Chlorophyll Inc

Today's new highlights will be featuring companies with long history, how they managed to survive for so long and the tips and trades of doing so.
Boustead Singapore celebrates its 180th year of existence last year and continues to make record profit; remains today as the only Singapore-based company which can boast about their unbroken lineage of almost two centuries. The current chairman and group CEO Wong Fong Fui cities abaptability, business cycles have been getting shorter and tighter and a company's survivability depends largely on its ability to adapt to the changes thrown up by these cycles,' he says.
Mr Wong first bought up Boustead Singapore in 1996, the company then was a struggling gem having only earning of $1million out of $60million and was bought at a price of $85million when its net worth then was only $27million.
Mr Wong said’ This was a company with great history and pedigree, it was all about how it could be restructured to adapt to a new marketplace' I therefore was quick to set about the transformation of the company, building up its capabilities in design,engineering,resource management technology and specialist construction. According to Mr Wong, the survival of his company has been due to its ability to adapt to the new realities after each upheaval:"A company that succeeds does not simply accept its fate when it hits a very thick wall, instead it finds not one but several ways around the wall" Another expert on the subject Arie de Geus author of 'The living company' argues that successful surviving companies exhibited four key factors.

1) Is sensitivity to their operating environment which enables them to learn and adapt quickly to changes occurring around them.

2) Is a cohesion and identity. This defines a company's ability to create a strong sense of identity and persona for itself which is essential for survival amid challenges.

3) Longevity is also dependent on the company's ability to tolerate decentralisation of control and diversification, and yet maintain strong and cohesive relationships within and outside of itself.

4) Companies that survive tend to be those which are financially conservative. They are frugal and do not risk capital gratuitously. By keeping their proverbial gunpowder dry, they are well equipped to pursue new opportunities and also attract third party financiers. But Mr Wong adds more point

5) Being a master over Technology. By doing that, it propels your company forward and now can become an albatross around your neck for the next decade.

Going back to Boustead, Mr Wong says that his company was starting to change some parts of its business model yet again! Like Mr De Geus, Mr Wong is a believer in the theory of corporate evolution for survival."There are times when you have to let go of your pass glories" he explained "it is the same with companies; a highly successful product/service today may not be successful tomorrow. A stubborn company will try its best to hold onto those products and services even when they are irrelevant. The companies that enjoy longevity do things differently. They simply evolve creating different businesses each time and adapting to prevailing times.

Going on to another business Fj Benjamin, the one in charge says changes in the business environment are inevitable. The ability to adapt to these changes quickly however will determine if a business has staying power. Fj Benjamin has been around in Singapore for about 50 years. "After 50 years, we put in place policies and practices that will keep us nimble so that we can adjust swiftly to changes in our external environment. This principle of staying fleet=footed and fit for all cycles applies to all functions across our business" says the CEO of FJB.
During the 1997 crisis which taught them to never put their business in a position where sudden unexpected external events can threaten their future. They learnt to be conservative and to pay more attention to risk management. They learn also to be prudent with their capital (debt/equity) and to keep their gearing low. Not to reply inordinately on short-term credit or to be overly invested in assets that they do not need for our core business. Expansion is still vital to growth of any business. However businesses does not have to be BIF in order to survive, it has to be well managed, etc understanding the consumers' needs and be able to deliver what they are looking for, this means having strong leadership and key management who have their fingers on the pulse explains the CEO of FJB.
Investors could look out for some of these 'longevity' chacteristic before putting their hard earn money into their prospective companies, increasing therefore the chances of successful investing in the future.

ARROYO GRANDE, Calif. (MarketWatch) -- "Charlie and I believe Berkshire should be a fortress of financial strength" wrote Warren Buffett. That was five years before the subprime-credit meltdown.

"We try to be alert to any sort of mega-catastrophe risk, and that posture may make us unduly appreciative about the burgeoning quantities of long-term derivatives contracts and the massive amount of uncollateralized receivables that are growing alongside. In our view, however, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal."

That warning was in Buffett's 2002 letter to Berkshire shareholders. He saw a future that many others chose to ignore. The Iraq war build-up was at a fever-pitch. The imagery of WMDs and a mushroom cloud fresh in his mind.

Also fresh on Buffett's mind: His acquisition of General Re four years earlier, about the time the Long-Term Capital Management hedge fund almost killed the global monetary system. How? This is crucial: LTCM nearly killed the system with a relatively small $5 billion trading loss. Peanuts compared with the hundreds of billions of dollars of subprime-credit write-offs now making Wall Street's big shots look like amateurs.

Buffett tried to sell off Gen Re's derivatives group. No buyers. Unwinding it was costly, but led to his warning that derivatives are a "financial weapon of mass destruction." That was 2002.

Derivatives bubble explodes five times bigger in five years

Wall Street didn't listen to Buffett. Derivatives grew into a massive bubble, from about $100 trillion to $516 trillion by 2007. The new derivatives bubble was fueled by five key economic and political trends:

1. Sarbanes-Oxley increased corporate disclosures and government oversight

2. Federal Reserve's cheap money policies created the subprime-housing boom

3. War budgets burdened the U.S. Treasury and future entitlements programs

4. Trade deficits with China and others destroyed the value of the U.S. dollar

5. Oil and commodity rich nations demanding equity payments rather than debt

In short, despite Buffett's clear warnings, a massive new derivatives bubble is driving the domestic and global economies, a bubble that continues growing today parallel with the subprime-credit meltdown triggering a bear-recession.

Data on the five-fold growth of derivatives to $516 trillion in five years comes from the most recent survey by the Bank of International Settlements, the world's clearinghouse for central banks in Basel, Switzerland. The BIS is like the cashier's window at a racetrack or casino, where you'd place a bet or cash in chips, except on a massive scale: BIS is where the U.S. settles trade imbalances with Saudi Arabia for all that oil we guzzle and gives China IOUs for the tainted drugs and lead-based toys we buy.

To grasp how significant this five-fold bubble increase is, let's put that $516 trillion in the context of some other domestic and international monetary data:

• U.S. annual gross domestic product is about $15 trillion

• U.S. money supply is also about $15 trillion U.S. government's maximum legal debt is $9 trillion
• U.S. mutual fund companies manage about $12 trillion
• World's GDPs for all nations is approximately $50 trillion
• Unfunded Social Security and Medicare benefits $50 trillion to $65 trillion
• Total value of the world's real estate is estimated at about $75 trillion
• Total value of world's stock and bond markets is more than $100 trillion
• BIS valuation of world's derivatives back in 2002 was about $100 trillion
• BIS 2007 valuation of the world's derivatives is now a whopping $516 trillion

Moreover, the folks at BIS tell me their estimate of $516 trillion only includes "transactions in which a major private dealer (bank) is involved on at least one side of the transaction," but doesn't include private deals between two "non-reporting entities." They did, however, add that their reporting central banks estimate that the coverage of the survey is around 95% on average.

Also, keep in mind that while the $516 trillion "notional" value (maximum in case of a meltdown) of the deals is a good measure of the market's size, the 2007 BIS study notes that the $11 trillion "gross market values provides a more accurate measure of the scale of financial risk transfer taking place in derivatives markets."

Bubbles, domino effects and the 'bad 2%'

However, while that may be true as far as the parties to an individual deal, there are broader risks to the world's economies. Remember back in 1998 when LTCM's little $5 billion loss nearly brought down the world's banking system. That "domino effect" is now repeating many times over, straining the world's monetary, economic and political system as the subprime housing mess metastasizes, taking the U.S. stock market and the world economy down with it.

This cascading "domino effect" was brilliantly described in "The $300 Trillion Time Bomb: If Buffett can't figure out derivatives, can anybody?" published early last year in Portfolio magazine, a couple months before the subprime meltdown. Columnist Jesse Eisinger's $300 trillion figure came from an earlier study of the derivatives market as it was growing from $100 trillion to $516 trillion over five years. Eisinger concluded:

"There's nothing intrinsically scary about derivatives, except when the bad 2% blow up." Unfortunately, that "bad 2%" did blow up a few months afterwards, even as Bernanke and Paulson were assuring America that the subprime mess was "contained."

Bottom line: Little things leverage a heck of a big wallop. It only takes a little spark from a "bad 2% deal" to ignite this $516 trillion weapon of mass destruction. Think of this entire unregulated derivatives market like an unsecured, unpredictable nuclear bomb in a Pakistan stockpile. It's only a matter of time.

World's newest and biggest 'black market'

The fact is, derivatives have become the world's biggest "black market," exceeding the illicit traffic in stuff like arms, drugs, alcohol, gambling, cigarettes, stolen art and pirated movies. Why? Because like all black markets, derivatives are a perfect way of getting rich while avoiding taxes and government regulations. And in today's slowdown, plus a volatile global market, Wall Street knows derivatives remain a lucrative business.

Recently Pimco's bond fund king Bill Gross said "What we are witnessing is essentially the breakdown of our modern-day banking system, a complex of leveraged lending so hard to understand that Federal Reserve Chairman Ben Bernanke required a face-to-face refresher course from hedge fund managers in mid-August." In short, not only Warren Buffett, but Bond King Bill Gross, our Fed Chairman Ben Bernanke, the Treasury Secretary Henry Paulson and the rest of America's leaders can't "figure out" the world's $516 trillion derivatives.

Why? Gross says we are creating a new "shadow banking system." Derivatives are now not just risk management tools. As Gross and others see it, the real problem is that derivatives are now a new way of creating money outside the normal central bank liquidity rules. How? Because they're private contracts between two companies or institutions.

BIS is primarily a records-keeper, a toothless tiger that merely collects data giving a legitimacy and false sense of security to this chaotic "shadow banking system" that has become the world's biggest "black market."

That's crucial, folks. Why? Because central banks require reserves like stock brokers require margins, something backing up the transaction. Derivatives don't. They're not "real money." They're paper promises closer to "Monopoly" money than real U.S. dollars.

And it takes place outside normal business channels, out there in the "free market." That's the wonderful world of derivatives, and it's creating a massive bubble that could soon implode.

Comments? Yes, we want to hear your thoughts. Tell us what you think about derivatives: as "financial weapons of mass destruction;" as a "shadow banking system;" as a "black market;" as the next big bubble dangerously exposing us to that unpredictable "bad 2%."

By Paul B. Farrell, MarketWatch

Interesting question, with many views and answers, lets take at a look at some of those answers and maybe determine which reasons are suitable for sell ing your stock.

Answers from some Wilson Parkson:

When a Stock is Over Valued
Can there be too much of a good thing? There certainly can in the market. When stocks are pushed way past their true value, they are often set up for a fall. The strategy is to sell when they are over valued and buy them back after a market correction has knocked the price back down. This, of course presumes an accurate knowledge of the top and bottom of prices – something very few of us are particularly good at with any consistency. Selling an over-valued stock is certainly preferable to buying an over-valued stock. Just be prepared to watch it keep going up after you sell, as happens sometimes. Don’t second-guess yourself; it could have more easily gone the other way

Rebalancing Your Portfolio
You have decided that the best allocation for your circumstances is 60% stocks, 30% bonds and 10% cash in your portfolio. Good fortune has smiled on you and your stocks, which are now valued at 70% of your portfolio. As tempting as it might be, your best move is to rebalance your portfolio by selling off some of your stocks and bringing the percentages back into alignment. Obviously, the stock(s) you sell should meet the long-term capital gains test of one-year ownership. Beyond that, look at how your stocks break out and decide which stocks can be sold to keep the diversification intact.

Philip A. Fisher answer:

The best answer was provided by the elegant Philip A. Fisher, who died in 2003 at the age of 96 after a 74-year career as a money manager. In his important book, "Common Stocks and Uncommon Profits," published in 1958 and currently available in a paperback edition, he wrote, "It is only occasionally," he wrote, "that there is any reason for selling at all." The occasional reason? According to Fisher, it is the deterioration of a company's underlying business. "When companies deteriorate, they usually do so for one of two reasons. Either there has been a deterioration of management, or the company no longer has the prospect of increasing the markets for its product in the way it formerly did."

In other words, sell if something has gone wrong -- not with the economy or the market, but with the business itself. A key product has failed, or new competition has driven down prices, or management gets distracted.

There are other reasons to sell. You might, after all, need the money. Stocks are long-term investments (that is, you should plan to hold shares for five years or more), but emergencies come up, and your cash reserves might not be sufficient. Finally, sell when you have the slightest doubts about the integrity or focus of management. When a company is accused of deceptive accounting, for example, examine the charges and, if they seem serious, sell the stock. Don't wait for the jury's verdict.

Of course to most retail investors, by they time they realise that the companies they are holding starts losing those competitive edges, or management starts acting funny, the share price will either come crashing down or get suspended. So, the question here is, what subtle signs are there to look out for, to foresee such things that might happen and sell the share with regards to that? -Akat
This what i found out from investopedia

Margins

I'll start with margins, which are useful for detecting deteriorating competitive or operating conditions. Margins are the profit a company makes on its sales. For example, a 25% margin means the company is making 25 cents for every dollar of sales. Gross margins are a measure of profit before a company accounts for overhead, marketing, research and development, interest and taxes. Rising gross margins tell you a company is reducing production costs or raising prices. Conversely, deteriorating margins say either that production costs are increasing and the company can't raise prices proportionally or that the company is cutting prices in an attempt to maintain market share.

Operating margins are a gauge of profit after a company accounts for overhead, marketing, and research and development. Rising operating margins generally indicate the company is operating more efficiently. However, falling operating margins signal something is amiss. Often, operating margins drop because the company has to increase advertising and other marketing expenses to maintain sales growth.

Margins tend to move in trends. That is, if margins rose in the previous quarter, they will probably be even higher in the current report. That's good news because rising margins usually lead to positive earnings surprises. Margins might fall for innocuous reasons, such as expenses related to a new product's introduction. However, falling margins, either gross or operating, often signal a declining competitive position. Thus it's important to check both. Calculate gross margins by dividing gross operating profit by sales for the same period. Calculate operating
margins by dividing operating income by sales.You can find all three items on MSN Money by looking at quarterly income statements. To rule out seasonal variations, always compare the most recent quarter's margins to the year-ago quarter.

I'll use specialty retailer Tween Brands to illustrate the process. Tween's share price dropped more than 30% after the company reported disappointing quarterly results in July. So we would have relied on its April quarter report to detect red flags warning of that event.

Find the income statement in the Financial Results section under Statements. The default is an annual income statement. To analyze margins, select the quarterly income statement, which lists data for the past five reported quarters. For Tween Brands' April 2008 quarter (which actually ended May 3), the income statement listed revenue (sales) of $251.74 million, gross profit of $86.34 million and operating income (profit) of $8.45 million. So the gross margin was 34.3% (86.34 divided by 251.74), and the operating margin was 3.4% (8.45 divided by 251.74).

Doing the same calculations for the April 2007 quarter yielded gross and operating margins of 37.9% and 8.1%, respectively. (Because the statement lists only the five most recent quarters, the April 2007 data disappeared when the July 2008 results were posted. So you won't be able to check my math for April 2007.)

First red flag: Deteriorating gross and/or operating margins

Tween Brands' April 2008 gross margin dropped to 34.3% from the year-ago 37.9% figure. That's a 9.5% drop. Small changes in gross margins translate to big changes in reported earnings. Consider a year-over-year gross-margin drop of 5% or more (for example, from 20% to 19%) a red flag.

Tween's operating margin dropped 58% (3.4% versus 8.1%). Operating margins are more volatile than gross margins, so they require more leeway. Consider a 20% drop in operating margins (for example, from 50% to 40%) a red flag. However, treat a 10% drop as a "yellow flag" that requires scrutiny.

Receivables

Corporations usually don't pay cash when they buy from another company. Instead, they have a predetermined time, such as 90 days, to pay for the goods. The amounts owed to a company by its customers for goods received are termed accounts receivables.

Usually, receivables track sales. For instance, if a company sells twice as much as it did the year before, you would expect its receivables to double. Sometimes sales grow faster than receivables, which signals the company is doing better at collecting its bills, which is good. But beware when receivables increase faster than sales. That means customers are taking longer to pay their bills. Here are three reasons that could happen:

1. The company is slow in billing its customers.

2. Customers don't have the cash to pay.

3. The company is giving customers longer payment terms to encourage them to order the products they don't need right away.

Though No. 1 is fixable, reasons No. 2 and No. 3 will likely result in future shortfalls in sales and earnings.

To analyze receivables, compare the ratio of receivables (balance sheet) to sales (income statement) for the most recent quarter to the year-ago ratio. I'll demonstrate using Silicon Motion Technology. Silicon Motion's share price took a big hit after the Taiwanese chip maker reported disappointing June 2008 quarter results.

Here's what you would have found if you had analyzed Silicon Motion's receivables after it released its March 2008 quarter's results:For the March quarter, Silicon Motion's sales totaled $1.586 billion (in Taiwanese dollars), and its receivables at the end of the quarter totaled $920.3 million (a Taiwanese dollar is worth about 3 U.S. cents). So the ratio of accounts receivable to sales, or AR/S, was 58% (920.3 divided by 1,586). The same calculation for the March 2007 quarter yielded a 44.2% figure. Thus Silicon Motions' receivables increased to 58.0% of sales in April 2008, up from 44.2%.

Count the cash Cash flow is the cash that moved into or out of a company's bank accounts during a reporting period. Because cash flow must be reconciled with actual bank balances, it is a more reliable measure of a company's results than reported earnings, which are subject to arbitrary accounting decisions.

Operating cash flow is primarily net income with noncash accounting entries such as depreciation expenses added back in. Generally, operating cash flow should exceed net income. But many companies report positive net income when, if you count the cash, they are actually losing money.

Academic research has found that comparing reported net income with operating cash flow is a good way to spot future problems. Specifically, the researchers found that a situation in which net income grows
but operating cash flow doesn't is a red flag pointing to future earnings shortfalls. Interpreting a cash-flow statement is a little tricky. The quarterly statements show the cumulative year-to-date totals for each quarter instead of each quarter's individual figures. For instance, if a company's fiscal year starts in January, its June-quarter figures include the total of the March and June quarters. To get the June quarter's operating cash flow, you would have to subtract the March totals from the June totals.

However, there's no particular advantage to analyzing the quarters separately. So I make it simple and compare the most recent quarter's numbers to the year-ago figures, regardless of whether they represent single or multiple quarters. Thus you need only compare the change in net income with the change in operating cash flow from the year-ago quarter to the most recent quarter.

Third red flag: Rising net income combined with a decline in operating cash flow

Healthways' May 2008 net income rose 12% over May 2007, while its operating cash flow dropped slightly over the same period.

It's a red flag if net income increased from a year ago but operating cash flow didn't grow. Consider it a yellow flag requiring attention whenever net income exceeds operating cash flo