another one, each according to his ability. Then he went on his journey.
16 The one who had received five talents went off right away and put his money to work and gained five more.
17 In the same way, the one who had two gained two more.
18 But the one who had received one talent went out and dug a hole in the ground and hid his master’s money in it.
19 After a long time, the master of those slaves came and settled his accounts with them.
20 The one who had received the five talents came and brought five more, saying, ‘Sir, you entrusted me with five talents. See, I have gained five more.’
21 His master answered, ‘Well done, good and faithful slave! You have been faithful in a few things. I will put you in charge of many things. Enter into the joy of your master.’
22 The one with the two talents also came and said, ‘Sir, you entrusted two talents to me. See, I have gained two more.’
23 His master answered, ‘Well done, good and faithful slave! You have been faithful with a few things. I will put you in charge of many things. Enter into the joy of your master.’
24 Then the one who had received the one talent came and said, ‘Sir, I knew that you were a hard man, harvesting where you did not sow, and gathering where you did not scatter seed,
25 so I was afraid, and I went and hid your talent in the ground. See, you have what is yours.’
26 But his master answered, ‘Evil and lazy slave! So you knew that I harvest where I didn’t sow and gather where I didn’t scatter?
27 Then you should have deposited my money with the bankers, and on my return I would have received my money back with interest!
28 Therefore take the talent from him and give it to the one who has ten.
29 For the one who has will be given more, and he will have more than enough. But the one who does not have, even what he has will be taken from him.
30 And throw that worthless slave into the outer darkness, where there will be weeping and gnashing of teeth’”
(Matthew 25:13-30). 271
Thursday, September 3, 2009
Is the current rally sustainable?
“Someone’s sitting in the shade today because someone planted a tree a long time ago”
“Wall Street never changes, the pockets change, the suckers change, the stocks change, but Wall Street never changes because human behavior never changes”
~ Jesse Livermore
Investors, obviously, are forgiving people. Within a period of 18 months, the S&P 500, Dow Jones and Nasdaq reduced investors' portfolios by over 50% and the KLCI by about 40%. At that point, most investors hated the market.
After showing some good will for a comparatively short six months (March – August 2009), investors are once again falling in love with the stock market. Like a crafty mistress, the market has investors wrapped around her fingers once more. The old emotions are coming back – this time it’s mostly regret - for selling their winning investments too soon (and at a loss); for not staying put in the market or worse, for not investing when it was such an opportunity to do. A wasted crisis, as one would put it.
For sure, the performance numbers of especially emerging markets have been capturing investor's attention. Once again, emerging markets are outperforming the U.S. markets by a margin of 30% (since the March lows). The Emerging Markets ETF is up 43% for the year. Looking for greener pastures abroad, investors have poured nearly $11 billion into Emerging Markets.
Emerging markets four months ago
Previously on December 11th, the ETF Profit Strategy Newsletter uncovered an opportunity in China. At the time, the Shanghai Composite was down 60% for 2008. Observing that the Shanghai composite broke out of an eleven month trading channel, the newsletter recommended buying into China, unfortunately most investors did not do anything, and sat on the sidelines because they were too busy “licking their wounds”.
On March 16th, the ETF Profit Strategy Newsletter commented as follows: 'Similar to the U.S., many markets around the globe are in a bottoming process. While emerging markets should move in the same direction as developed markets, they offer more upside potential.
On hindsight, those were the best times to re-enter into the market. Unfortunately, most investors did not take the signal and continued to believe that the rally was temporary and was not sustainable. It has been six months now and sustainable or not, you decide.
One thing’s for sure, the US recession is ending. The recent Fed's decision to leave the funds rate at zero to 0.25 per is a signal that the economy is leveling out, but that the stance on interest rates will remain in place until growth is on a sustainable basis. It made overseas investors very happy with the announcement that the Fed will phase out the purchases of Treasury securities by the end of October this year.
It tells us the Fed believes the recession is basically over. At the same time, it made clear that the need to be certain of a sustainable recovery means we will not be seeing a rate hike soon. That's nothing but a positive for investors.
Investors’ behavior now
It does seem that investors have again forgotten the fundamentals of investing. Emotional decisions – the ones that have been missing out on the markets’ out performance are regretting and the ones who went against the herd are smiling happily to the bank. The markets never change – what goes down must come up and vice versa. Sadly, neither does human behavior change – fear, greed, regret, and herd mentalities always prevail. At this moment, which emotion is controlling your investment decisions?
What seemed like a dead end investment six months ago now seems to be a winner. And what seemed like the end of the world (or ‘end of humanity’ as one has absurdly put it in the midst of panic last year) has turned out to be an absolute distortion of the market. What works then? Again, it’s having an investment philosophy – a statement of why you invest, the timeframe you are willing to sit through the investment, the strategy you need to have with the prevailing investment climate in mind. Many have wasted opportunities during the 1st quarter of 2009, wanting to ‘feel better’ before divesting their money or averaging down their positions and now the very same people are asking - “Is this too late?” My answer is simple: Their questions will never end and they will never make a fortune from the equity market. All they hope is to have a ‘get rich quick scheme’ which never works. What really works is an investment philosophy and an understanding of how markets move in the longer term. Emotional investing never works. Think about it again.
“Wall Street never changes, the pockets change, the suckers change, the stocks change, but Wall Street never changes because human behavior never changes”
~ Jesse Livermore
Investors, obviously, are forgiving people. Within a period of 18 months, the S&P 500, Dow Jones and Nasdaq reduced investors' portfolios by over 50% and the KLCI by about 40%. At that point, most investors hated the market.
After showing some good will for a comparatively short six months (March – August 2009), investors are once again falling in love with the stock market. Like a crafty mistress, the market has investors wrapped around her fingers once more. The old emotions are coming back – this time it’s mostly regret - for selling their winning investments too soon (and at a loss); for not staying put in the market or worse, for not investing when it was such an opportunity to do. A wasted crisis, as one would put it.
For sure, the performance numbers of especially emerging markets have been capturing investor's attention. Once again, emerging markets are outperforming the U.S. markets by a margin of 30% (since the March lows). The Emerging Markets ETF is up 43% for the year. Looking for greener pastures abroad, investors have poured nearly $11 billion into Emerging Markets.
Emerging markets four months ago
Previously on December 11th, the ETF Profit Strategy Newsletter uncovered an opportunity in China. At the time, the Shanghai Composite was down 60% for 2008. Observing that the Shanghai composite broke out of an eleven month trading channel, the newsletter recommended buying into China, unfortunately most investors did not do anything, and sat on the sidelines because they were too busy “licking their wounds”.
On March 16th, the ETF Profit Strategy Newsletter commented as follows: 'Similar to the U.S., many markets around the globe are in a bottoming process. While emerging markets should move in the same direction as developed markets, they offer more upside potential.
On hindsight, those were the best times to re-enter into the market. Unfortunately, most investors did not take the signal and continued to believe that the rally was temporary and was not sustainable. It has been six months now and sustainable or not, you decide.
One thing’s for sure, the US recession is ending. The recent Fed's decision to leave the funds rate at zero to 0.25 per is a signal that the economy is leveling out, but that the stance on interest rates will remain in place until growth is on a sustainable basis. It made overseas investors very happy with the announcement that the Fed will phase out the purchases of Treasury securities by the end of October this year.
It tells us the Fed believes the recession is basically over. At the same time, it made clear that the need to be certain of a sustainable recovery means we will not be seeing a rate hike soon. That's nothing but a positive for investors.
Investors’ behavior now
It does seem that investors have again forgotten the fundamentals of investing. Emotional decisions – the ones that have been missing out on the markets’ out performance are regretting and the ones who went against the herd are smiling happily to the bank. The markets never change – what goes down must come up and vice versa. Sadly, neither does human behavior change – fear, greed, regret, and herd mentalities always prevail. At this moment, which emotion is controlling your investment decisions?
What seemed like a dead end investment six months ago now seems to be a winner. And what seemed like the end of the world (or ‘end of humanity’ as one has absurdly put it in the midst of panic last year) has turned out to be an absolute distortion of the market. What works then? Again, it’s having an investment philosophy – a statement of why you invest, the timeframe you are willing to sit through the investment, the strategy you need to have with the prevailing investment climate in mind. Many have wasted opportunities during the 1st quarter of 2009, wanting to ‘feel better’ before divesting their money or averaging down their positions and now the very same people are asking - “Is this too late?” My answer is simple: Their questions will never end and they will never make a fortune from the equity market. All they hope is to have a ‘get rich quick scheme’ which never works. What really works is an investment philosophy and an understanding of how markets move in the longer term. Emotional investing never works. Think about it again.
Wednesday, August 26, 2009
Should I go against the market?
Personal Investing - By Ooi Kok Hwa
AS the stock market continues to move higher, a lot of investors are wondering when it will come down again. Those who have been involved in futures trading may be tempted to short the KL Composite Index (KLCI) futures contracts.
Unfortunately, each time they start shorting the index, the market surges even higher and touches a new high. As a result, they are forced to cover their short positions as the market turns against them. In this article, we will look at how to apply contrarian strategies in the present market conditions.
Contrarian strategy 1: only correct when the market turns around
Investors need to be careful when using contrarian strategies. These strategies are only effective when the market starts to turn around, otherwise, investors will end up being wrong.
Contrarian investors feel that most people in the market tend to get carried away by the market sentiment, so if they keep calm, they will have a better position by taking actions that are the opposite of what others are doing. They believe that they can make big money by betting against popular investment trends.
In the current stock market situation, even though the average daily-trading volume is about one billion shares, we notice that there are not many retail investors. The market is mainly filled with some big fund managers or day traders. Some investors who managed to catch stocks at cheaper prices may have been selling most of their holdings lately.
Unfortunately, the market continues to trade higher than previous selling prices. In such situation, the worst mistake for some retail investors is to abandon their contrarian strategies and start buying back the shares that they disposed off earlier at even higher prices.
Normally, when everyone starts to think that the stock market will continue to go up, that is the signal of an impending market crash. Hence, investors need to be patient to wait for the right prices before buying back those stocks.
There is also the danger that some investors may start accumulating their stocks too early. We believe that “the panic may be over, but not the crisis”. Even though there are signs that the overall economy may be on its way to recovery, we think it will take some time before we can see the real recovery of the stock market.
We need to understand that once the fund managers feel that the stock prices are far above the fundamental of the stocks, they may stop accumulating stocks.
As a result, due to a lack of demand, the market may start dipping lower again with dwindling trading volumes. It may take a long time before the market turns higher again.
We saw this phenomenon in 2000-2001 when the market dipped slowly with very thin volume for a 15-month period, with the KLCI tumbling from about 1,000-level in February 2000 to 550-level in May 2001, a total decline of about 45%.
Investors need to take note that unless they have deep pockets to average down their purchase prices over a long period, they may run out of funds before the market reaches the bottom.
One way to avoid accumulating stocks too early is by adopting the filter rule strategy proposed by Alexander (1961). He proposed that we should only buy stocks when the market touches the lowest point and starts recovering for k% from its low and sell stocks when the market discovers the peak and starts falling for k% from its high.
This strategy may reduce the feeling of regret from selling stocks too early. Given that we may never know when the market touches its peak, it may be a good strategy to let the market find the top and only start selling when the market confirms the declining trends.
Contrarian Strategy 2: Buying neglected firms
Recently, as the result of the merger between main and second board companies into the Main Market, we notice that some second board companies, which have good fundamentals but previously lacked analysts’ coverage, are starting to get the attention of investors.
We believe these companies may provide good buying opportunities for investors who have missed out on the opportunities of accumulating blue chip stocks at cheap prices. Some academic studies have shown that the returns from buying neglected firms, over a long-term period, may be better than investing in “popular” companies.
AS the stock market continues to move higher, a lot of investors are wondering when it will come down again. Those who have been involved in futures trading may be tempted to short the KL Composite Index (KLCI) futures contracts.
Unfortunately, each time they start shorting the index, the market surges even higher and touches a new high. As a result, they are forced to cover their short positions as the market turns against them. In this article, we will look at how to apply contrarian strategies in the present market conditions.
Contrarian strategy 1: only correct when the market turns around
Investors need to be careful when using contrarian strategies. These strategies are only effective when the market starts to turn around, otherwise, investors will end up being wrong.
Contrarian investors feel that most people in the market tend to get carried away by the market sentiment, so if they keep calm, they will have a better position by taking actions that are the opposite of what others are doing. They believe that they can make big money by betting against popular investment trends.
In the current stock market situation, even though the average daily-trading volume is about one billion shares, we notice that there are not many retail investors. The market is mainly filled with some big fund managers or day traders. Some investors who managed to catch stocks at cheaper prices may have been selling most of their holdings lately.
Unfortunately, the market continues to trade higher than previous selling prices. In such situation, the worst mistake for some retail investors is to abandon their contrarian strategies and start buying back the shares that they disposed off earlier at even higher prices.
Normally, when everyone starts to think that the stock market will continue to go up, that is the signal of an impending market crash. Hence, investors need to be patient to wait for the right prices before buying back those stocks.
There is also the danger that some investors may start accumulating their stocks too early. We believe that “the panic may be over, but not the crisis”. Even though there are signs that the overall economy may be on its way to recovery, we think it will take some time before we can see the real recovery of the stock market.
We need to understand that once the fund managers feel that the stock prices are far above the fundamental of the stocks, they may stop accumulating stocks.
As a result, due to a lack of demand, the market may start dipping lower again with dwindling trading volumes. It may take a long time before the market turns higher again.
We saw this phenomenon in 2000-2001 when the market dipped slowly with very thin volume for a 15-month period, with the KLCI tumbling from about 1,000-level in February 2000 to 550-level in May 2001, a total decline of about 45%.
Investors need to take note that unless they have deep pockets to average down their purchase prices over a long period, they may run out of funds before the market reaches the bottom.
One way to avoid accumulating stocks too early is by adopting the filter rule strategy proposed by Alexander (1961). He proposed that we should only buy stocks when the market touches the lowest point and starts recovering for k% from its low and sell stocks when the market discovers the peak and starts falling for k% from its high.
This strategy may reduce the feeling of regret from selling stocks too early. Given that we may never know when the market touches its peak, it may be a good strategy to let the market find the top and only start selling when the market confirms the declining trends.
Contrarian Strategy 2: Buying neglected firms
Recently, as the result of the merger between main and second board companies into the Main Market, we notice that some second board companies, which have good fundamentals but previously lacked analysts’ coverage, are starting to get the attention of investors.
We believe these companies may provide good buying opportunities for investors who have missed out on the opportunities of accumulating blue chip stocks at cheap prices. Some academic studies have shown that the returns from buying neglected firms, over a long-term period, may be better than investing in “popular” companies.
Monday, August 24, 2009
Received Dividend from PBBANK & hng's portfolio
horse said...
Just gotten my PBBANK dividend :)
August 23, 2009 8:25:00 PM PDT
hng said...
Sold out remaining kfima at 75.5sen, sold partial cenbon at 66-66.5sen, realize most of the paper profit :)
Portfolio for morning session.
OIB 59.8% (aver cost: RM 1.09)
Cenbond 23.7% (aver cost: 62.6sen)
Guniess 15.3% (aver cost: RM 6.26)
Just gotten my PBBANK dividend :)
August 23, 2009 8:25:00 PM PDT
hng said...
Sold out remaining kfima at 75.5sen, sold partial cenbon at 66-66.5sen, realize most of the paper profit :)
Portfolio for morning session.
OIB 59.8% (aver cost: RM 1.09)
Cenbond 23.7% (aver cost: 62.6sen)
Guniess 15.3% (aver cost: RM 6.26)
Wednesday, August 12, 2009
How to screen overseas stocks
A VERY GOOD PIECE OF INFORMATION :-
Personal Investing - By ooi Kok Hwa
Four criteria to look at when choosing counters that are suitable for long-term investment
LATELY, interest has grown in overseas stock investment. Given the foreign markets’ relatively high volatility of returns compared with the local market, a lot of retail investors find it more exciting to invest in overseas stocks.
However, a common problem most investors face is how to filter, from among all the listed companies in the respective markets, the right stocks that are suitable for long-term investment.
Market capitalisation
One of the most important selection criteria is buying stocks with big market capitalisation. The market cap of a listed company can be computed by multiplying the number of its outstanding shares with the current share price.
In general, we should buy stocks with big market cap because they are normally well-established blue-chip stocks with higher turnover and widely-accepted products and services.
Even though some academic research shows that buying into small market cap stocks can provide higher returns compared with big market cap companies, unless we are quite familiar with the stocks available in those overseas markets, it is safer to put our money into bigger market cap stocks.
It is not difficult to find out which companies have the largest market cap in any stock exchange.
Such information is available in most major newspapers in that particular country or the stock exchanges themselves.
For example, if we intend to buy some Singapore stocks, we should pay attention to companies that are ranked in the top 30 in terms of market cap. One can get the rankings by market cap for the Singapore Exchange in StarBiz monthly.
Price/earnings ratio
Once we have filtered out the blue-chip stocks, the next selection criteria is the price/earnings ratio (PER), which should be lower than the overall market PER. This is computed by dividing the current stock price by the earnings per share (EPS) of the company. It represents the number of years that we need to get back our money, assuming the company maintains identical earnings throughout the period.
Even though some published PER may use historical audited EPS compared with forecast EPS, given that our key objective is to do stock screening, the PER testing will provide us with a quick check on the top 30 companies – whether they are profitable and selling at reasonable PER compared with the overall market PER.
If we cannot get access to the overall market PER, we may want to consider Benjamin Graham’s suggestion of buying stocks with PER of lower than 15 times.
Dividend yield
A good company should pay dividends. We strongly believe that this is one of the most important ways for the investors to get any returns from the companies that they invest in.
Our rule of thumb is that a good company should have a dividend yield that at least equals or is higher than the risk-free return, which is usually based on the fixed deposit rates.
The dividend yield is computed by dividing the dividend per share by the current share price. In general, most blue-chip stocks do have a fixed dividend payout policy and reward investors with a consistent and growing dividend returns.
Based on our observation, most smaller companies may not be able to pay good dividends as they may need the capital for future expansion programmes.
Price-to-book ratio
Most investors would like to invest at a market price lower than the owners’ costs in the company. The book value of a company represents the owners’ costs invested in it.
In a normal business environment, unless the company has some problems that the general public may not be aware of, it is quite difficult to find stocks selling at a price lower than the book value of the company.
As a result, we may need to purchase at a market price higher than the book value. According to Graham, the maximum price one should pay for any stock is the price which gives a price-to-book ratio no greater than 1.5 times. This means that we should not pay more than 1.5 times the owners’ costs invested in the company.
Lastly, the above four selection criteria are merely a preliminary quick stock screening process. Even though investors may be able to find stocks that fit the criteria, we suggest investors check further the fundamentals of the company, such as the balance sheet strength, its gearing, future business prospects and the quality of the management before deciding to invest.
Personal Investing - By ooi Kok Hwa
Four criteria to look at when choosing counters that are suitable for long-term investment
LATELY, interest has grown in overseas stock investment. Given the foreign markets’ relatively high volatility of returns compared with the local market, a lot of retail investors find it more exciting to invest in overseas stocks.
However, a common problem most investors face is how to filter, from among all the listed companies in the respective markets, the right stocks that are suitable for long-term investment.
Market capitalisation
One of the most important selection criteria is buying stocks with big market capitalisation. The market cap of a listed company can be computed by multiplying the number of its outstanding shares with the current share price.
In general, we should buy stocks with big market cap because they are normally well-established blue-chip stocks with higher turnover and widely-accepted products and services.
Even though some academic research shows that buying into small market cap stocks can provide higher returns compared with big market cap companies, unless we are quite familiar with the stocks available in those overseas markets, it is safer to put our money into bigger market cap stocks.
It is not difficult to find out which companies have the largest market cap in any stock exchange.
Such information is available in most major newspapers in that particular country or the stock exchanges themselves.
For example, if we intend to buy some Singapore stocks, we should pay attention to companies that are ranked in the top 30 in terms of market cap. One can get the rankings by market cap for the Singapore Exchange in StarBiz monthly.
Price/earnings ratio
Once we have filtered out the blue-chip stocks, the next selection criteria is the price/earnings ratio (PER), which should be lower than the overall market PER. This is computed by dividing the current stock price by the earnings per share (EPS) of the company. It represents the number of years that we need to get back our money, assuming the company maintains identical earnings throughout the period.
Even though some published PER may use historical audited EPS compared with forecast EPS, given that our key objective is to do stock screening, the PER testing will provide us with a quick check on the top 30 companies – whether they are profitable and selling at reasonable PER compared with the overall market PER.
If we cannot get access to the overall market PER, we may want to consider Benjamin Graham’s suggestion of buying stocks with PER of lower than 15 times.
Dividend yield
A good company should pay dividends. We strongly believe that this is one of the most important ways for the investors to get any returns from the companies that they invest in.
Our rule of thumb is that a good company should have a dividend yield that at least equals or is higher than the risk-free return, which is usually based on the fixed deposit rates.
The dividend yield is computed by dividing the dividend per share by the current share price. In general, most blue-chip stocks do have a fixed dividend payout policy and reward investors with a consistent and growing dividend returns.
Based on our observation, most smaller companies may not be able to pay good dividends as they may need the capital for future expansion programmes.
Price-to-book ratio
Most investors would like to invest at a market price lower than the owners’ costs in the company. The book value of a company represents the owners’ costs invested in it.
In a normal business environment, unless the company has some problems that the general public may not be aware of, it is quite difficult to find stocks selling at a price lower than the book value of the company.
As a result, we may need to purchase at a market price higher than the book value. According to Graham, the maximum price one should pay for any stock is the price which gives a price-to-book ratio no greater than 1.5 times. This means that we should not pay more than 1.5 times the owners’ costs invested in the company.
Lastly, the above four selection criteria are merely a preliminary quick stock screening process. Even though investors may be able to find stocks that fit the criteria, we suggest investors check further the fundamentals of the company, such as the balance sheet strength, its gearing, future business prospects and the quality of the management before deciding to invest.
Wednesday, July 29, 2009
Receive 30sen cash & shares dividend from BJTOTO
Just received cash dividend of 30sen & shares dividend from BJTOTO.
Genting dividend of 4sen.
Genting Malaysia (Resorts) dividend of 4sen respectively.
Take a look of hng's portfolio below. A real fulltimer and recommendate for one to adopt his strategy as he has proven many time here of his track records, his speed in executing trades, his superd pick of stocks and his ability of best judging in term of timing while executing a stock. Is worth taking a deeper look of his way and approach that adopted by him.
*************************************************************************************
Market manage to mitigate downside.
Today, have accumulating Huaan at 51-51.5sen; OKA at 57-58.5sen, Cenbond at 56-57sen
Portfolio now:
43.9% Huaan
9.1% ARREITs
74.9% OKA (4 sen dividend)
14.7% Cenbond (may propose 4.5sen)
7.2% Complet (3 sen TE dividend)
49.8% is margin line
Genting dividend of 4sen.
Genting Malaysia (Resorts) dividend of 4sen respectively.
Take a look of hng's portfolio below. A real fulltimer and recommendate for one to adopt his strategy as he has proven many time here of his track records, his speed in executing trades, his superd pick of stocks and his ability of best judging in term of timing while executing a stock. Is worth taking a deeper look of his way and approach that adopted by him.
*************************************************************************************
Market manage to mitigate downside.
Today, have accumulating Huaan at 51-51.5sen; OKA at 57-58.5sen, Cenbond at 56-57sen
Portfolio now:
43.9% Huaan
9.1% ARREITs
74.9% OKA (4 sen dividend)
14.7% Cenbond (may propose 4.5sen)
7.2% Complet (3 sen TE dividend)
49.8% is margin line
Wednesday, July 22, 2009
Thursday, July 9, 2009
Was The Panic Worth It?
FOR YOUR READING PLEASURE :-
“Someone's sitting in the shade today because someone planted a tree a long time ago”
Make no mistake. The past 12 months have been nothing less than a global market panic.
Freddie Mac and Fannie Mae imploded. Bear Stearns got "rescued," along with AIG and when somehow Lehman Brothers wasn't saved, the panic became a selling mania – a loss of rationality, something close to mass hysteria. These events created a perfect storm where top U.S. banks were eventually bailed out by the Fed. The last two stand-alone investment banks on Wall Street - Goldman Sachs and Morgan Stanley, fled for relief by becoming bank holding companies. The global markets tumbled, erasing the past 12 years of market gains. The Volatility Index (the "fear index") still showed the worse of market uncertainty until March 2009.
The list could go on. The question is – was the panic worth it? Now that global markets seem to have stabilished with higher capital creation and liquidity, are we calm enough to reflect on how have we handled the panic feelings? Have we wasted a totally ‘good crisis’ ?
To help us answer these personal questions, let’s look at the panics of the early 20th century stock market crashes in the U.S. and see if we can draw some similar conclusions.
The last official panic -- the Panic of 1907 -- shook the U.S. economy to its core. Wall Street brokerages failed, depositors ran on banks, well-known companies went under, and the market's liquidity was in question (sounds familiar?). In this instance, J.P. Morgan and friends famously put together US$25 million to keep the market afloat - a role now occupied by the Federal Reserve. By 1909, the Dow Jones index had more than recovered from pre-panic highs.
In 1914, the year the Great War began in Europe, the U.S. stock markets actually closed for nearly four months after foreign investors began pulling their money out of U.S. equities en masse to support the war effort. When it reopened, the market was devalued about 30%, but sustained rallies doubled that opening by the end of 1916.
Then, of course, came the Great Depression -- the single most important economic event in U.S. history which began with the Crash of 1929 and lasted until the U.S. entered World War II in 1941. In 1932, unemployment hit 24.9%, and more than 9,000 banks failed during the 1930s. And there were no federally insured deposits until the Banking Act of 1933 created the FDIC, so when the bank failed, Americans’ hard earned money went with it. In fact, Wall Street's very future, not to mention the economic model of capitalism was in question.
For those investors who had both the money and the courage to invest in the 1930s, it paid off. One man famously borrowed money to buy 104 U.S. stocks trading for less than $1 a share in 1939. Talk about investing at the point of maximum pessimism! Four years later, though, his money had quadrupled. His name, of course, was the late Sir John Templeton.
OK, so what's your point?
We've seen bad markets before. And in every case, the point at which the market has turned irrational or overly pessimistic is precisely the time we long-term investors should have bought equities.
Despite the headlines proclaiming the next Great Depression, the current credit crunch is no Great Depression. However, market conditions can still remain arguably rocky in the short run. Unfortunately, this uncertainty seems to be the right music in the hands of the financial media, whose job is to attract readership by sensationalizing news events, and usually fanning the flames of unnecesary panic. Remember, bad media sells, old boring news don’t.
In reaction to most of these bad media which we sometimes term it as “financial pornography”, we tend to panic and get out at all cost in scary times, realizing our losses. We like to keep up with our neighbors so we behave in a herd-like fashion. We stay up nights extrapolating the most recent trends and expect that they will continue indefinitely. All these tendencies have the ability to work against us and preclude us from reaching our financial goals. It is no wonder most investors end up discouraged with their investing activities, only to lament that it is always a zero sum game.
So, what can Individual investors like us do in times of uncertainty? We should forget the game of short-term trading, and stick to longer time horizons. The media and ‘stock market gamblers’ focus on minutes, hours, and days, while those who are serious about the other areas of their financial life focus on years and decades. Unfortunately, some people waste so much time and effort in predicating the next stock market level, trying to double guess which stocks will soar, that they have entirely neglected the other more important areas of their financial life which are foundations to securing a stable financial future. Time can be better spent following a systematic approach to retirement planning and a conscious effort to accumlating wealth rather than emotional short term trading without a direction and a purpose. On that note, do remember that greed is not a valid purpose.
Back to our 1st question : “Was the panic worth it?”. The answer is : “It depends on what you did.” If you were taken in by the panic – you sold off your positions (realizing your losses) or sat on your position (you did nothing to average down), then you have wasted a good crisis. However, if you had accelerated your longer term wealth accumulation plans during those periods, you have strengthened your financial foundations for the future. And you’ll be glad you did when you look back in a few years’ time.
“Someone's sitting in the shade today because someone planted a tree a long time ago”
Make no mistake. The past 12 months have been nothing less than a global market panic.
Freddie Mac and Fannie Mae imploded. Bear Stearns got "rescued," along with AIG and when somehow Lehman Brothers wasn't saved, the panic became a selling mania – a loss of rationality, something close to mass hysteria. These events created a perfect storm where top U.S. banks were eventually bailed out by the Fed. The last two stand-alone investment banks on Wall Street - Goldman Sachs and Morgan Stanley, fled for relief by becoming bank holding companies. The global markets tumbled, erasing the past 12 years of market gains. The Volatility Index (the "fear index") still showed the worse of market uncertainty until March 2009.
The list could go on. The question is – was the panic worth it? Now that global markets seem to have stabilished with higher capital creation and liquidity, are we calm enough to reflect on how have we handled the panic feelings? Have we wasted a totally ‘good crisis’ ?
To help us answer these personal questions, let’s look at the panics of the early 20th century stock market crashes in the U.S. and see if we can draw some similar conclusions.
The last official panic -- the Panic of 1907 -- shook the U.S. economy to its core. Wall Street brokerages failed, depositors ran on banks, well-known companies went under, and the market's liquidity was in question (sounds familiar?). In this instance, J.P. Morgan and friends famously put together US$25 million to keep the market afloat - a role now occupied by the Federal Reserve. By 1909, the Dow Jones index had more than recovered from pre-panic highs.
In 1914, the year the Great War began in Europe, the U.S. stock markets actually closed for nearly four months after foreign investors began pulling their money out of U.S. equities en masse to support the war effort. When it reopened, the market was devalued about 30%, but sustained rallies doubled that opening by the end of 1916.
Then, of course, came the Great Depression -- the single most important economic event in U.S. history which began with the Crash of 1929 and lasted until the U.S. entered World War II in 1941. In 1932, unemployment hit 24.9%, and more than 9,000 banks failed during the 1930s. And there were no federally insured deposits until the Banking Act of 1933 created the FDIC, so when the bank failed, Americans’ hard earned money went with it. In fact, Wall Street's very future, not to mention the economic model of capitalism was in question.
For those investors who had both the money and the courage to invest in the 1930s, it paid off. One man famously borrowed money to buy 104 U.S. stocks trading for less than $1 a share in 1939. Talk about investing at the point of maximum pessimism! Four years later, though, his money had quadrupled. His name, of course, was the late Sir John Templeton.
OK, so what's your point?
We've seen bad markets before. And in every case, the point at which the market has turned irrational or overly pessimistic is precisely the time we long-term investors should have bought equities.
Despite the headlines proclaiming the next Great Depression, the current credit crunch is no Great Depression. However, market conditions can still remain arguably rocky in the short run. Unfortunately, this uncertainty seems to be the right music in the hands of the financial media, whose job is to attract readership by sensationalizing news events, and usually fanning the flames of unnecesary panic. Remember, bad media sells, old boring news don’t.
In reaction to most of these bad media which we sometimes term it as “financial pornography”, we tend to panic and get out at all cost in scary times, realizing our losses. We like to keep up with our neighbors so we behave in a herd-like fashion. We stay up nights extrapolating the most recent trends and expect that they will continue indefinitely. All these tendencies have the ability to work against us and preclude us from reaching our financial goals. It is no wonder most investors end up discouraged with their investing activities, only to lament that it is always a zero sum game.
So, what can Individual investors like us do in times of uncertainty? We should forget the game of short-term trading, and stick to longer time horizons. The media and ‘stock market gamblers’ focus on minutes, hours, and days, while those who are serious about the other areas of their financial life focus on years and decades. Unfortunately, some people waste so much time and effort in predicating the next stock market level, trying to double guess which stocks will soar, that they have entirely neglected the other more important areas of their financial life which are foundations to securing a stable financial future. Time can be better spent following a systematic approach to retirement planning and a conscious effort to accumlating wealth rather than emotional short term trading without a direction and a purpose. On that note, do remember that greed is not a valid purpose.
Back to our 1st question : “Was the panic worth it?”. The answer is : “It depends on what you did.” If you were taken in by the panic – you sold off your positions (realizing your losses) or sat on your position (you did nothing to average down), then you have wasted a good crisis. However, if you had accelerated your longer term wealth accumulation plans during those periods, you have strengthened your financial foundations for the future. And you’ll be glad you did when you look back in a few years’ time.
Monday, June 22, 2009
Revision To The Minimum Bid Structure For Securities Market
Bursa has set 16th July 2009 as a tentative date to implement the new minimum bid structure. This is part of the efforts to improve overall competitiveness and trading efficiency of Bursa Malaysia securities market.
See belows proposed structure :-
Price Range----------Current Tick-----Proposed Tick
Below RM1.00------------0.005------------0.005
RM1.00 to RM2.99--------0.01-------------0.01
RM3.00 to RM4.99--------0.02-------------0.01
RM5.00 to RM9.99--------0.05-------------0.01
RM10.00 to RM24.99------0.10-------------0.02
RM25.00 to RM99.99------0.25-------------0.02
RM100.00 and above------0.50-------------0.10
Do you think this is a bad ideas ??
Previously a tick for RM5 stock to make money, now you would need 5 ticks to achieve that.
See belows proposed structure :-
Price Range----------Current Tick-----Proposed Tick
Below RM1.00------------0.005------------0.005
RM1.00 to RM2.99--------0.01-------------0.01
RM3.00 to RM4.99--------0.02-------------0.01
RM5.00 to RM9.99--------0.05-------------0.01
RM10.00 to RM24.99------0.10-------------0.02
RM25.00 to RM99.99------0.25-------------0.02
RM100.00 and above------0.50-------------0.10
Do you think this is a bad ideas ??
Previously a tick for RM5 stock to make money, now you would need 5 ticks to achieve that.
Monday, June 15, 2009
Disposal
Oil slide back a bit, likely profit taking set in, however, still remain positive that the oil price will remain high in near term.
I have taken step to reduce some of my holdings to lock in some profit first, amongst the counters disposed today are PANTECH, HUAAN, PANAMY, YUNKONG & remaining HEKTAR.
With the disposal, managed to reduce 15% of my holdings. Would likely channel this fund to other potential counters, however its very much depend on current market sentiment.
Till then, happy trading.
Macroeconomics
· The table was turned yesterday, as all indicators were negative compared to last Friday’s. Crude oil prices eased to USD70.62 compared to USD72.04 a barrel a day earlier, while DJIA fell 2.1% to 8612 points, signaling a still uncertain economic environment.
· In the US, manufacturing activities in the New York region fell at a faster pace to 9.4 points this month compared to 4.5 last month, as sales and inventories declined. The NAHB housing sector index also unexpectedly declined to 15 points compared to 16 last month, indicating a slow recovery from the housing slump.
· Foreign direct investment in China in the first four month of the year contracted by 20.4% to $27.67bn, while price pressure eased further, as showed by the 7.6% YOY fall in wholesale prices. Spending cut by the private sector is somewhat offset by the government’s fiscal stimulus to weather the world’s worst financial crisis since World War II.
· Other unpromising news include a fall in Eurozone’s employment by 0.8% in 1Q, and the contraction in Singapore’s Apr retail sales by 11.7% YOY, mainly due to lower car sales.
I have taken step to reduce some of my holdings to lock in some profit first, amongst the counters disposed today are PANTECH, HUAAN, PANAMY, YUNKONG & remaining HEKTAR.
With the disposal, managed to reduce 15% of my holdings. Would likely channel this fund to other potential counters, however its very much depend on current market sentiment.
Till then, happy trading.
Macroeconomics
· The table was turned yesterday, as all indicators were negative compared to last Friday’s. Crude oil prices eased to USD70.62 compared to USD72.04 a barrel a day earlier, while DJIA fell 2.1% to 8612 points, signaling a still uncertain economic environment.
· In the US, manufacturing activities in the New York region fell at a faster pace to 9.4 points this month compared to 4.5 last month, as sales and inventories declined. The NAHB housing sector index also unexpectedly declined to 15 points compared to 16 last month, indicating a slow recovery from the housing slump.
· Foreign direct investment in China in the first four month of the year contracted by 20.4% to $27.67bn, while price pressure eased further, as showed by the 7.6% YOY fall in wholesale prices. Spending cut by the private sector is somewhat offset by the government’s fiscal stimulus to weather the world’s worst financial crisis since World War II.
· Other unpromising news include a fall in Eurozone’s employment by 0.8% in 1Q, and the contraction in Singapore’s Apr retail sales by 11.7% YOY, mainly due to lower car sales.
Friday, June 12, 2009
China offers 9 pct export tax rebate on steel products
Reuters, Monday June 8 2009
SHANGHAI, June 8 (Reuters) - China is offering a 9 percent value-added tax rebate on exports of several high-end steel products, the Ministry of Finance said on Monday, in what analysts saw as the latest move to support domestic steel mills.
The country, the world's biggest steel maker, will refund the tax on flat-rolled steel products and hot-rolled ferro-alloy products effective from June 1, the ministry said in a statement on its website.
The rebate cuts more than half off the value-added tax rate of 17 percent, giving producers a strong incentive to export the products covered by the rebate.
Chinese steel mills are facing losses this year, as exports have shrunk due to weakened overseas demand and relatively high export costs, since the central government had capped rebates in the past few years to try to restrict production.
"I think many steel mills can take advantage of this. They can apply for rebates on products if minor metals were added during production," said Henry Liu, an analyst at Macquarie Bank in Shanghai.
The China Iron and Steel Association, the industry group that monitors all China's major steel mills, has urged the government to adopt more generous export tax rebates for steel products to bolster the industry.
China has already encountered friction with its trading partners over its steel export tax rebates, including an anti-dumping investigation over steel pipe imports in the United States.
The collapse in export demand cut China's shipments of steel products to the rest of the world by 60 percent in the first four months of the year and left China in an unusual position -- as a net importer of steel products -- in March and April.
Losses at 72 large and mid-sized Chinese steelmakers in the first four months of this year reached 5.18 billion yuan ($758.2 million), compared with 63.40 billion yuan in profit last year. ($1=6.832 Yuan) (Reporting by Alfred Cang and Tom Miles; Editing by Ken Wills)
SHANGHAI, June 8 (Reuters) - China is offering a 9 percent value-added tax rebate on exports of several high-end steel products, the Ministry of Finance said on Monday, in what analysts saw as the latest move to support domestic steel mills.
The country, the world's biggest steel maker, will refund the tax on flat-rolled steel products and hot-rolled ferro-alloy products effective from June 1, the ministry said in a statement on its website.
The rebate cuts more than half off the value-added tax rate of 17 percent, giving producers a strong incentive to export the products covered by the rebate.
Chinese steel mills are facing losses this year, as exports have shrunk due to weakened overseas demand and relatively high export costs, since the central government had capped rebates in the past few years to try to restrict production.
"I think many steel mills can take advantage of this. They can apply for rebates on products if minor metals were added during production," said Henry Liu, an analyst at Macquarie Bank in Shanghai.
The China Iron and Steel Association, the industry group that monitors all China's major steel mills, has urged the government to adopt more generous export tax rebates for steel products to bolster the industry.
China has already encountered friction with its trading partners over its steel export tax rebates, including an anti-dumping investigation over steel pipe imports in the United States.
The collapse in export demand cut China's shipments of steel products to the rest of the world by 60 percent in the first four months of the year and left China in an unusual position -- as a net importer of steel products -- in March and April.
Losses at 72 large and mid-sized Chinese steelmakers in the first four months of this year reached 5.18 billion yuan ($758.2 million), compared with 63.40 billion yuan in profit last year. ($1=6.832 Yuan) (Reporting by Alfred Cang and Tom Miles; Editing by Ken Wills)
Wednesday, June 10, 2009
Commodities help world markets advance
Commodity price rises help world stock markets advance
On Wednesday June 10, 2009, 6:35 am EDT
LONDON (AP) -- World stock markets rose sharply Wednesday amid higher commodity prices and renewed hopes about the state of the U.S. banking sector.
The FTSE 100 index of leading British shares was up 80.44 points, or 1.8 percent, at 4,485.23 with heavyweight mining and oil companies leading the march higher. Germany's DAX spiked 100.09 points, or 2 percent, at 5,097.95 while France's CAC-40 was up 51.87 points, or 1.6 percent, to 3,348.60.
Wall Street futures gained, suggesting a stronger session in the U.S. Dow futures rose 94 points or 1.1 percent, to 8,836 while the broader Standard & Poor's 500 futures climbed 11.3, or 1.2 percent, to 950.90.
Earlier in Asia, stock markets advanced too, with Hong Kong's main index closing 4 percent higher.
After a three-month advance, global markets have showed a lack of direction in recent days as investors fretted about whether the rally would continue through the summer months.
However, the rise in commodity and oil prices has helped mining and oil stocks around the world, while the confirmation from the U.S. Treasury Department that ten of the country's biggest banks will repay nearly $70 billion of bailout money has helped buoy demand for bank shares.
Particularly striking has been the rise in oil prices above $71 a barrel -- a 2009 high -- as investors poured money into crude as a hedge against a weakening U.S. dollar and inflation.
Oil has jumped more than 100 percent in three months as traders have cheered news showing the worst of a severe U.S. recession is likely over, and have brushed off data -- such as a 9.4 percent unemployment rate in May -- that suggest crude demand will remain weak. Even growing inventories have not checked crude's rise.
Benchmark crude for July delivery was up $1.35 at $71.36 a barrel by noon in European electronic trading on the New York Mercantile Exchange. On Tuesday, it jumped $1.92 to close at $70.01.
"There's an overriding hope that the commodity rally is signaling a recovery," said Kirby Daley, senior strategist at Newedge Group in Hong Kong. "But some of the fundamental decay at the core of the economy is still there, so I think investors may be getting ahead of themselves."
Stock markets have rallied strongly over the last three months largely on better than expected economic data, particularly out of the U.S., as well as hopes that the financial sector was stabilizing.
As stocks usually start rising 6 to 9 months before actual recovery emerges in the official economic data, investors have bet that the massive sell-off in markets during the most acute phase of the financial crisis was overdone. Some of the world's major equity indexes are now in positive territory for 2009.
Despite the improvement in the economic data, concerns linger about the global economy. With interest rates on government bonds edging higher, unemployment continuing to rise and oil prices back near six month highs, investors are concerned about the sustainability of a potential recovery.
As a result, there are worries in the market that if economic data around the world starts to disappoint expectations, then investors may have to revise their recent optimism.
And though the financial system may have been saved from collapse, investors still want more evidence that banks are once again lending to businesses and households. So far, there's very little to show that the lenders are doing anything other than improving their balance sheets.
"Equities are likely to bounce around for the next three months responding to good and bad news on a daily basis before a strong rally in the last quarter," said David Buik, markets analyst at BGC Partners.
Earlier in Asia, Hong Kong's Hang Seng surged 727.17, or 4 percent, to 18,785.66, while Japan's Nikkei 225 stock average gained 204.67 points, or 2.1 percent, to 9,991.49.
Investors in Japan shrugged off news that core machinery orders, a closely watched indicator of corporate capital spending, tumbled to a 22-year low in April as uncertainty about an economic recovery kept companies cautious.
In South Korea, the Kospi advanced 3.1 percent to 1,414.88, Australia's benchmark climbed about 2.3 percent, while Shanghai's main index rose 1 percent.
On Tuesday, the Dow Jones industrial average fell less than 0.1 percent, to 8,763.06, while the S&P 500 rose 0.4 percent to 942.43.
The dollar rose to 97.93 yen from 97.46 yen while the euro climbed to $1.4089 from $1.4053 late Tuesday in New York.
AP Business Writer Jeremiah Marquez in Hong Kong contributed to this report.
On Wednesday June 10, 2009, 6:35 am EDT
LONDON (AP) -- World stock markets rose sharply Wednesday amid higher commodity prices and renewed hopes about the state of the U.S. banking sector.
The FTSE 100 index of leading British shares was up 80.44 points, or 1.8 percent, at 4,485.23 with heavyweight mining and oil companies leading the march higher. Germany's DAX spiked 100.09 points, or 2 percent, at 5,097.95 while France's CAC-40 was up 51.87 points, or 1.6 percent, to 3,348.60.
Wall Street futures gained, suggesting a stronger session in the U.S. Dow futures rose 94 points or 1.1 percent, to 8,836 while the broader Standard & Poor's 500 futures climbed 11.3, or 1.2 percent, to 950.90.
Earlier in Asia, stock markets advanced too, with Hong Kong's main index closing 4 percent higher.
After a three-month advance, global markets have showed a lack of direction in recent days as investors fretted about whether the rally would continue through the summer months.
However, the rise in commodity and oil prices has helped mining and oil stocks around the world, while the confirmation from the U.S. Treasury Department that ten of the country's biggest banks will repay nearly $70 billion of bailout money has helped buoy demand for bank shares.
Particularly striking has been the rise in oil prices above $71 a barrel -- a 2009 high -- as investors poured money into crude as a hedge against a weakening U.S. dollar and inflation.
Oil has jumped more than 100 percent in three months as traders have cheered news showing the worst of a severe U.S. recession is likely over, and have brushed off data -- such as a 9.4 percent unemployment rate in May -- that suggest crude demand will remain weak. Even growing inventories have not checked crude's rise.
Benchmark crude for July delivery was up $1.35 at $71.36 a barrel by noon in European electronic trading on the New York Mercantile Exchange. On Tuesday, it jumped $1.92 to close at $70.01.
"There's an overriding hope that the commodity rally is signaling a recovery," said Kirby Daley, senior strategist at Newedge Group in Hong Kong. "But some of the fundamental decay at the core of the economy is still there, so I think investors may be getting ahead of themselves."
Stock markets have rallied strongly over the last three months largely on better than expected economic data, particularly out of the U.S., as well as hopes that the financial sector was stabilizing.
As stocks usually start rising 6 to 9 months before actual recovery emerges in the official economic data, investors have bet that the massive sell-off in markets during the most acute phase of the financial crisis was overdone. Some of the world's major equity indexes are now in positive territory for 2009.
Despite the improvement in the economic data, concerns linger about the global economy. With interest rates on government bonds edging higher, unemployment continuing to rise and oil prices back near six month highs, investors are concerned about the sustainability of a potential recovery.
As a result, there are worries in the market that if economic data around the world starts to disappoint expectations, then investors may have to revise their recent optimism.
And though the financial system may have been saved from collapse, investors still want more evidence that banks are once again lending to businesses and households. So far, there's very little to show that the lenders are doing anything other than improving their balance sheets.
"Equities are likely to bounce around for the next three months responding to good and bad news on a daily basis before a strong rally in the last quarter," said David Buik, markets analyst at BGC Partners.
Earlier in Asia, Hong Kong's Hang Seng surged 727.17, or 4 percent, to 18,785.66, while Japan's Nikkei 225 stock average gained 204.67 points, or 2.1 percent, to 9,991.49.
Investors in Japan shrugged off news that core machinery orders, a closely watched indicator of corporate capital spending, tumbled to a 22-year low in April as uncertainty about an economic recovery kept companies cautious.
In South Korea, the Kospi advanced 3.1 percent to 1,414.88, Australia's benchmark climbed about 2.3 percent, while Shanghai's main index rose 1 percent.
On Tuesday, the Dow Jones industrial average fell less than 0.1 percent, to 8,763.06, while the S&P 500 rose 0.4 percent to 942.43.
The dollar rose to 97.93 yen from 97.46 yen while the euro climbed to $1.4089 from $1.4053 late Tuesday in New York.
AP Business Writer Jeremiah Marquez in Hong Kong contributed to this report.
Wednesday, June 3, 2009
Advice: Be extra careful when buying into warrants near maturity
Good Piece of Information from TheStar :-
LATELY, as a result of better stock-market sentiment, investors are starting to pay attention to warrants. With their prices relatively lower than that of mother shares, warrants are viewed as an alternative to achieving higher returns and providing cheaper entry to the mother shares.
What is a warrant?
A warrant is a transferrable option certificate issued by a company that entitles the holder to buy a specific number of shares in that company at a specific price (or exercise price) at a specified time in the future.
Normally, a company issues warrants together with bonds to raise capital. Because investors can detach the warrants and sell them separately to get some returns, the coupon rates for these bonds will be lower.
As a result, we can treat this as a “sweetener” for investors to attract them to buy into lower coupon-rate bonds. Besides, capital raising through warrants will be less disruptive to a company’s earnings as investors are given a certain period to exercise their rights.
The intrinsic value of a warrant is the value that an investor will get if the warrant were to be exercised immediately. It is the difference between the price of the mother share and the exercise price.
A positive intrinsic value means the warrant is “in-the-money” and the investor may exercise his rights now given that he can buy the mother share at a cheaper price. A negative intrinsic value means the warrant is “out-of-money” and the investor will not exercise his rights as he has to pay higher than the current market price for the mother share.
Usually, warrants are traded at a premium because investors are willing to pay extra for the benefits that warrants offer. However, investors need to know the premium that they are paying. Premium can be computed based on the following formula:
PREMIUM (%) = (WARRANT + EXERCISE PRICE – SHARE PRICE)/SHARE PRICE X 100
For example, if Company A’s share price is RM4.50 and the exercise price is RM3.75, Company A’s warrant (Company A-W) price of RM1.36 will imply a premium of 13.6%.
Premium = (1.36 + 3.75 – 4.50)/4.50 x 100 = 13.6%.
For any given warrant, the higher the premium, the more expensive the warrant becomes. If an investor pays a premium to buy a warrant, the underlying share must rise by a percentage equal to the premium before the maturity date to break even.
The main reason for the preference shown by investors in buying warrants instead of their mother shares is the gearing factor. It is computed by dividing the mother share price by warrant price.
Based on the above example, the gearing factor for Company A-W is 3.31 times (4.50/1.36). It means that by buying into Company A-W instead of Company A (with the same amount of investment), the exposure to Company A is 3.31 times larger than investing in Company A (the mother share) itself.
Hence, due to the lower price relative to the price of the mother share, gearing can show how many times a warrant is able to outperform or under-perform versus the mother share.
Capital Fulcrum Point (CFP)
CFP combines premium and time-to-maturity to provide a compound indicator. It can be interpreted as the average percentage increase in the price of the mother share per year assuming all other factors remain constant.
It is computed based on the following formula:
CFP = [{EXERCISE PRICE/(SHARE PRICE – WARRANT PRICE)} ^ (1/Y) – 1] X 100
Where y = the remaining years-to-maturity, ^ means to the power of
Based on the above example, if y = 5.82 years, CFP for Company A-W = [{3.75/(4.50 – 1.36)} ^ (1/5.82) – 1] x 100 = 3.1%.
It means that if Company A is able to grow by at least 3.1% a year, it will be cheaper to buy Company A-W than investing in Company A’s mother share.
In short, we can consider this CFP as taking the premium divided by the remaining time-to-maturity. When we take the above 13.6% premium and divide by 5.82 years, we will get 2.34%. Even though we cannot get the actual CFP, 2.34% can provide us with a close approximation to the correct CFP of 3.10%.
Due to the gearing factor, even though investors can get higher returns by investing in warrants instead of buying the mother shares, we need to understand the risks involved. Investors need to be extra careful when buying into warrants, especially those that are near their maturity.
Investors need to exercise the warrants or sell them into the market before the maturity dates because the warrants will become worthless after those dates.
LATELY, as a result of better stock-market sentiment, investors are starting to pay attention to warrants. With their prices relatively lower than that of mother shares, warrants are viewed as an alternative to achieving higher returns and providing cheaper entry to the mother shares.
What is a warrant?
A warrant is a transferrable option certificate issued by a company that entitles the holder to buy a specific number of shares in that company at a specific price (or exercise price) at a specified time in the future.
Normally, a company issues warrants together with bonds to raise capital. Because investors can detach the warrants and sell them separately to get some returns, the coupon rates for these bonds will be lower.
As a result, we can treat this as a “sweetener” for investors to attract them to buy into lower coupon-rate bonds. Besides, capital raising through warrants will be less disruptive to a company’s earnings as investors are given a certain period to exercise their rights.
The intrinsic value of a warrant is the value that an investor will get if the warrant were to be exercised immediately. It is the difference between the price of the mother share and the exercise price.
A positive intrinsic value means the warrant is “in-the-money” and the investor may exercise his rights now given that he can buy the mother share at a cheaper price. A negative intrinsic value means the warrant is “out-of-money” and the investor will not exercise his rights as he has to pay higher than the current market price for the mother share.
Usually, warrants are traded at a premium because investors are willing to pay extra for the benefits that warrants offer. However, investors need to know the premium that they are paying. Premium can be computed based on the following formula:
PREMIUM (%) = (WARRANT + EXERCISE PRICE – SHARE PRICE)/SHARE PRICE X 100
For example, if Company A’s share price is RM4.50 and the exercise price is RM3.75, Company A’s warrant (Company A-W) price of RM1.36 will imply a premium of 13.6%.
Premium = (1.36 + 3.75 – 4.50)/4.50 x 100 = 13.6%.
For any given warrant, the higher the premium, the more expensive the warrant becomes. If an investor pays a premium to buy a warrant, the underlying share must rise by a percentage equal to the premium before the maturity date to break even.
The main reason for the preference shown by investors in buying warrants instead of their mother shares is the gearing factor. It is computed by dividing the mother share price by warrant price.
Based on the above example, the gearing factor for Company A-W is 3.31 times (4.50/1.36). It means that by buying into Company A-W instead of Company A (with the same amount of investment), the exposure to Company A is 3.31 times larger than investing in Company A (the mother share) itself.
Hence, due to the lower price relative to the price of the mother share, gearing can show how many times a warrant is able to outperform or under-perform versus the mother share.
Capital Fulcrum Point (CFP)
CFP combines premium and time-to-maturity to provide a compound indicator. It can be interpreted as the average percentage increase in the price of the mother share per year assuming all other factors remain constant.
It is computed based on the following formula:
CFP = [{EXERCISE PRICE/(SHARE PRICE – WARRANT PRICE)} ^ (1/Y) – 1] X 100
Where y = the remaining years-to-maturity, ^ means to the power of
Based on the above example, if y = 5.82 years, CFP for Company A-W = [{3.75/(4.50 – 1.36)} ^ (1/5.82) – 1] x 100 = 3.1%.
It means that if Company A is able to grow by at least 3.1% a year, it will be cheaper to buy Company A-W than investing in Company A’s mother share.
In short, we can consider this CFP as taking the premium divided by the remaining time-to-maturity. When we take the above 13.6% premium and divide by 5.82 years, we will get 2.34%. Even though we cannot get the actual CFP, 2.34% can provide us with a close approximation to the correct CFP of 3.10%.
Due to the gearing factor, even though investors can get higher returns by investing in warrants instead of buying the mother shares, we need to understand the risks involved. Investors need to be extra careful when buying into warrants, especially those that are near their maturity.
Investors need to exercise the warrants or sell them into the market before the maturity dates because the warrants will become worthless after those dates.
Saturday, May 30, 2009
OIL & GAS FABRICATOR PANTECH GROUP 4QE FEB 2009 NET PROFIT HIGHER
CLASSIFICATION: ACCOUNTING/AUDIT NOTIFICATION/ANALYSIS & BUSINESS PROJECTIONS
TYPE: Short Analysis / Reviews
13 May 2009
OIL & GAS FABRICATOR PANTECH GROUP 4QE FEB 2009 NET PROFIT HIGHER PANTECH GROUP HOLDINGS recorded marginally higher Net Profit of RM8.7m for 4QE Feb 28, 2009 compared with RM8.2m a year earlier despite Revenue surging 84% to RM139.3m from RM75.7m.
The Net Profit included a Provision of Stock Writedown of RM9.2m.
FULL FYE FEB 2009 RESULTS SHOW HIGHER PROFIT
Full FYE Feb 2009 was boosted to RM511.2m from RM313.3m compared with the previous year. PANTECH said Apr 27, 2009 that its full-year Net Profit jumped 75% to RM59.6m from RM34.1m in the previous year due to higher manufacturing output, higher sales volume, better product mix from the trading division and contribution from overseas operation.
FINAL SINGLE-TIER DIVIDEND PROPOSED
The Company proposed a final single-tier dividend of one sen per share totalling RM3.7m, bringing Total Dividend for FYE Feb 2009 to three sen per share. EPS to 15.94 sen from 9.1 sen, while Net Assets per share increased to 53 sen from 39 sen.
PROSPECT FOR 2009
On prospects for the current financial year, the Company said the duration, extent and impact of the persisting global financial meltdown were uncertain.
" .... Therefore, the Board will adopt a cautious approach to monitor the situation and mitigate any negative impact through diligent administration of operation cost controls and cash flows .... In view of the above, the board foresees the next financial year will be a challenging year for the Group ...." it said, adding that the Group's performance for the next financial year would be in line with the overall performance of the oil and gas fabrication and other services sector while the long-term outlook continued to be positive.
TARGET PRICE = 0.85sen
Friday, May 29, 2009
HUAAN result differ!? Computer Glitch on Financial Result ??
There seem to have some problem with the financial result with the online trading system comparing with annoucement from Bursa website :-
Below is captured from my trading system :-
This is from Bursa Website :-
Obviously HUAAN is running into loss of EPS = -2.11 for this quarter but what captured from the trading system is in positive zone. Misleading !!
Likely that this gonna affect the entire financial annoucements, so be careful folk when you searching for financial result, cross check with bursa's website for it accuracy.
Below is captured from my trading system :-
This is from Bursa Website :-
Obviously HUAAN is running into loss of EPS = -2.11 for this quarter but what captured from the trading system is in positive zone. Misleading !!
Likely that this gonna affect the entire financial annoucements, so be careful folk when you searching for financial result, cross check with bursa's website for it accuracy.
Monday, May 25, 2009
Received 10sen Dividend From GUINNESS
Just gotten myself a 10sen tax exempted dividend from GUINNESS. So far never failed to receive dividend from this liquor company.
Wednesday, May 20, 2009
Sold Maybank at RM5.15 & Received Dividend from CARLSBERG & Maybulk
Sold all my Maybank at RM5.15 again & just received dividend from Carlsbg & Maybulk.
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