Market Gems

Newshighlight (10)

2012-01-14T14:31:00.003+08:00

Happy New year readers. As usual, very busy writing my book on "how to earn extra money during your free time" hence i hardly have any time to update you with the lastest market gems (yes GEMs!) i found since mid last year. Nevertheless, enjoy this article by Dr. David Kass commentary on Warren Buffett.

Warren Buffett’s Meeting with University of Maryland MBA Students – March 11, 2011
March 17th, 2011 by dkass under Uncategorized. 7 Comments.

Notes Taken by Professors David Kass and Sarah Kroncke, Department of Finance, Robert H. Smith School of Business, University of Maryland)

Dr. David Kass with Warren Buffett
Warren Buffett (WB) met with 20 MBA students from each of eight universities, including the University of Maryland, on March 11, 2011. He began his two-hour Q & A session by mentioning that he would answer questions on any topic except what Berkshire is planning to buy or sell. He further stated that he tapes his mouth shut at night so he would not say what to buy or sell in his sleep. The MBA students asked 21 questions in the following order:

(1) Do you believe that Africa will be the major driver of world growth in the years ahead?

WB: China will be a bigger driver of growth in the next 10-20 years. They are growing from a smaller base than that of the U.S. The U.S. and the rest of the world will be growing rapidly as well. The U.S. can’t grow as fast as China on a per capita basis. People are becoming more productive, so output per capita will increase. The question is how will this output get distributed.

(2) Can you explain your philosophy of not splitting your stock?

WB: Berkshire wants to attract shareholders who focus on long run earnings. Investors should not buy a stock just for a split. In the mid-1990’s Berkshire effectively split its stock by issuing class B shares to thwart someone who was planning to sell unit trusts in Berkshire that was tax inefficient. Many people who would have bought shares in that unit trust would have sold at a loss and been upset with Berkshire. Berkshire did split its B shares in February 2010 when it acquired Burlington Northern (BNI) in order to offer BNI shareholders holding less than $3,000 of stock the opportunity to participate in a tax free deal. Berkshire does not want to attract shareholders who are focused on next quarter’s earnings or stock splits. A company’s value is the same regardless of how many pieces you slice it into. Berkshire measures its success over time by how little turnover there is in its shares.

(3) If you were to meet Benjamin Graham tomorrow, what would be your critiques, or what things did he get wrong?

MBA student trip to see Warren Buffett, March 2011
WB: Read every book on investing in the library by the time he was 11 and bought his first stock. Read the Intelligent Investor in 1949 or 1950 when it was published. There is nothing in the book that needs to be changed. Its main principles are: (1) margin of safety, (2) buying dollar bills at a discount, and (3) awareness of the inability to predict the future. In 1970 or 1971 Benjamin Graham, who was ill, asked him to revise the book. He may have added something about inflation, but the fundamentals have remained the same for himself and Charlie (Munger).

(4) Looking back at the financial crisis, did you learn anything that you didn’t know before?

WB: Learned how bad things could get. Knew there was a housing bubble, but surprised by the speed at which it spread, the way the dominoes toppled, and the need for the government to act. In September, when Lehman went down, that Sunday, if Ken Lewis (Bank of America) had not bought Merrill Lynch (ML), ML would have gone down on Monday. Everyone was terrified. No one trusted anyone else or even placing their money under a mattress. Berkshire sold a $5 million Treasury Bill in December 2008, due in April 2009, for $5,000,070. The purchaser would get back $5 million at maturity and earn a negative return (losing $70). People didn’t trust each other. Banks didn’t trust each other. Bernanke, Paulson, and Geithner understood that speed was needed. President Bush said the most important 10 words in economic history: “If money doesn’t loosen up, this sucker is going down”. He backed up Paulson. There are certain chairmen, presidents, and Treasury secretaries that might have frozen. If anyone had frozen for a few weeks, it would have been too late. Congress did not get it at first. When they initially voted down TARP, the Dow Jones Industrial Average tumbled 750 points that day, coming close to a financial Armageddon. This was potentially a lot more serious than the 1930’s, although there was a worse social impact at that time. After Lehman failed, money market funds held $3.5 trillion which was equal to one-half domestic deposits at banks. In three days, $175 billion (or 5% of money market funds) was removed from money market accounts. To whom would these funds liquidate assets (commercial paper)? Only the government could have stepped in, which it did. At that time Berkshire had already committed to come up with $6.6 billion to assist Mars in its purchase of Wrigley. He has never seen a panic period like this one. One should buy what you can pay for. If you are smart you do not need to borrow. If you are dumb, you do not know what to do with the amount you borrow.

(5) Does the U.S. have a sustainable competitive advantage versus the emerging countries?

WB: In the 1920’s 32% of Americans worked on farms. Today, that number is 3%. In the 1980’s Americans thought that Germany and Japan would dominate the world’s economies. However, over the next decade the U.S. created 20 million jobs. We have a system that works and encourages creativity. Since 1995, the Internet has changed the world.

(6) Question about WB convincing 60 billionaires to contribute a large percentage of their wealth to charities such as the Bill and Melinda Gates Foundation.

WB: What the billionaires have pledged to give away will not hurt them (lower their standard of living). WB is giving away 99% of his wealth and it leaves him with enough. Would rather that his wealth wipe out malaria over time rather than build the world’s biggest tomb, or buy ten 747’s. The middle class is the most philanthropic class in the world, contributing 2% of GDP to charity.

(7) In the past you have said your investment philosophy was 85% Graham and 15% Fisher. Has that changed?

WB: Started out looking for cigar butts with one puff left. There were lots available in the 1950’s. That approach does not work well with large amounts of money to invest. His philosophy has shifted slightly more toward Fisher. Berkshire currently has $150 billion in cash and investments. He met Charlie Munger in 1959 who argued for investing in wonderful businesses and sit with them as they get better over time. In 1951 WB picked up the Moody’s Manual for that year and found Western Insurance selling at ½ times earnings. A few years ago someone sent him a book entitled “Korean Stock Market”. He found 15 – 20 stocks selling for 2X earnings. It was like the old days. He has also made mistakes such as his 1968 purchase of Blue Chip Trading Stamps whose sales have dropped from $120 million at its peak to $18,000. Dexter Shoe was another bad business that he bought. You need to get on an 80 mph train that is speeding up.

(8) Question about the Omaha economy and more rural parts of the mid-west.WB: Omaha escaped much of the recession. Nebraska has the third lowest unemployment rate in the country. In the early 1980’s there was a recession and farm land crashed and many banks closed. Omaha used to be a major center for meatpacking and it was the fourth largest railroad center in the U.S. Now insurance is a major industry in Omaha. Entrepreneurs build businesses where they live and will continue to do so, spurring local economies. He always wanted to raise his family in Omaha, which is why he is there.

(9) Question about WB’s ability to evaluate management in place of companies he acquires.WB: In terms of evaluating management, it is very hard to do for public companies. You can look at the record (like baseball). When we buy a business it is for keeps. When someone comes to me and wants to sell a business and I hand him $1 billion, I have to decide if he’s going to have the same energy when he’s working for us as he had when building the business. We do not have any contracts with our managers. In the Fall of 2006 I received a 1 ½ page letter from a guy in Israel. I had not heard of the guy or his company before. He offered to come meet with me. After we met, I handed him $4 billion (Iscar) and was counting on him to run the business the same as before we gave him the money. Want managers to be passionate about their business. You cannot put passion into someone. It’s worked out most of the time. Every now and then we make a mistake. We want people who are in love with their business, not the money. (People who would say: “I’d rather go to work than anything else in the world”.) Our batting average is good and has probably gotten better over time. We are looking for the guy who is still in love with his business and for one reason or another, needs to monetize it. With respect to stocks, we are not interested in meeting with management. We do not want to see their projections. We look into their products and “moats” around the business.

(10) Question about advice in finding a job.

WB: Find the job that you would do if you were independently rich and not getting paid for it. He loves the job he is in. He jumps out of bed and tap dances to work. Upon graduation from Columbia (MBA), he offered to work for Ben Graham for nothing. Ben Graham said he was overpriced. He started selling securities in Omaha for three years. Then he was offered a job with Ben Graham. He never asked what his pay was. He didn’t know until he received his first pay check. Do what makes you tap dance. Take a job until you find the right job. Work for the person you admire most. Don’t wait for the dream job either. You should be close to a dream job 5 years out of school.

(11) What do you do everyday?

WB: He reads a lot, so does Charlie. They have been close friends for 52 years. They disagree, but never have any arguments. He reads books and 10K’s and 10Q’s. He now plays bridge over the Internet 12 hours per week, so he has less time for reading. He also watches YouTube.

(12) Question about China’s policies and impact on its growth.

WB: China changed its system and started to unleash the potential of its 1.2 billion people. In the last 30 years it has built its infrastructure. When forces are working together as they are in China, amazing things happen. The success the Chinese have achieved has reinforced what they are doing. They have come a long way. They have a long way to go. In the U.S. system, the right people are in the right jobs.

(13) Question about the Financial Regulation Bill.WB: We need something that will keep leverage under control. There is a natural tendency in a capitalist system to use leverage. Leverage is dangerous. If the financial regulation bill controls derivatives, it will be good. We also have the wrong incentives. If CEO’s succeed, they get doubly rich. If they fail, they are still rich. If a CEO needs big assistance from the government, then the CEO should go broke. At Berkshire we want a system that if Berkshire goes broke, so do Warren and Charlie. Freddie Mac and Fannie Mae resulted in the greatest losses to taxpayers. They (Fannie and Freddie) were a big part of the problem.

(14) Earlier this month, Bill Gross was quoted as saying June 30 would be D-Day for investors with QE2 going away. What do you think Bernanke should do?

WB: No one could have done better than Bernanke. He (Buffett) would not be buying $20 billion of Treasuries every week as is being done now. In addition to government’s fiscal and monetary policy, capitalism has its own regenerative capacity. We have had 15 recessions in U.S. history. They were called “panics” in the 19th Century. The regenerative capacity of capitalism was demonstrated before fiscal and monetary policy were introduced. Our current budget deficit represents 10% of GDP. It is the largest it has ever been except for World War II when it equaled 30% of GDP. This led to a vibrant economy and price controls. We are, therefore, experiencing the second greatest stimulus in the history of this country. Monetary policy (stimulus) is not needed now. It is dangerous. The Federal Reserve has its foot to the floor. Bernanke will quit monetary stimulus on June 30. The economy is fine. This expectation is baked in (built into the market).

(15) When you have made a mistake, what steps did you take to determine what went wrong?

WB: His circle of competence is growing over time. When investing in stocks, there are no called strikes. He waits for the pitch he wants. The mistakes he has made resulted from thinking he understood a business when he did not. He prefers to learn from other people’s mistakes (not from his own). On Dexter Shoe, he issued shares in Berkshire that are today worth $3 billion. Dexter Shoe went to zero. He is wrong from time to time, but overall has a good batting average. One should focus on the future. Don’t dwell on mistakes. Do not make a mistake with respect to the person you marry.

(16) When looking to invest in a company, how much consideration do you give to moral issues, such as environmental impact?

WB: Doesn’t think there is a perfect answer. In marketable securities Berkshire will buy whatever is out there (e.g., stocks and bonds of cigarette and liquor companies). Thirty years ago he was invited to a southern state to meet with management who wanted to sell a chewing tobacco company. The moat around the business was fabulous (brand loyalty). Pretax margins of 40% with low capital requirements. There was far less incidence of cancer from chewing tobacco than there was from cigarettes. Charlie and Warren discussed whether or not to acquire this company. They decided against it. Berkshire owns stock in Wal-Mart which is the largest seller of cigarettes in the U.S. They own stock in a company that wholesales to Wal-Mart. They own shares in Costco which is the third largest retailer of cigarettes. But they will draw a line at buying the entire business of the manufacturer.

(17) How have your expectations for the U.S. recovery changed your capital allocation?WB: He thought that the government would take enough action to get us past the panic and get the engine going again and to gather strength. His first choice remains with wanting to buy a large business. Otherwise, his second choice would be to buy securities. That did not change in the crisis. In the three weeks after Lehman failed, he invested $15.5 billion in several preferred stocks. He never wants investments to keep him up at night. In that regard, he was ultra conservative during the financial crisis by selling part of his stake in Johnson & Johnson, even though he did not need to, in order to pay for the preferred stocks.

(18) Question about oil and the current situation in the Middle East.

WB: The Middle East has been and will continue to be an unstable place. If the supply of oil from Saudi Arabia is disrupted, it will have big consequences. The oil shocks of the 1970’s resulted in oil going from $3 per barrel to $30. We paid a huge tax to OPEC. He expects to see the usage of oil decline in our lifetime (although the current usage of 86 million barrels of oil a day may increase to 100-110 million barrels per day before the decline begins). There are 500,000 oil wells in the U.S., producing an average of only 11 barrels per day. If oil prices have a sustained increase, there will be a windfall profits tax in the U.S. Therefore, higher oil prices are not a signal to buy oil stocks.

(19) Question about GEICO’s insurance model.

WB: Insurance in this country began with marine insurance, which was followed by fire insurance, and then by property insurance. State Farm introduced a mutual insurance model for auto insurance. Sears Roebuck, through its Allstate Insurance, copied this model. Then USAA offered auto insurance to the military with no agents (lowest cost). A husband and wife left USAA and started GEICO in 1936 offering a similar model of direct, no agent, low cost insurance to the public. GEICO initially marketed its insurance through mail and then TV, and finally through the Internet. GEICO is offering the same product today as it was 60 years ago. This is similar to Coca-Cola offering the same product since 1886, and likewise for Wrigley’s chewing gum for over 100 years.

(20) Question about Berkshire selling put options.

WB: Berkshire sold equity puts due in 15 – 20 years. They were in four different indices around the world. It was an insurance type transaction and they were sold on an uncollateralized basis. Berkshire did not want to receive calls for collateral along the way. He made the judgment that the odds were about 80% that Berkshire would not have to pay out anything. This looked good then and it still looks good now. Berkshire would not enter a contract if it could cause them to go broke.

(21) Question about income inequality in the U.S.

WB: During recent years of economic growth in the U.S., income inequality has grown. It’s going to exist in capitalism and it should. If everyone is promised to come out equal in the end, then we would have a different world. Suppose that 24 hours before you were born a genie appears and gives you an incredible responsibility to design an economic, political, and social system in which you are to emerge. Whatever you decide is the society for you, your children, your grandchildren, etc. You then ask the genie, “what’s the catch”? The answer is that just before emerging you have to go to the barrel with 6.5 billion tickets, one for each person in the world, but you do not know which ticket you will get (ovarian lottery.) A society with equality and no production would not be good. You should think of output, providing incentives to people, an abundant society, a market system. In the U.S. per capita GDP equals $47,000. We want freedom from fear of not receiving health care and not starving to death. An abundant society will take care of people that get a lousy ticket. Inequality of the tickets is what you want to deal with. We are working toward that in this society. Social Security is an attempt at that in our society. In the last 20 years we have been moving in the wrong direction. According to the IRS, in 1992 the 400 highest incomes averaged $45 million. In 2009, they averaged $350 million. The rest of the U.S. went no place over these years. The average tax rate for the highest income earners has declined from 28% down to 16% over this time period. His average tax rate is 16% on $16 million of income, largely from dividends and capital gains which are taxed at 15%. He has no tax shelters and does not consult tax advisers. He credits George Bush and the U.S. Congress. We have moved away from equality to taking care of the rich. If you and a twin were competing for a ticket in the U.S. or Bangladesh (with no income tax), you might bid 70% – 80% (of future wealth) to get the U.S. ticket. He is lucky that he is alive now rather than thousands of years ago. Otherwise he would have been some animal’s lunch. It would not have done him any good then to say “I allocate capital”. We should have a society that will incentivize people to work hard and the ticket you pick doesn’t destine you for a poor outcome.

Full article, visit: http://blogs.rhsmith.umd.edu/davidkass/uncategorized/warren-buffetts-qa-with-university-of-maryland-mba-students-march-11-2011/

NewsHighlights (9)

2011-09-03T22:40:00.002+08:00

S-Reits and its investment opportunities

Apart from offering a high dividend yield of 6.5% currently, it also offers a stable yield that will keep growing

WHEN planning for the golden years, it is important to ensure that one's retirement nest egg is able to support one's ideal retirement lifestyle. In practical terms, that means putting the retirement funds to work, to make the funds last longer than it would otherwise. This also means that the retirement stash has to weather inflation, which can significantly erode the real value of the funds.

Inflation has averaged 2.8 per cent over the past decade. Therefore, it is important to protect one's retirement nest egg through investments that yield enough income to keep up with inflation. In addition, this income should be stable, with regular payouts, which can serve as additional income to supplement the retirement funds.

Attractive options

With these considerations in mind, Singapore real estate investment trusts (S-Reits) stand out as an attractive option for investors looking to stretch their retirement dollars. Apart from offering a high distribution (or dividend) yield of 6.5 per cent currently, S-Reits also offer a stable yield that is expected to continue growing.

Regular payouts are an added benefit: S-Reits have either quarterly or semi-annual distribution policies. S-Reits also allow investors to invest in a professionally managed portfolio of income producing real estate, indirectly allowing them to reap the rental income and growth in value of the underlying commercial properties that most investors would not otherwise have access to and without the hassle of having to manage the properties themselves. In addition, as S-Reits are traded in the equity market, it offers liquidity that one might not get as a landlord.

Encouraging results

As an equity class, while prices may fluctuate according to changes in market sentiment, share price performance of S-Reits have been encouraging as over the past two years, the FSTREI Index (a Reit Index which measures the price performance of S-Reits) has outperformed both the STI (Straits Times Index) and the FSTREH (Real Estate Developers Index) by 3 per cent and 10 per cent respectively.

S-Reits have also proven their mettle in the recent equity market volatility by falling only 5 per cent, in comparison to the 12 per cent and 20 per cent fall in the STI and FSTREH.

This relative out-performance, in our view, can be attributed to S-Reits' good income visibility, stability and their prospective high distribution yields. Current S-Reits yields of 6.5 per cent are attractive. Spreads of 5 per cent against the ten-year Singapore government bond which presently is at 1.6 per cent, is also higher than its historical average.

This is also higher than other yield benchmarks such as the Central Provident Fund (CPF) ordinary and special account interest rates of 2.5 per cent and 4.0 per cent respectively.

Adding to the appeal of S-Reits are tax regulations that make it mandatory for S-Reits to distribute 90 per cent or more of their taxable income to shareholders as dividends annually. This ensures a stable and regular income flow for investors. In actual practice, most S-Reits have maintained a 100 per cent payout ratio record. Moreover, the dividends are tax-free in the hands of individuals.

Hedge Instrument

S-Reits offer relatively strong income visibility for investors as their distributions are backed by rental income earned as landlords. S-Reits tend to derive rental income through the ownership of a portfolio of properties and having individual tenants each contributing to a small percentage of total portfolio earnings, thus further diversifying its income.

In fact, faced with a positive rental outlook, S-Reits are expected to continue growing its yields at an average rate of 5.2 per cent in 2011, which is above inflation rate, highlighting S-Reits' effectiveness as an inflation hedge instrument.

To complement their underlying portfolio growth, growing dividend yields are complemented by S-Reits ability to acquire assets that contribute to distributions over time. In this respect, we saw S-Reits being active in acquiring properties to expand their portfolios and this behaviour is a major contributor to the sector's earnings' growth potential.

Properties acquired are primarily in the Asia-Pacific region, and they range from commercial assets to logistic properties and retail malls. We also note that there have been more offshore acquisitions in the Asia Pacific region as S-Reits look to jurisdictions that offer higher asset yields, which is positive as apart from offering higher earnings growth, these overseas acquisitions also help to diversify their portfolio concentration in Singapore.

Underpinning the S-Reit sector's stability is a robust regulatory framework set by the Singapore authorities that emphasises transparency and financial prudence. S-Reits' balance sheets remain robust and hovers at a current financial leverage average of 34 per cent, which is low and compares favourably against the average longer term optimal gearing target of between 40-45 per cent. (S-Reits are able to leverage up to a high of 60 per cent if they have obtained a credit rating from any one of the credit rating agencies, if not leverage ratio will be subjected to a limit of 35 per cent).

The current prudent balance sheet position allows S-Reits to pursue acquisition opportunities or development projects in order to grow their portfolios through taking on further debt.

However, we believe that S-Reit managers, in complementing their growth strategy, will endeavour to continue to manage their capital wisely, apart from just utilising their debt headroom for acquisitions. They will also periodically tap the equity market for additional capital. This strategy in our view is a boon for income investors who are looking for a stable and regular source of income in the long term.

Hospitality, retail

Amongst the various S-Reit sectors, hospitality and retail Reits are expected to perform better than the rest.

We believe that rental growth stemming from exposures in the hospitality and retail sectors (with average distribution growths of 11 per cent and 6 per cent respectively) offer the highest earnings upside given their positive outlook after the opening of the two integrated resorts.

We continue to expect strong demand for rooms stemming from sustained record visitor arrivals in the coming months. As such, hotel earnings should continue to see upside. We also see retail Reits enjoying the spillover effect from the buoyant tourism outlook.

This comes on top of the current positive consumer sentiment, and should inevitably spur higher retail spending in the coming months.

In terms of stability, the outlook for industrial S-Reits remains one of the more stable ones amongst the various sectors owing to a larger proportion of longer-termed lease expiries from tenants who typically rent an entire industrial property (known as master lessee) or those who take larger spaces.

Looking ahead, we expect industrial landlords to enjoy a slight up-tick in earnings and distributions from expected positive rental reversions on the back of a healthy demand for industrial space, coupled with high tenant retention and high average occupancies at their properties.

Office Reits

Commercial office Reits should enjoy positive recent news flow of robust Grade A rental outlook as they look towards narrowing the spread between expiring and re-contracted leases, with newly completed buildings also seeing high take-up rates and those in the pipeline also reporting healthy pre-commitment rate and positive net absorption in 1H11.

However, we are less sanguine about its prospects in the nearer term as earnings recovery in office Reits would only be felt from 2012 onwards as they are currently renewing rents signed in the previous peak in 2007-2008.

What are the potential drawbacks? On the back of current market volatility, S-Reits unit share prices might fall to changes in market sentiment, but we have noted that while share prices have fallen recently, performance continue to remain more resilient compared to the STI and FSTREH.

In addition, rising interest rates might lead to higher interest costs and cut into the profits of S-Reits, however we believe that this risk is likely to be mitigated in the shorter term as S-Reit managers have taken the prudent step in locking in a majority of their loans into fixed-rated debt, thus any impact on rising interest costs is not likely to be excessive in our view.

In summary, we believe that S-Reits, with their high yields, stable income growth and regular dividends coupled with its effectiveness as an inflation hedge, is an attractive investment class that one should have as part of a retirement portfolio.

By Derek Tan
Analyst
DBS Vickers Securities

News highlights (8)

2011-06-29T15:56:00.002+08:00

What Is Warren Buffett's Investing Style?

If you want to emulate a classic value style, Warren Buffett is a great role model. Early in his career, Buffett said, "I'm 85% Benjamin Graham." Graham is the godfather of value investing and introduced the idea of intrinsic value - the underlying fair value of a stock based on its future earnings power. But there are a few things worth noting about Buffett's interpretation of value investing that may surprise you.

First, like many successful formulas, Buffett's looks simple. But simple does not mean easy. To guide him in his decisions, Buffett uses 12 investing tenets, or key considerations, which are categorized in the areas of business, management, financial measures and value (see detailed explanations below). Buffett's tenets may sound cliché and easy to understand, but they can be very difficult to execute. For example, one tenet asks if management is candid with shareholders. This is simple to ask and simple to understand, but it is not easy to answer. Conversely, there are interesting examples of the reverse: concepts that appear complex yet are easy to execute, such as economic value added (EVA). The full calculation of EVA is not easy to comprehend, and the explanation of EVA tends to be complex. But once you understand that EVA is a laundry list of adjustments - and once armed with the formula - it is fairly easy to calculate EVA for any company.

Second, the Buffett “way” can be viewed as a core, traditional style of investing that is open to adaptation. Even Hagstrom, who is a practicing Buffett disciple, or "Buffettologist," modified his own approach along the way to include technology stocks, a category Buffett conspicuously continues to avoid. One of the compelling aspects of Buffettology is its flexibility alongside its phenomenal success. If it were a religion, it would not be dogmatic but instead self-reflective and adaptive to the times. This is a good thing. Day traders may require rigid discipline and adherence to a formula (for example, as a means of controlling emotions), but it can be argued that successful investors ought to be willing to adapt their mental models to current environments.

Business

Buffett adamantly restricts himself to his "circle of competence" - businesses he can understand and analyze. As Hagstrom writes, investment success is not a matter of how much you know but rather how realistically you define what you don't know. Buffett considers this deep understanding of the operating business to be a prerequisite for a viable forecast of future business performance. After all, if you don't understand the business, how can you project performance? Buffett's business tenets each support the goal of producing a robust projection. First, analyze the business, not the market or the economy or investor sentiment. Next, look for a consistent operating history. Finally, use that data to ascertain whether the business has favorable long-term prospects.

Management

Buffett's three management tenets help evaluate management quality. This is perhaps the most difficult analytical task for an investor. Buffett asks, "Is management rational?" Specifically, is management wise when it comes to reinvesting (retaining) earnings or returning profits to shareholders as dividends? This is a profound question, because most research suggests that historically, as a group and on average, management tends to be greedy and retain a bit too much (profits), as it is naturally inclined to build empires and seek scale rather than utilize cash flow in a manner that would maximize shareholder value. Another tenet examines management's honesty with shareholders. That is, does it admit mistakes? Lastly, does management resist the institutional imperative? This tenet seeks out management teams that resist a "lust for activity" and the lemming-like duplication of competitor strategies and tactics. It is particularly worth savoring because it requires you to draw a fine line between many parameters (for example, between blind duplication of competitor strategy and outmaneuvering a company that is first to market).

Financial Measures

Buffett focuses on return on equity (ROE) rather than on earnings per share. Most finance students understand that ROE can be distorted by leverage (a debt-to-equity ratio) and therefore is theoretically inferior to some degree to the return-on-capital metric. Here, return-on-capital is more like return on assets (ROA) or return on capital employed (ROCE), where the numerator equals earnings produced for all capital providers and the denominator includes debt and equity contributed to the business. Buffett understands this, of course, but instead examines leverage separately, preferring low-leverage companies. He also looks for high profit margins.
His final two financial tenets share a theoretical foundation with EVA. First, Buffett looks at what he calls "owner's earnings," which is essentially cash flow available to shareholders, or technically, free cash flow to equity (FCFE). Buffett defines it as net income plus depreciation and amortization (for example, adding back non-cash charges) minus capital expenditures (CAPX) minus additional working capital (W/C) needs. In summary, net income + D&A - CAPX - (change in W/C). Purists will argue the specific adjustments, but this equation is close enough to EVA before you deduct an equity charge for shareholders. Ultimately, with owners' earnings, Buffett looks at a company's ability to generate cash for shareholders, who are the residual owners.

Buffett also has a "one-dollar premise," which is based on the question: What is the market value of a dollar assigned to each dollar of retained earnings? This measure bears a strong resemblance to market value added (MVA), the ratio of market value to invested capital.

Value

Here, Buffett seeks to estimate a company's intrinsic value. A colleague summarized this well-regarded process as "bond math." Buffett projects the future owner's earnings, then discounts them back to the present. Keep in mind that if you've applied Buffett's other tenets, the projection of future earnings is, by definition, easier to do, because consistent historical earnings are easier to forecast.

Buffett also coined the term "moat," which has subsequently resurfaced in Morningstar's successful habit of favoring companies with a "wide economic moat." The moat is the "something that gives a company a clear advantage over others and protects it against incursions from the competition." In a bit of theoretical heresy perhaps available only to Buffett himself, he discounts projected earnings at the risk-free rate, claiming that the "margin of safety" in carefully applying his other tenets presupposes the minimization, if not the virtual elimination, of risk.

The Bottom Line

In essence, Buffett's tenets constitute a foundation in value investing, which may be open to adaptation and reinterpretation going forward. It is an open question as to the extent to which these tenets require modification in light of a future where consistent operating histories are harder to find, intangibles play a greater role in franchise value and the blurring of industries' boundaries makes deep business analysis more difficult.

Who moved my REITs? Part 2

2011-02-04T12:05:00.006+08:00

It's been 2 years since Feb 21st 2009, i wrote my very first article on REITs and had many people emailing me with questions. This time around, i'll have gather some very interesting research on REITs again and hopeful it will be clearer this time around. Now with the help from Bobby Jayaraman, let us look at the determining factors and valuation measures for a Reit, the art and science of it.

Li Ka Shing & Ng Teng Fong. People born before 1980s should be very familiar with these two names, young dudes born before 1990s kind of have an idea who they are and younger hollows born in this century should be completely ignorant. Well, just some general about these two men, Li Ka Shing bought properties during the 1967 riots in Hong Kong at dirt cheap prices and Ng Teng Fong was the King of Orchard Road in the 1980s having done similar property investments like Mr Ka Shing. Both of them are property tycoons who made fortunes when the value of their investment grew multiple times, having bought them at crazily low prices. However it is unlikely they invested on the basis of a valuation from a properly consultancy, hence this got me thinking, what is it that drives growth in asset values? And is it possible to value assets accurately without the help from "professional consultants"?

The famous economist John Maynard Keynes (founder of the key-'sian' cross and many other crosses that burdens uni students when they are studying economics)was thought to have observed that it is better to be vaguely right than precisely wrong. Investors would do well to keep this in mind when reading reports by analysts and valuers. Their neat Excel spread sheets make it appear that valuing a Reit is a perfect science. In reality however it is far more art than science , so it is good news for those who don't really like to pour over theory books and academic doctrines.
So let's just touch on some of the "sciences" of valuating a Reit.

1)Discounted Cash Flow(DCF) analysis assumes a certain rate of growth in cash flows over a certain period. This is then discounted back to their present value (PV) at an appropriate interest rate that reflects the weighted average cost of capital (WACC) of the Reit. What the heck is WACC? is basically finding the cost of equity, using CAPM (Capital Asset Pricing Model) and the interested rate charged for loans, when weight it accordingly to the amount of percentage in each form of capital. Sounds confusing? Ya, but it's not important, cause this WACC is usually given.

2)Book Value method attributes a certain discount or premium to a Reit's book value (book value or revised net asset value is the latest valuation of all the properties owned by the Reit minus its liabilities)

3)Cap rate or yield, the third way to value a Reit, which is the annual net property income (NPI) is capitalised at a certain yield thought to be appropriate for the Reit.

While all the above methods are intellectually correct, they are not of much use to an investor if the fundamentals behind such assumptions are not clearly understood. Hence i believe it is far more important to understand the factors that drive up value of a Reit rather then obsessing about precise values churned out by financial models.
The long term value of a Reit is driven by the following fundamental factors:
+Potential for capital value growth
+Sustainability and growth of rental income from the properties
+Capital structure of the Reit and the calibre of its managers.

So these three pluses are the "arts" that derives value of a Reit. So let's delve into each of these factors in detail

Capital Value Growth (CVG)
Let's say you bought some units in Capita-Mall Trust and are wondering whether the asset values will keep appreciating (going up in value) the way they have mostly done since the Reit was listed in 2002. If the Reit's assets appreciate in value, that would increase CMT's book value and thus its unit price. The question then becomes what is it that would make CMT's portfolio of suburban malls (Think of IMM, the upcoming new Jurong East mall etc) worth more in the next 10 years?

There are several factors that need to be in place for the malls to appreciate in value. A Key factor is whether the trend of suburban shopping will continue since this is what has driven strong demand from retailers for mall space. It was the high occupancies and rentals at suburban malls that drove up capital values in the past decade. Is it likely that this trend would diminish in the years ahead? No one can tell with 100% certainty, if they can , they are playing God =], so a reasonable investor would then need to make intelligent guesses and form his or her own opinion. On the supply side, the investor would need to form a view on the potential for new supply and the government policy regarding releasing land for malls in the suburbs. This question can be then answered with a good degree of conviction if the reasonable investor does his homework,like studying the potential land marked for commercial development in the suburbs and history and pattern of commerical land released in the past. Were there cases of over-supply in the suburbs in the past? If so, what led to it? Was the catchment area (the area and population from which a facility or region attracts visitors or customers) not large enough? Can this happen in the future?

Another factor is replacement cost, can a new mall be built in the future at a cheaper rate? Unlike the high-tech industry where new technology has historically led to lower costs for components and gadgets, real estate on the other hand is a fairly staid (fixed, settled, or permanent) industry where construction costs usually trend upwards, driven by the increasing cost of labour and materials. So the cost element is unlikely to lead to big surprises in the future. This is not an exhaustive list and there might be several other factors depending on the specific Reit. However, the general principle is the same. Understand the factors that lead to capital appreciation and you will gain good insights into the valuation of a Reit.
It also makes sense for an investor to keep tabs on transacted values of properties not only in Singapore buy globally at different stages of the economic cycle. When comparing valuations keep in mind that the specific nature of the transaction-whether a competitive bid or a forced sale, etc will have a major impact on the transacted values.

Rental Income

Many investors own property for its ability to generate steady income whatever the economic cycle. The ability of the property to attract tenants is directly linked to its valuation.

The capitalisation rate is the annual net operating income divided by the capital cost. The cap rate denotes the income-generating ability of the property. It depends on the follow a) the risk-free rate which, for Singapore, is the 10-year SGD bond; b) the risk premium investors assign to real estate, which is heavily influenced by macro conditions and the prevailing market sentiment; and c) the income growth that investors hope to achieve through real estate.

The capitalisation rate is therefore (a+b)-c. The trouble with this formula, as you might have already guessed, is that both risk premium for real estate and income growth potential are highly subjective and can change by the day.

In the early 1980s, when the US was suffering from high inflation, the capitalisation rate was 8-8.5% , it was even lower than the 10-year US government bond rate at that time which was 10-12% as investors anticipated strong capital gains due to continued inflation.

In contrast, the capitalisation rates in 2009 had moved up to about 10% even in a sub-1% interest rate environment reflecting the high risk premium that investors were placing on real estate. This illustrates the highly cyclical nature of the capitalisation rate (cap).

The average cap rate in the US historically has been hovering around 7.0-7.5% and the average spread over the 10-year bond has been around yield over the past decade has been about 3% and the cap rates have been in the 5-6% range.

These benchmarks are important to keep in mind. If your are buying a high quality asset at cap rates of 5-6% it is a fair bet that you are not paying too much. What if you are buying at a 3% yield? In this case, you are banking on income growth which is much riskier.

Calculating cap rates using next year's NPI only works if the rentals are sustainable, so the reasonable investor needs to understand the factors that drive the sustainability of rentals. This assessment requires a good sense of supply and demand for the type of property that a Reit owns as well as an understanding of global benchmarks and trends in the particular sector.

For example: Office rentals of around $6 per sq foot per mth in 2009 made Singapore the 24th most expensive office location globally, while Hongkong was the most expensive according to Colliers second half 2009 survey. Given that Singapore is a major Asian financial centre, this certainly made the city very competitive and one could have made reasonable assumption that office rentals at $6 is not sustainable (if not close to bottoming out), which is one of the main reasons why i bought CapitaCommerical Trust at $0.72 and made loads thereafter.

In the case of retail Reits, occupancy costs (rental costs divided by sales turnover) are also a good indicator of sustainability. A good level is around 12-15%, and the lower the better.

Similarly in the hotel sector, Singapore's current deluxe hotel rates of US$150-US$170 a night compare well with those in the global cities and a healthy increase from current levels look to be quite sustainable. One mistake investors should avoid is to blindly extrapolate current rentals into the future. For example, rentals for Orchard Road malls peaked in 1990 at $60 psf pm. 20 years later, despite strong GDP growth, rentals today are around the $30-$35 psf level!

The main reasons for this were the emergence of suburban malls and slow growth in tourist spending. This underscores my point: Focus on the fundamentals and trends and not on predicting precis numbers.

Lastly Reit Capital Structure and management

Asset values and rental growth can be quantified and directly impact a Reit's valuation. However that does not mean one should ignore qualitative factors just because they cannot be put in a financial model.

Kepp in mind that a Reit is not jut a collection of physical assets but is operated by managers. It is precisely the ability of management to add value to the assets that makes the Reit model attractive.

I give you three most important qualitative factors out of the many i have discovered in valuing a Reit:

1) Leverage and interest coverage: One should tread carefully if a Reit has low interest coverage as it can easily run into trouble if rentals drop (etc Fraser Commercial Trust). A reasonable investor should be convinced that rents are sustainable before committing to such a Reit.

2) Ability to raise financing: Reits that can raise financing from a variety of sources deserve a premium, as you can sleep peacefully knowing that banks and the big boys (investors with large pockets, or funds) believe in the Reit.

3)Management calibre: If the management is able to consistently increase values through asset enhancement, prudently acquire assets and consistently deliver growth in distribution per unit with out taking undue risks, then it also deserves a premium.

Don't buy a Reit which has already priced in acquisition driven growth. This is one of the most frequent cases of disappointment as growth through acquisitions is the most risky route and only works during depressed times. A particularly risky time for acquisitions is the current period where interest rates are abnormally low. This tempts many Reit managers to borrow cheaply to acquire. However, the "yeild accretion" in such cases comes from the low interest rates rather than attractively priced assets. As sucj, the accretion will likely disappear with the next refinancing.

To conclude, there is no single formula or model where you can plug in all the variables and get a precise valuation. One needs to understand a variety of factors to get a sense of a Reit's valuation. And that is not all, given now that you have read this article and perhaps many other more in the future, with this knowledge... the question becomes , what are you going to do with it? Take action and start investing in Reits!

Ever wonder where to get the ENTIRE LIST of internship offered in Singapore?‏

2011-02-01T19:00:00.002+08:00

Apologises that i have not been coming up with useful information, very caught up with my upcoming two books (must support me arh ;]) and school work. However, what i can do now, if ever there were uni students reading from my blog is provide a list of internships for you guys to SPAM! Yeah. As such..

Here are a list of companies obtained from local institutions that offer internships for 2011 , some companies are government linked and only accept Singaporean Interns.
3M Asia Pacific Pte Ltd
3M Singapore Pte Ltd (Woodlands)
A&F Concepts Pte Ltd
ABB Industry Pte Ltd (Ayer Rajah)
ABB Industry Pte Ltd (Interviewing)
ADC Technologies International Pte Ltd
ADD-PLUS Electronic Pte Ltd
AFT Atlas Fahrzeugtechnik GmbH -Germany (Overseas Attachment
AGIS Pte Ltd
AGS Consult
AIMS IO Company
AKL Technology Engineering & Services
AREVA T&D Pte Ltd
ASKnLearn.com Pte Ltd
ATS Automation Asia Pte Ltd (Formerly AnA Mechatronics)
Accenture Pte Ltd
Activate Interactive Pte Ltd
Addest Technovation Pte Ltd
Adhesives Research Pte Ltd
Advance Tech Precision Pte Ltd
Advanced Electroacoustics PteLtd
Advanced Material EngineeringPte Ltd
Advanced Materials Technologies Pte Ltd
Advanced Micro Devices (Singapore) Pte Ltd
Advanced Power Pty. Ltd. (Overseas IA)
Advanced RFIC (S) Pte Ltd
Adzaan Vibro-Acoustics
Aeromobiles Pte Ltd
Aetos Security Management PteLtd
Agilent Technologies Singapore Sales Pte Ltd
Air Logistics Department, RSAF (Bukit Gombak)
Air System Technology (S) PteLtd
Allied Technologies Ltd
Ameron (Pte) Ltd
Apic Systems Pte Ltd
Apogee Test Pte Ltd
Applera Holding B. V., Singapore Operations (Intv)
Asia Pacific Breweries (S) Pte Ltd
AsiaPac Distribution Pte Ltd
Asis Technologies Pte Ltd
Astute Pte Ltd
Attogenix Biosystems Pte Ltd
Autodesk Asia Pte Ltd
Avago Technologies Manufacturing (Singapore) Pte Ltd
Avi-Tech Electronics (S) Pte Ltd
Avnet Asia Pte Ltd
Aztech Systems Ltd
BAX Global Pte Ltd
BBR Construction Systems Pte Ltd
BIZIT Technologies Pte Ltd
BP Singapore Pte Limited
Baxter Healthcare SA, Singapore Branch
Beca Carter Hollings & Ferner(SEA) Pte Ltd
Becton Dickinson Critical Care Systems Pte Ltd
Becton Dickinson Medical (S) Pte Ltd
Belmacs Pte Ltd
Benchmark Electronics Pte Ltd
Bertda Services (SEA) Pte Ltd
Bioprocessing Technology Institute
Biosensors Interventional Technologies Pte Ltd
Black & Veatch (SEA) Pte Ltd
Blue Orange Pte Ltd
Bonnet Neve S.A. (Overseas IA)
Bossard Pte Ltd
Brady Corporation Asia Pte Ltd
British American Tobacco (S) Pte Ltd (Senoko Loop)
C & C Technologies (Asia Pacific) Pte Ltd
CNA Group Ltd
CPG Consultants Pte Ltd
CPG Corporation Pte Ltd
CPG Facilities Management PteLtd
CPG Laboratories Pte Ltd
CS Lucas Associates Pte Ltd
CSC Holdings Limited
Cadence Design Systems (S) Pte Ltd
Calistra Research Labs Pte Ltd
Cannon Far East Pte Ltd (Former C.F.E. Solutions)
Cannon Far East Pte Ltd (Overseas Attachment)
Canon Singapore Pte Ltd
Celestica Electronics (S) PteLtd (Formerly Omni Elect)
Centre for Research on Embedded Systems and Technology
Centre for Strategic InfocommTechnologies
Century Technology Pte Ltd
Changi International Airport Services Pte Ltd
Chartered Semiconductor Manufacturing Ltd (W`Land)
Chass Computer Consultants Pte Ltd
Chemetall Asia Pte Ltd
Chevalier Singapore Holdings Pte Ltd
Chevron International Pte Ltd (formerly Caltex Int`l)
Citibank N.A. (Centennial Tower)
City University of Hong Kong (Exchange Programme)
Cityneon Exhibition Services Pte Ltd
Civil Aviation Authority of Singapore
Coherent Technology Pte Ltd
Combustor Airmotive ServicesPte Ltd
Commercial Industrial Supplies & Services Pte Ltd
CommonTown Pte Ltd
Cookson Semiconductor Packaging Materials
Cooper Cameron (S`pore) Pte Ltd
Creative Technology Ltd (Int`l Business Park)
Credit Suisse (Raffles Link)
Cyberace Technologies Pte Ltd
Cycle & Carriage Industries Pte Limited
Cytech Technology Pte Ltd
DHI Water & Environment (S) Pte Ltd
DHL Express(Singapore) Pte Ltd (Tai Seng Drive)
DNA Communications Pte Ltd
DNR Process Solutions Pte Ltd
DPC Consulting Engineers
DSO National Laboratories
Dai-Dan Co., Ltd
Daikin Airconditioning (S) Pte Ltd
DaimlerChrysler South East Asia Pte Ltd (Temasek Avenue)
Dairen Components & EquipmentPte Ltd
Data Storage Institute
Datacraft (Singapore) Pte Ltd
Defence Science & Technology Agency (Interviewing)
Delphi Automotive Systems Singapore Pte Ltd
Det Norske Veritas Pte Ltd
Diethelm Keller Aviation Pte Ltd
DigiSAFE Pte Ltd
Digital Applied Research and Technology Pte Ltd
Dredging International Asia Pacific Pte Ltd
Dresdner Bank AG, Singapore Branch
Dynacast (Singapore) Pte Ltd (Second Chin Bee Rd)
ECAS-EJ Consultants Pte Ltd
ELV Products Marketing Pte Ltd
EM Services Pte Ltd
EPE Packaging Pte Ltd
EQS Asia Pte Ltd
ETS (S) Pte Ltd
Eagle Services Asia Pte Ltd
Electroglas Pte Ltd
Emerson Process Management Asia Pacific Pte Ltd
Encentuate Pte Ltd
Engineering Design Partnership
Engineers 9000 Pte Ltd
EnviPure Pte Ltd (formerly P&G Engineering)
Escatec Engineering Pte Ltd
Essilor Asia Pacific Pte Ltd
Eutech Instruments Pte Ltd
Ever Technologies Pte Ltd
Excel Marco Industrial Systems Pte Ltd
Exploit Technologies Pte Ltd
ExxonMobil Asia Pacific Pte Ltd
EyePower Games Pte Ltd.
Ezypay Pte Ltd
F&N Coca-Cola (Singapore) PteLtd
FELS Cranes Pte Ltd
FMC Technologies Singapore Pte Ltd (Formerly FMC SEA)
FME Onyx Pte Ltd
Fast Flow Siphonic Pte Ltd
Ford Japan Limited
FreeSystems Pte Ltd
Frontken (Singapore) Pte Ltd
Fuel Accessory Service Technologies Pte Ltd
Fugro Singapore Pte Ltd
Fujicon Engineering Pte Ltd
G S Engineering Pte Ltd
GE Aviation Service OperationPte Ltd
GE Keppel Energy Services PteLtd (Former Watt & Akkermans)
GES Singapore Pte Ltd
GIP - China
GIP - France
GIP - US
Gemplus Technologies Asia PteLtd
Genesis Networks Pte Ltd
Genome Institute of Singapore
Gericke Pte Ltd
Gims & Associates
GlaxoSmithKline
Global Network Unlimited Pte Ltd
Goodrich Aerostructures Service Ctr - Asia Pte. Ltd.
Greatearth Construction Pte Ltd
Green Dot Internet Services Pte Ltd
Grenzone Pte Ltd
Gunungbayan Pratamacoal
Guthrie Engineering (S) Pte Ltd
HAVI Global Solutions (formerly Perseco Asia Pacific (S))
HSL Constructor Pte Ltd
Hamilton Sundstrand Pacific Aerospace Pte Ltd
Hart Engineering Pte Ltd
Hauppauge Digital Asia Pte Ltd
Health Sciences Authority
Hewlett Packard Singapore (Pte) Ltd (Alexandra Road)
Hirata FA Engineering (S) PteLtd
Hitachi Cable Asia Pacific Pte Ltd
Hitachi Global Storage Technologies (S) Pte Ltd
Hitachi Plant Technologies, Ltd (formerly Hitachi Engrg & Co
Hitachi Semiconductor Singapore Pte Ltd
Hoestar Inspection International Pte Ltd
Honeywell (S) Pte Ltd (formerly Johnson Matthey)
Honeywell (Singapore) Pte Ltd(Formerly AlliedSignal S`pore)
Honeywell (Singapore) Pte Ltd
Honeywell Pte Ltd
Housing & Development Board
Hydrochem (S) Pte Ltd
Hypertronics Pte Ltd
IAT-Asia Pte Ltd
IBM Singapore Pte Ltd
IDLink Systems Pte Ltd
II-VI Singapore Pte Ltd
ISEP (S) Pte Ltd
Illation Pte Ltd
InFocus Systems Asia Pte Ltd
Infineon Technologies Asia Pacific Pte Ltd
Infowave Pte Ltd
Inovasia Design Centre, AmtekEngineering Ltd
Insiro Pte Ltd
Institute Of Microelectronics
Institute for Infocomm Research (Heng Mui Keng)
Institute of Bioengineering an d Nanotechnology
Institute of Chemical and Engineering Sciences Ltd
Institute of High PerformanceComputing
Institute of Materials Research & Engineering
Integral Systems Pte Ltd
Intelligent Power Systems Ltd
International Engine Component Overhaul Pte Ltd
International Semiconductor Products Pte Ltd
Intricon Pte Ltd (Formerly RTI Tech)
Invensys Software Systems (S)Pte Ltd
J. Roger Preston (S) Pte Ltd
JPMorgan Chase Bank
JVC Asia Pte Ltd
Japan AE Power Systems Asia Pte Ltd
Jardine OneSolution (2001) Pte Ltd
Johnson Controls (S) Pte Ltd
Jurong Engineering Ltd
Jurong Hi-Tech
Jurong Shipyard Pte Ltd
Justlogin Pte Ltd
K K Women`s and Children`s Hospital
K.Y. Sub Assembly EngineeringPte Ltd
KC Network Pte Ltd
Kaba Security Pte Ltd
Kato Spring (S) Pte Ltd
Kellogg Brown & Root Asia Pacific Pte Ltd
Kenwood Electronics Technologies (S) Pte Ltd
Keppel FELS Limited
Keppel Land International Ltd
Keppel Offshore & Marine
Keppel Seghers Engineering Singapore Pte Ltd
Keppel Shipyard Limited
Kester Components Pte Ltd (formerly Litton Components)
Kim Ann Engineering Pte Ltd
Kinetics Process Systems Pte Ltd
Kiso-Jiban Consultants Co Ltd
Kulicke & Soffa Pte Ltd
LGA International Pte Ltd
LINAIR TECHNOLOGIES LTD
LSW Consulting Engineers
Land Transport Authority (Hampshire Road)
Learning Edvantage Pte Ltd
Lee Yew Leong And Associates
Leica Instruments (Singapore)Pte Ltd (Interviewing)
Leica Instruments (Singapore)Pte Ltd
Lim Kim Cheong Consultants
Logistics Construction Pte Ltd
Low Keng Huat (S) Ltd
MCI-Draka Cable Co., Ltd
MEMS Solutions Pte Ltd
MFS Technology (S) Pte Ltd (formerly M-Flex S`pore)
MMI Systems Pte Ltd
Makino Asia Pte Ltd
Manulife (Singapore) Pte Ltd (formerly John Hancock Life)
Maritime and Port Authority of Singapore (Alexandra Rd)
Maunsell Consultants (S) Pte Ltd
Maxtor International Sarl - Singapore Branch
MediaCorp Pte Ltd
MediaOne Pte Ltd
Meiki Plastic Industries Co Pte Ltd
Meinhardt (Singapore) Pte Ltd
Meinhardt Infrastructure Pte Ltd
Merck Sharp & Dohme (Singapore) Ltd
Merrill Lynch (Singapore) PteLtd
Merrill Lynch International Bank Ltd
Messier Services Asia Pte Ltd
Metro (Pte) Ltd
Mettler-Toledo (S) Pte Ltd
Micron Semiconductor Asia PteLtd
Ministry of Home Affairs
Ministry of Manpower - Occupational Safety & Health Div.
Miyoshi Precision Limited
MobileOne Ltd (International Bus. Pk)
Molex Singapore Pte Ltd
Morgan Stanley Dean Witter Asia (Singapore) Ltd
Motorola Electronics Pte Ltd (12 Ang Mo Kio)
Mott Macdonald Singapore Pte Ltd
Mplified Pte Ltd
Multimedia Engineering Pte Ltd
NLOne Pte Ltd
NOK Asia Company Pte Ltd
Nam Lee Pressed Metal Industries Ltd
NanoScience Innovation Pte Ltd
National Cancer Centre
National Environment Agency (Tuas Incineration Plant)
National Heart Centre
National Taiwan University- Taiwan (Exchange Programme)
Naval Logistics Department
Netsoft Business Systems PteLtd
Neuis Pte Ltd
NexWave Solutions Pte Ltd
Ngee Cheong Contractors Pte Ltd
Nokia Pte Ltd
OGI Pte Ltd
Oki Techno Centre (Singapore)Pte Ltd
Olympus Technologies Singapore Pte Ltd
Omron Electronics Pte Ltd
Onn Wah Precision EngineeringPte Ltd
Oracle Corporation (Singapore) Pte Ltd
Oracle Corporation Singapore Pte Ltd (Overseas IA)
Oversea-Chinese Banking Corporation Ltd (Chulia St)
PCA Technology Ltd
PCI Limited
PSB Corporation Pte Ltd (Science Pk Drive)
PaC Components Pte Ltd
Pacific Centennial Group
Panasonic Electronic Devices Singapore Pte Ltd
Panasonic Refrigeration Devices Singapore Pte Ltd
Panasonic Semiconductor Asia Pte Ltd
Panasonic Singapore Laboratories Pte Ltd (Non-interviewing)
Panasonic Singapore Laboratories Pte Ltd
Penta-Ocean Construction Co Ltd
Pepperl + Fuchs (Manufacturing) Pte Ltd
PerkinElmer Optoelectronics (Formerly EG&G Heimann)
Philips Electronics S`pore Pte Ltd (PCE, BCT Mainstream TV)
Philips Electronics SingaporePte Ltd (BCT Audio Systems)
Philips Electronics SingaporePte Ltd (Consumer Electronics)
Philips Electronics SingaporePte Ltd (DAP Factory)
Philips Electronics SingaporePte Ltd (Enabling Technologies
Philips Electronics SingaporePte Ltd (RCS)
Philips Electronics SingaporePte Ltd (RF Solutions) (Former
Piasim Corporation Pte Ltd
Pinoly Pte Ltd
PolyOne Singapore Pte Ltd (formerly Compounding Tech)
Pratt & Whitney Canada (SEA) Pte Ltd
Pratt & Whitney Services Pte Ltd
Precicon D&C Pte Ltd (formerly Precicon Automation)
PricewaterhouseCoopers
Pro-pack Materials Pte Ltd
Public Utilities Board
Purechem Onyx Pte Ltd
Qioptiq Singapore Pte Ltd (formerly Thales Electro-Optics Pt
Quantum Automation Pte Ltd
R.J. Crocker Consultants Pte
RFNET Technologies Pte Ltd
ROOTS Communications Pte Ltd
RSP Architects Planners & Engineers (Pte) Ltd
Renesas System Solutions AsiaPte Ltd
Research Biolabs Pte Ltd
Ritronics Components (S) Pte Ltd
Rofin-Baasel Singapore Pte Ltd
Rohde & Schwarz Systems & Communications Asia Pte Ltd
Rohm and Haas Singapore (Pte)Lt d
Romer Labs Singapore Pte Ltd
Rotary Electrical Company PteLtd
SAP Asia Pte Ltd (Scotts Road)
SBS Transit Ltd
SDV Logistics (Singapore) PteLtd
SGS Testing & Control Services Singapore Pte Ltd
SIA Engineering Company
SMT International Pte Ltd
SPRING Singapore
ST Aerospace Engines Pte Ltd
ST Aerospace Systems Pte Ltd
ST Circuit Design & Contract Pte Ltd
ST Electronics (Info-Comm Systems) Pte Ltd (Formerly CET Tec
ST Electronics (Info-SoftwareSystems) Pte Ltd
ST Electronics (Satcom & Sensor Systems) Pte Ltd (Interviewi
ST Electronics (Satcom & Sensor Systems) Pte Ltd
ST Electronics (Training & Simulation Systems) Pte Ltd
STATS ChipPAC Ltd (Yishun St.23)
STMicroelectronics Asia Pacific Pte Ltd
STMicroelectronics Pte Ltd (Ang Mo Kio)
SWTS Pte Ltd (formerly Siemens Westinghouse)
Sanyo Singapore Pte Ltd
Sauter Singapore Pte Ltd
Scandent Group Pte Ltd
Schlumberger, Reda ProductionSystems (Formerly Reda Pump)
Schneider Electric IndustrialDevt. Singapore Pte Ltd
Schneider Electric Singapore Pte Ltd (Ang Mo Kio)
Schott Electronic Packaging Asia Pte Ltd
Sea Consortium Pte Ltd
Seagate Technology International (Woodlands)
SembCorp Environmental Management Pte Ltd
SembCorp Utilities Pte Ltd (SUT)
Sembawang Shipyard Pte Ltd
Senoko Power Limited
SensFab Pte Ltd
Setsco Services Pte Ltd
Shinryo Corporation
Siemens Building TechnologiesPte Ltd (Former Landis & GYR)
Siemens Medical Instruments Pte Ltd
Siemens Pte Ltd (A&D EA SCA)
Siemens Pte Ltd (Interviewing)
Siemens Pte Ltd
Siemens VDO Automotive Pte Ltd (formerly VDO Singapore)
Silicomp Asia Pte Ltd
Siltronic Singapore Pte Ltd (Tampines)
Singapore Aerospace Manufacturing Pte Ltd
Singapore Airlines Ltd (Flight Operations Divisional Service
Singapore Cables Manufacturers Pte Ltd
Singapore Computer Systems Limited
Singapore Eye Research Institute
Singapore Institute of Manufacturing Technology (IA)
Singapore Oxygen Air Liquide Pte Ltd
Singapore Petroleum Company Limited
Singapore Press Holdings Limited (Jurong Port Rd)
Singapore Refining Co Pte Ltd
Singapore Sports Council
Singapore Technologies Aerospace Ltd
Singapore Technologies Dynamics Pte Ltd
Singapore Technologies Electronics Ltd
Singapore Technologies Kinetics Ltd
Singapore Telecom Mobile Network
Singapore Telecommunications Ltd (Exeter Road)
Singapore Telecommunications Ltd (Hillcrest Rd)
Singapore Telecommunications Ltd (Lentor Avenue)
Skymech Automation & Engineering Pte Ltd
Somehsa Marine Geosciences Pte Ltd
Sonopress Singapore Pte Ltd
Sony Electronics (S) Pte Ltd,Sony Precision Engrg Ctr Spore
Sourcegate Technologies Pte Ltd
Speedy-Tech Electronics Ltd
Squire Mech Pte Ltd
StarHub Ltd (3 Tai Seng Drive)
Sulzer Chemtech Pte Ltd
Sumitomo Bakelite Singapore Pte Ltd
Sun Microsystems Pte Ltd (Central Mall) - IA/3.4.2
Sun Microsystems Pte Ltd (Education Line of Business)
SunMicro FA Pte Ltd
Supersolutions Pte Ltd
SurgiLance Pte Ltd
Syngenta APAC Pte Ltd
SysEng (S) Pte Ltd
Sysma Construction Pte Ltd
Systems on Silicon Manufacturing Co Pte Ltd
T H Chuah & Partners
T.Y. Lin International Pte Ltd
TEG Engineering Consultants
TEP Consultants Pte Ltd
TNS Asia Pacific Pte Ltd
TRICUMED GmbH (Overseas IA)
Tay Keng Yeow & Associates
Team Consultants (S) Pte Ltd
Teambuild Construction Pte Ltd
Technic Asia-Pacific Pte Ltd
Technische Universitat Munchen (TUM)
Teian Consulting International Pte Ltd
TeleScience Singapore Pte Ltd
Temasek Laboratories at NTU
Teradyne Singapore Ltd
Teraoka Weigh-System Pte Ltd
Testech Electronics Pte Ltd
Tetra Pak Asia Pte Ltd
Tetra Pak Jurong Pte Ltd
Texas Instruments Singapore (Pte) Ltd (Clemenceau Ave)
Thales Technology Centre Singapore
Thatz International Pte Ltd
The Laryngeal Mask Company (Singapore) Pte Ltd
The Shell Group, Singapore (Clemenceau Ave)
The Walt Disney Company (Southeast Asia) Pte Ltd
Topcom Messaging Pte Ltd
Toshiba Electronics Asia (Singapore) Pte Ltd
Transmarco Data Systems (S) Pte Ltd
Trio-Tech International Pte Lt d
Tritech Engineering & Testing(Singapore) Pte Ltd
Turbine Overhaul Services PteLtd
Tyco International Asia Inc
UFE Pte Ltd
UL International Services Ltd
Ultra Industrial Automation Pte Ltd
Uniseal Waterproofing Pte Ltd
United BMEC Pte Ltd
United Engineers (S) Pte Ltd
United Test and Assembly Center Ltd
University of Technology Esslingen (Exchange Programme)
Uniwes Engineering (S) Pte Ltd
Utraco Structural Systems Pte Ltd
VSL Singapore Pte Ltd
Vanco (Asia Pacific) Pte Ltd
Venture Corporation Limited (formerly Venture Mffg)
Veolia Water Systems (SEA) Pte Ltd
Vetco Gray Pte Ltd (formerly ABB Vetco Gray)
Vinical Electrical Pte Ltd
Visa International (SingPost)
Wavelength Technology Singapore Pte. Ltd.
Web Professional House Pte Ltd
WelchAllyn International Ventures Inc.
Wenade Technology Pte Ltd
Wincor Nixdorf Pte Ltd (Former Siemens Nixdorf)
Windsor Airmotive Asia Pte Ltd
Winsys Technology Pte Ltd
Winux Interfacing Technology
Wong Fong Engineering Works (1988) Pte Ltd
WooWorld Pte Ltd
Worley Pte Limited
Wyeth Nutritionals Singapore Pte Ltd
Yamatake Controls Singapore Pte Ltd
Yokogawa Engineering Asia PteLtd
York Transport Equipment (Asia) Pte Ltd
ZionTECH Pte Ltd
iWOW Communications Pte Ltd

Study weighs words of lying CEOs

2010-12-27T20:37:00.002+08:00

This is an interesting news i stumbled upon. It talks about how to detect CEOs or boardmembers who are lying. Fits right into value investing under management studies. ENjoy .. =]

Study weighs words of lying CEOs
Posted: 20 October 2010 1207 hrs

WASHINGTON: As corporate financial statements are often opaque, and sometimes deceptive, two Stanford University professors have analysed oral presentations by thousands of US company chiefs and believe they know when they are lying.

"It's hard to know whether there's been accounting manipulation or not, just looking at the books," said David Larcker, a professor at Stanford Graduate Business School and a co-author of the study.

"There are certain models that people use but they don't work that well," he told AFP.

So Larcker and Anastasia Zakolyukina developed models for predicting deception in quarterly financial statements that draw on linguistics. They describe their findings in an unpublished paper entitled "Detecting Deceptive Discussions in Conference Calls."

Examining more than 29,600 transcripts of conference calls between 2003 and 2007 in which corporate leaders presented their quarterly results, the authors found that certain word choices and the way phrases are formulated can reveal deception.

Rather than use precise language in their talks, CEOs and financial directors with something to hide tended to opt instead for generalities.

They used more words that conveyed extremely positive emotions, and made fewer references to value being created for shareholders.

The personal pronoun "I" was replaced by the first person plural "we" in talks that later were found to be deceptive.

"The use of first person singular pronouns implies an individual's ownership of a statement, whereas liars try to dissociate themselves from their words due to the lack of personal experience," the study said.

Boasting is a common sign of duplicity. The use of "extreme positive emotions words significantly associated with deception," said Larcker, who advises scepticism when expressions like "things are fabulous" are thrown about.

To validate their theory, the researchers compared the CEO's presentations against restatements of financial results by their companies over the course of the following years through 2009.

Larcker said about 10 per cent of CEOs presented overly optimistic results that later had to be corrected.

Where there has been a large accounting restatement, he said, "the assumption that we are making is that these guys probably knew about it when they were talking about it during their conference."

He cited the case of former Lehman Brothers chief financial officer, Erin Callan. In a presentation in 2008 just months before the investment bank went under, she used the word "great" 14 times, "strong" 24 times, and "incredibly" eight times.

"By contrast, she used the word 'challenging' six times and 'tough' only once," the study noted. "This had the effect of conveying a positive tone without providing specific factual data to support her message."

There is also the case of Enron, the energy trading company that collapsed in scandal in 2001.

A short time before the company's implosion, Enron CEO Kenneth Lay was interviewed by National Public Radio.

I think our core businesses are extremely strong. We have a very strong competitive advantage," he said. - AFP/fa

Cogent Limited

2010-12-20T10:54:00.004+08:00

Understanding the Company
Have three main divisions

1) Transportation management serviceThey provide transportation services to companies such as transporting of empty containers between designated destinations such as from the port to warehouse. They transports heavy export/import goods like oil and gas equipment and oil rigs parts.
Other services include important retrieval and transportation services such as the transportation of petroleum and chemical products from Jurong Island, and freight coordination services such as documentation of trade.

2) Warehousing Management ServicesThey provide storage space for electronic components (microprocessors etc), non-perishable items and other general products.
They also are licensed by the National Environment Agency (economic moat) to store a wide variety of chemicals and hazardous materials at some of their warehouses where they manage it safely and professionally. An example, they keep the chemicals/petroleum in steel drums and store tons of these drums in their warehouse using forklifts. Some in house advantage is that they have a very large premise to store these drums and they are able to stack it such that it optimize the space used.

3) Automotive Logistics Management ServicesThis division focuses on processing, transportation and storage of cars, trucks, vans, motorbikes, assisting customers (such as individual or businesses) with port and customs clearance, vehicular transportation, warehousing and delivery.
Licensed by the Singapore Customs to store dutiable motor vehicles on multiple sites under one Licensed Warehouse license, which allow them to store vehicles at a site closest to our customers (added value).
Also involved in Export Processing Zone operations which include the de-registration process and export of second-hand motor vehicles.
Lastly involved with the Land Transport Authority in the repossession of cars which have outstanding road taxes and the impounding of cars that are modified without permission and the Singapore Police Force in removal and towing of accident vehicles.

Company in a nutshell: They provide transportation services and warehouse storage/management

What makes them tick: Container traffic in Singapore, to put it simply, the more activities there are in the trade sector in Singapore the more it benefits the company. Subjected to world recovery and prosperity, vulnerable to both local and other countries’ recessions (this other countries refer to major trading partners with Singapore).

Good Points
EM=Economic Moat
GFP= Good Future Prospects?
IA= Industry attractiveness
Cogent has more than 30 years of operating history and is one of the leading full service logistics management services providers in Singapore offering Transport management service. (EM)
One of the largest depot premises in Singapore located in a single location which can store more than 20,000 TEUs. (EM)
They have a fleet of more than 100 prime movers, trucks and Lorries and over 400 trailers, and manage and lease up to approximately 4 million square feet of warehousing space and premises as part of our warehousing and container depot management service (EM)
Joint Ventures with companies from other countries can be seen as a further growth element, the latest one is with Win Container Logistics Ltd (“JW”), a company incorporated in the British Virgin Islands, to jointly set up a new business operation and working together to offer and deliver a range of container depot services in Singapore and other regions (GFP)

Financial FiguresBalance sheet very healthy, with total cash more than both current and long term liabilities, no signs of intangible assets/goodwill making a big part of long term assets, all receivables and liabilities decline from 2009 as well.
Cogent’s current ratio is 2.2 times, price to book at 1.5 times (based on share price of 0.14)

Cash flow from operating activities remains very strong since 2008; I personal like a low capital expenditure, very low purchases of equipment and machinery as seen in the cash flow under operating activities.

Their net profit margin history in
2008: 11.64%
2009: 29% (sold assets that is why so high, a one off event)
2010: Estimated to be roughly: 12-14%

Both Freight Links and Poh Tiong Choon are competitors of Cogent and trading at 8-9x their PE.
Cogent at 0.14cents trades at less than 6x times PE, I wonder why? Some traders tell me, it’s because they are new to the market and that the export/import industry given the Singapore export data for November in 2010 was terrible biggest drop since 2002 so all logistic related stocks also drop.

What are they going to do/did with the IPO money?
According to the CEO of Cogent, he says that the Singapore Government’s initiative to establish (IA) Singapore as a global integrated logistics hub, they intend to use S$6.1 million of the IPO proceeds in expanding their container depot and warehouse capacity, as well as consolidating all of their warehouse facilities in various locations into a standalone logistics hub, they also plan to reinforce their position as a leading integrated logistics player in Singapore by using approximately S$2.0 million of the IPO proceeds for expanding their vehicle logistics operations.

Pre IPO information: The Company intends to pay dividends of at least 50% of its FY2009 profit attributable to shareholders and at least 20% of its profit for FY2010. My forecasted yield will be 8-9% for FY2009. At the listing price of $0.22, the company is listing at a historical PE of 5.27x.
Post IPO: The Company pays out its dividend quarterly for example the interim dividend of 1.39 Singapore cents per ordinary share issued 26-Mar-2010 and another 1.39cents on 11 August 2010.

Dividends matters
Now 2009 net profit was 17million, expected net profit for 2010 is 7.6million (take 3.8m half year figures times 2) = 24.6million in total. There are 319million shares (After IPO)
50% * 17million + 20%* 7.6million = roughly 10million
Given that they already paid out 1.39 in the first two quarters, therefore 8.868million (1.39cents *319million share times 2) is gone, left 1.1318million to give away. This will only yield 2.53% for the remaining quarters. Not attractive as of this writing (23rd Dec 2010), if I were to buy the share now (price as at $0.14)

Points for concernCogent has already paid out half of its promised dividends since IPO, now the question is whether they will continue to do so, in the future.

Taking into consideration that this company is very new to the market, not sure as to whether they are really a low capital expenditure company, such is the risk that they might just buy a lot of machine in the next 4 years or so in just one shot.

No track record.

What are the reasons for them to call for an IPO in 2010 and yet decide to give a chunk of it back to shareholders?

What is the future growth for the company?

One of my major concerns is the issue of using the listing as an exit strategy for major shareholders like Mr Tan Yeow Khnoon. Are there any facts to suggest that he is dumping his company stocks? On 1st Sept 2010 Mr Tan Yeow Khnoon increased his shareholding from 53.65 % to 53.74%, I’m like “Wao Lao can buy more or not, show me a clearer sign that you are confident in your company! (Undetermined)

Why does the stock market price the company from 22cents to 14 cents? Ans: Some of my trader friends also believe that the company cannot match its tremendous growth in profit in 2009 (because they sold their assets) hence the drop in price and also as mentioned just now, the terrible export November figures.

This is a company in a cyclical, highly exposed to business cycle industry.

Verdict: Buy two lots. Go check out their management.
Sell if, no confident in the management, sell if any of the major shareholders start dumping the stock. Risk that I’m taking is that I’m violating Warren Buffet’s 2nd and 3rd law in value investing (proven track record) and (understanding the industry)

Some encouragement.

2010-11-21T01:17:00.003+08:00

Hoboken, NJ (PRWEB) November 10, 2010

Warren Buffett, John Bogle, George Soros, Peter Lynch, and John Templeton--they are famous investors whose names you know. And then there are the Warren Buffetts next door, those successful investors you have never heard of. According to Forbes Editor Matt Schifrin and author of THE WARREN BUFFETTS NEXT DOOR: The World's Greatest Investors You've Never Heard Of and What You Can Learn From Them (Wiley; November 2010; $29.95; 9780-470-57378-5, Hardcover), the Internet has truly been a game-changer for individual investors. Armed with technology and tools, previously only available to professionals, amateurs are now achieving professional results without professional commissions or fancy degrees from places like Wharton or Harvard. But not only are these outstanding self-directed investors trouncing market indexes, they are also taking control of their own capital in order to repair cracked nest-eggs and improve their lot in life. They don't seek the riches of Wall Street, but rather have more modest goals - being able to afford a family vacation every year, sending their kids to a good college, and having enough income to last them through retirement.

In his book, Schifrin provides case studies of 10 regular people who can pick stocks better than the vast majority of all professional advisors and money managers employed by firms like Merrill Lynch and Fidelity. Schifrin details their personal stories, along with their investment strategies, trading philosophies, and rules for investing.

Though Mike Koza lives about 1,350 miles away from Warren Buffett's Omaha, Nebraska, headquarters, the 51-year-old-civil engineer for the Sacramento County Department of Waste Management applies many of the same Graham & Dodd value principles in selecting stocks for his personal portfolio. Since February 2001, he has been able to achieve an average annual return of 34 percent per year. An investment in Berkshire Hathaway's stock would have netted 6 percent per year over the same time period. An investment in a well-run index fund like Vanguard Total Stock Market garnered less than 2 percent average annual return.

Koza is not alone. Another Warren Buffett wannabe named Chris Rees practices concentrated deep value investing from his ocean-view home on the north coast of the Dominican Republic. He has a verifiable 10-year average annual portfolio return of 25 percent. Former truck driver Jack Weyland of Reno, Nevada, has developed an expertise in health care and biotech stocks. He has had an average annual return of 36 percent since July 2002. Neither he nor Rees ever completed college, and Weyland spent much of his time picking stocks while on the road driving a tractor-trailer.

Another Warren Buffett Next Door, Alan Hill was able to secure a golden retirement with a single smart stock pick that created a windfall allowing him to build an adobe-style dream home in Placitas, New Mexico. But that was just the beginning, since his retirement in 2005, Hill is making more money investing than he ever did during his career as an executive in educational technology.

All the people profiled in THE WARREN BUFFETTS NEXT DOOR are risk takers but they are also supersensitive to losing their own hard-earned capital so their risks are carefully calculated. They come from all walks of life, but they demonstrate that the only real prerequisite to becoming a good investor is committing the time to educate themselves. They are out to make enough money to enjoy the lifestyle of their choosing. And that's exactly what they are doing.

THE WARREN BUFFETTS NEXT DOOR offers timeless advice and inspiration for any investor hoping to profit by investing in themselves.

Taken from:
For the original version on PRWeb visit: www.prweb.com/releases/prweb2010/11/prweb4767564.htm
Wirttern by
Matthew Schifrin is Vice President and Investing Editor at Forbes Media LLC

In unit trust, do we trust?

2010-09-19T19:17:00.006+08:00

A recent, article caught my attention over the week end and i would like to share some thoughts about it. The article was writtern by one of my investment idol, which she tackled on the question on whether actively managed funds (or unit trust) that invested only in Singapore equities added any more value to investors as compared to someone who just invest in a passive index fund such as the STI ETF.
To start off, lets go to the basics. Active management (also called active investing) refers to a portfolio management strategy where the manager makes specific investments with the goal of outperforming an investment benchmark index. Investors or mutual funds that do not aspire to create a return in excess of a benchmark index will often invest in an index fund that replicates as closely as possible the investment weighting and returns of that index; this is called passive management. Active management is the opposite of passive management, because in passive management the manager does not seek to outperform the benchmark index.-Wiki

So coming back to the question as to whether an active fund beats a passive fund in terms of adding value , her findings indicates that most actively managed funds do give a higher return. 12 out of 15 unit trusts beat the passive STI ETF!

According to the chart above:
The STI ETF returned 5.26% a pear over the last five years and only two other unit trusts fared worse than it, all about 0.9% points lower.. among the top is Aberdeen's Singapore fund topped the five-year performance table with a return of 9.78% a year, which means to say if you invested $10,000 in that unit trust, it would be worth $15,945 today in that fund.

Now this findings isn't good news to the lazy value investors out there who are basically people who knows abit of value investing but no passion to be dedicate in studying the stocks individually hence they just invest their money into a passive fund index like the STI ETF. It is also not good news for me personally, as i always advise lazy value investors to just invest in a passive ETF and not waste their time trying to find a unit trust to put their money in. Why i advice thee is beacuse Warrent Buffett mentioned that if an investor has no interested, no time, no mood to do stocks pickings then just invest in an index. Could he be wrong based on this findings? As one lazy value investor gleefully pointed out this saying that he can just anyhow pick one actively managed singapore equity unit trust fund and still beat the market and thus wanted me to question this stand and justify it.

Well my stand is still the same as WB, is that for lazy investors just invest in a passive ETF. The justifcations are these

1)Active fund managers may make bad investment choices or follow an unsound theories in managing the portfolio, this leads to extra risks like following the herd during times euphoria or captipulation.

2)The fees associated with active management are also higher than those associated with passive management, even if frequent trading is not present. Notice, the two words "higher fees", so let me bring your attention to the chart above (click on the picture if you can't see it) , if you see the top active fund Aberdeen SP Singapore Eq which gave a 9.78% return in the average of 5 years less off the management fees paid (say about 2-3%) this reduces its real returns to investors to about 6plus%. If this holds true, then we say the difference between the passive ETF which is 5.78% and the top unit trust returns are only marginal (1-2% different)!

3) The standard advice is that if you want to invest in an active fund, you should evaluate and analyze the fund's prospectus carefully , looking at it's track record, it's purpose, functions, limitations, rights to do certain things and future plans. Likewise, the time spent researching and findings a good active fund is like doing your own research on your own stocks! Why not just use the time and create your own portfolio of value stocks which you have more control over?

4) Lastly, when WB advices lazy value investors to invest in a passive ETF, he probably also meant it for them to follow another advice which is to invest in times of great fear. If we include this assumption, that lazy value investors, invest in ETFs only during down times and dollar cost average downwards, the returns as compared to the overall average active managed unit trust should be much more in terms of real returns to investors.

Once again, i have no trust in unit trusts, unless i can find a value investing kind of a unit trust that invest in Singapore then maybe can consider putting money in it.. how about you? =)

Discount rate is about 7.53% minmum?!

2010-09-08T01:50:00.001+08:00

Hi y'all, just want to share something interesting (in my opinon)

Say inflation in Singapore is still 3.1%, 10 year government bond is still 4.3%

So what is the return that investors are concern about?
The answer is using fisher's formula 1+R= (1+r) x (1xh)
h=inflation
r=real rate which is stated by bank or government or anaylst
R= nominal rate, which is the rate we want to find, particular for investors
so R= 1-(1+0.043)x(1+0.031)=7.53%
Because investors are particularly concern about what they can buy with their money, they have to be compensated for inflation.
What this means is, your valuation ,under the discount rate, shouldnt be 4.3% but rather that or 7.53% which includes the damaging effects of inflation.
What say you?

Back to school

2010-08-12T12:06:00.002+08:00

"The best investment starts with investing in the asset that is between your left & amp; right ear..your brain"

Knowing simple accounting can help you determine a good job!

2010-07-01T12:05:00.004+08:00

Many student graduates are probably feeling uncertain about the future, given what is happening now, where the world struggles to deal with major problems like the debt crisis in Europe, low economic growth in the US and how it might affect jobs in Singapore. The economic situation could be possibly better off as to compare with two years ago, however similar doubts among graduates would still linger: "Is this job stable?", "Can this job pay well?", "Is this a good job for me?"

So let’s understand the definition of a good job. In a general sense, a good job is one that offers high deserving salaries, excellent growth, big opportunities and high job securities to the employees. One can argue that a good job might also include the relationship we are able to maintain with our colleagues, the company’s culture and the level of respect we gain in the office. However as we are using financial ratios to better determine a “good” job, no amount of calculation or numbers can determine these qualitative factors. This article therefore attempts to use three simple accounting tests to determine the quantitative factors of a company. The focus is also on how these tests could possibly increase the chances of you securing a successful and rewarding career. Excited? You bet! Here it goes ..=)

The Earning per share test (EPS)
To keep things simple, the Earnings per share’s formula is calculated by taking the net profit of the company and dividing it over the average total number of outstanding shares the company has. Usually, these figures will be calculated for you, which can be simply located under the company’s website information on “financial results” or even the annual reports under “financial overview or financial ratios”. The important thing to note is to look out for a list historical EPS of the company over the last 10 years. The consistency and trend would determine whether or not the company has a long term competitive advantage.

An example: A company with consistent EPS riding on an uptrend will simply look like this
EPS
2001: 0.154
2002: 0.171
2003: 0.170
2004: 0.192
2005: 0.211
2006: 0.230
2007: 0.233
2008: 0.200
2009: 0.245
2010: 0.256 (PASS)

Another example: A company with inconsistent EPS
EPS
2001: 0.314
2002: 0.100
2003: (0.20) loss
2004: 0.120
2005: (0.11) loss
2006: 0.130
2007: 0.100
2008: 0.020
2009: (0.223) loss
2010: 0.130 (FAIL)

Reason:
Having a consistent upward trend EPS for the last 10 years is a very clear sign that the company has a sustainable competitive advantage over other competitors, meaning to say that the company is a powerful one, that is able to sell a product or service that do not need to go through the expensive process of change. The chances of the company making strategic expenditures to increase market share value through advertisement or expansion of its operations are high. This also means that employees under such companies have a higher chance in getting overseas promotions as the company expands its operations around the world to maintain or increase its future EPS. In other words, more job growth is attainable.

Likewise, a company that has a downward inconsistent EPS figures will likely be in a fiercely competitive industry that is highly exposed to the ups and downs of the economy. These companies offer no job stability, in good times they hire fast, in bad times they fire fast as well. This give rise to poorer employment prospects because during bad times such as a recession (cf. economic year 2008 - 2009). Most of these companies have to cut their expenses drastically in order to support their bottom line. And guess what, the easiest expense to cut for such companies is simply operational cost, which is your job!

Companies which have a consistent upward trend EPS are namely Singapore Press Holdings (SPH) and F&N.

The Debt Test
Company Debts, just like any debts, are basically money that belongs to other people and charges interests for lending it to you. These people are known as creditors, banks, trading partners etc. Another indication of a good business to work with, are companies with low levels of long term debts or no debts at all. Simply by looking at the annual report again, under “Company’s Balance Sheet” or “Balance Sheet” under non-current liabilities, you will be able to locate that figure. But don’t just stop there! Locate another figure called the net earnings or net profit under the “Income statement” or “Profit & Loss statement”. Take the Non-current liabilities figure divide by the net profit figure and compare it for the last 3 years.

For example companies with a low debt level will look like this

Non-current liabilities in (2007): $401,000
Net profit in (2007): $107,000 (PASS)
($401,000/$107,000= 3.7times)

Non-current liabilities in (2008): $335,100
Net profit in (2008): $82,000 (PASS)
($335,100/$82,000= 4times)

Non-current liabilities in (2009): $322,100
Net profit in (2009): $109,000 (PASS)
($322,100/$109,000= 2.9times)

The general rule of thumb is to have long term debts not exceeding 5 times the net profit.

Reason:
Companies with low debts history, reflects of a good debt management. Such companies would be a good long term employer to work for simply because they have more cash to pay out good salaries or give more perks (because they pays lower interest) The chances of these companies being able to weather a recession is far better than a company loaded with huge debts.

On the other hand companies with huge debts will likely mean it does not have a durable competitive advantage, which the business is probably in a highly competitive industry where extra capital is constantly needed just to keep their competitive edge.

This also mean to say that if we work for one of these debt-ridden companies, the cost of servicing the debt (paying the interest) will eat up any excess cash and leave little room for salary increment and bonuses; so don’t expect any company dinner and dance or paid vacation for that matter! There will also be little excess capital for growing the business or acquiring new businesses, hence there will be little growth in managerial opportunities. If there is a recession, these companies will also be the first to fire employees in an attempt to cut costs before they go bankrupt. This is simply not an optimal choice for a long term career.

Companies with low debts are SIA Engineering, ABR (Swensons) and Breadtalk

The gross margin test
Finally, to tell whether a company is great one to work for, is to do a gross margin test. Again, just by looking at the “Profit and Loss statement” locate first the gross profit, take that figure and divided it by the total revenue or sales. An example will be:

2007
Gross profit: $127,000
Total Revenue: $355,000
Profit margin: 37.9% (PASS)

2008
Gross profit: $133,000
Total Revenue: $365,000
Profit margin: 36.4% (PASS)

2009
Gross profit: $155,000
Total Revenue: $390,000
Profit margin: 39.7% (PASS)

A rough general guide of a decent profit margin will anything around or above 30%, a low gross profit margin however is one that is around 10-20%. You may need to look at companies that have been around for some time (at least 5 years or more) to do this test properly, this is because young companies may have very high profit margins but these does not mean they have durable competitive advantage.

Reason:
Companies that have excellent long term economics working in their favor tend to consistently have high gross profit margins than those that do not. High gross profit margins give companies the liberty to price the products and services well in excess of their cost of goods sold (COGS). A lower gross profit margin or declining one on the other hand, points to brutal competition as well as lack of pricing power; this could be good for customers but bad for employees and shareholders. Moreover with lower profit margins, it will hamper the company’s ability to raise salaries or give big bonuses, diminishing the company’s capacity to expend capital on new businesses or to survive in a recession.

Companies with good gross profit margins are Vicom & Singapore Exchange (SGX)

So the next time when you looking for a job or rattling through the recruitment section of the newspaper, take some time to download the companies' annual report and do up some simple accounting analysis for yourself!

FSL a value buy.

2010-06-13T14:02:00.003+08:00

First Ship Lease Trust ("FSL Trust") is a Singapore business trust that currently owns a diversified portfolio of 23 modern vessels comprising tankers, containerships and dry bulk carriers. FSL Trust leases its vessels on long-term bareboat charters to international shipping companies and derives stable cash flow from the lease rentals. As at 31 March 2010, FSL Trust’s lease portfolio has remaining contracted revenue of US$743 million over an average remaining lease term of 7.5 years. As stated on the company's website.
Now an update on FSL, an unfortunate event has occurred to the company, both of its ships ‘Verona I’ and ‘Nika I’ that is leased by Groda Shipping Ltd have requested FSL to retake those ships and have defaulted on bunker payments. To summarize the negative impact this have on FSL is that in total, FSL have to cough out about US 10million to settle the problem.

Now as value investors, we tend to look at problems as opportunities, problems that can provide value investments that is. So as mentioned this is the value i see in FSL

Simple Qualitative analysis which is looking at business advantage
1) Business wise, FSL will use the 4.8million in its cash position to release the ships that is being retained in the both countries; this is estimated to take about 1-2 weeks to release the ships.

2) The 4.8million used to release the ships is claimable, it just a deposit with the court to release the ships.

3) There will be litigation or lawsuit with Groda shipping Ltd for causing these problems.

4) The client Rosnett will most likely take the ships back since Rosnett is a client of Groda who uses FSL ships,

5) Nevertheless even if Rosnett doesn’t want to lease back the ship back under their control,

according to the FSL's investor relationship (IR), they have been proactive in looking for clients and do have some potential clients wanting to rent their ships.

6) Recall that FSL ships are young and have substantial value to them.

7) According to FSL, interest payments to loans will not be charged higher by creditor because of

this incident.

8) As stated in their new statement, the rest of the 21 ships provide the trust with Strong Cash flows.

9) FSL Trust was the only Trust which employed a full time risk assessment officer to assess the credit-worthiness of potential lessees on an ongoing basis

Quantitative analysis which looks at price advantage

Price as of June 13 2010, is 0.37 this gives a
1) Net asset value advantage of: $0.62- $0.37=$0.25 about 67% below NAV

2) Calculation of expected yield for the this year, 1st Quarter already paid 1.5 US cents

3) 2nd Quarter guesses will be a conservative estimate about 0 US cents*

4) 3rd Quarter guesses will be a conservative estimate of 0.75 US cents

5) 4th Quarter guess will be back to 1.5 US cents

6) Total Dividends collected: 4 US cents = 5.6 Sg cents (conversion rate of 1.4)
Assuming that from 3rd quarter onwards the problem with Verona and Nika is settled by then, a 0.75 DPU is estimated to be given
Then for the 4th Quarter i assume the business trust FSL is back to it's normal routine with 55% dividend pay out policy a 1.5 US cents will be dished out once again.

7) Therefore my estimate of an annualized return will be about 15% dividend yield at a price of 0.37 per share

Now, let us consider some of the risks to my assumption and risk in general relating to FSL

Risk to FSL
1)* FSL have already incurred a one time 10million cost due to this problem, because of that there might not even be dividends this coming quarter (2nd Quarter).This is the reason why i think for the 2nd quarter, there will not be dividend is because of the case with Verona and Nika, the complications , the extra cost etc having to take these into consideration, a 0 DPU (Distribution per unit) for the 2nd quarter is to me a conservative estimate.

2) The other risk here is that, Nika and Verona are not being release due to other unforeseen problems, the longer the delay the lesser the future dividend payout.

3) Another risk is that, the other 21 ships might have problems due to furture economic problems like in the UK region. FSL clients like Siba Ships, James Fisher and Schoeller Holdings are are from Europe/UK represents 25% of the total revenue to FSL. Could be vulnerable to any future weakness

On a side note: It’s weird that in 2008 when i bought FSL at 0.47 cents, I called FSL's IR about the shipping company Groda, telling them that this company do not have any significant data on their economic moat and financial statements, i asked the IR how they know whether is a quality client to FSL? Their reply if i remember correctly was that this is a growth company, sort of a potential client to have.

4) Through out 2008 to 2010 the NAV of FSL have changed from $1.10 to 0.84 to 0.66 and finally to 0.62, this dropping value in NAV is quite a concern to me, well some ppl might say it is due to the world depression and devaluation of asset, but as a investor i have to be vigilant on this , as NAV per share is one of my favourite yardsticks to determining MOS (Margin of Safety)

My estimate of FSL intrinsic value in the next 7 years will be worth

$0.62-0.70 today. this value is based on a very conservative estimate that FSL DPU in 2017 is a miserable SG 0.08 cents.

Some comments

So the question is at 0.37, is FSL a value buy? Is the probability of benefits higher than the unknown risks involved? Do you see the current problem with FSL a long or short term problem? Is there an opportunity here?

My answers: Yes, Higher, Short and Yes. =)

Faries in the forest

2010-05-30T15:58:00.010+08:00

Taiwan Yi lan is a beautiful place, situated at the near the South China Sea, the entire continent is flushed with fresh sea breeze and cool north winds from Japan. Needless to say, Yi lan is also place full of greenery and sleepy hills. Words are hard to describe such a place, therefore photos need to do justify in this story.

I was with good friends (Max, Numlee and James) during my Taiwan trip, after a long massage at a local spa, we decided to head to a waterfall called “the five holy spring” situated up in the hills. It was a 55mins walk from our spa to the waterfall. Along the way we stumbled upon many other elderly Japanese tourists who were likewise excited to be there. Small temporary eateries were erected there as well, therefore we got to eat some of the unique desserts such as the mountain ice cream.
It took us about 20mins hike from the base of the hill to the waterfall, when I first saw the waterfall with my sharingan I was absolutely delighted! Such a beautiful place! The air felt extremely fresh and the thundering waters drew adrenaline in my heart.

The many tourists were happily bruising themselves taking photos and posting vainly infront of the waterfall, while my friends (Orange shirt guy is James) and I, being truly Singaporeans boys, we, without hesitation took off our clothes and step into that “holy” waterfall. So that we can experience it fully =D
Perhaps the tourists were amused on what we were doing or about to do, perhaps some were annoyed by our actions, but as the freezing water hit our skin, the experience was extremely pleasurable.
We took about 40mins or so to enjoy the waterfall “thoroughly", it was 5.30 in the evening and the tourists that were initially there, disappeared back down into the forest all so sliently. Yet being young singaporeans once again, we had not enough fun. All four of us decided to climb the hill even higher, to see what adventures await us. After 15mins of climbing, we stumbled onto a church sentry.

Peace was evidently present in that place; the area was calm, gentle and sort of a happy area to be in. Because of the constant mountain breeze, our clothes that were soaked with the “holy” water began to dry, and this made us really “chilling” at that church and relaxed one corner. Another 20mins have passed as we explore the sentry with excited eyes,the time is already 6.15pm and the sky of Yi lan started to dim in the cloudy sky.

My intention was to head down the hill and go back to our hotel, until I saw this small up-ward path behind the church that lead higher into the hill. With a little urging and encouragement from James and me, both Max and Numlee ended up climbing the small path as well. Now some of you readers might be wondering, hi Akat, isn’t this an investment blog? Why tell us about this personal trip of yours? Yes yes, I know, I’m getting to my investment point soon.

Coming back to the story, James, Max and me were joyfully climbing up that path and into the forest. Along the way we met some Taiwanese locals coming down, we asked them how long it took to reach the top of the hill? The locals said that it took them about 40mins to reach the resting bay and another 2 hours to reach the top, they even mentioned something about fairies in the forest if we were lucky to be in the right area. Feeling even more excited, we quicken our pace up the hill. Now it was about 6.30pm already, 15mins into our walk, Numlee one of my closest uni friends was feeling abit tired walking because of the cheap sandals that he bought in CCK. He requested to rest a while under a small wooden hut after weaving our way up around the hill. While he rested, I reasoned with my other two friends that it was getting abit late, and it was time we headed back down the hill before we get trapped in the darkness. I was worried because we do not have a torch light and there wasn’t a lamp post on sight.

Apparently Max and James were abit displeased with this decision and wanted to continue hiking up the hill, Numlee had already made up his mind to head down, as for me I was on the fence. Half of me wanted to join my other two friends, while the other half wanted to head down. Therefore I did abit of mental analysis.

I listed down the reasons why I needed to head down instead of continuing the hike.
1)There was no torch light, no lamp post, absence of the moon, which basically mean, once it was 6.50 or so, the entire place will be very dark and we will be walking blind

2)The path towards the top, was not straight forward , rather there were other paths leading to other areas, the chances of getting lost in the forest were also heightened

3)The reception was bad, despite having Singtel or Starhub auto roaming coverage over Taiwan Yi Lan’s hill would not suffice, so if anything were to happen; it will be very hard to call for help.

So to avoid conflict, in the end both Numlee and Me decided to headed down , while Max and James continued the climb.
While hiking down, I felt abit of regret not counting the climb, I had that lingering feeling that I wasn’t brave enough or perhaps feeling abit to cowardly not taking risks. I kept wondering what it would be like if I had continued? What would I had experience? Will I see the so called “fairies” mentioned by the locals?

To cut the long story short, Max and James actually came back to the hotel at 10.45pm while Numlee and me were worried sick about them. They told us they were initially lost but luckily they saw two locals (a mother and son) along the way with a torch light. Moreover they saw the so called “fairies” deep in the hills and it was one of the most beautiful scenes they ever seen. Ohh the Regret!! I felt super envious. But with all said and done, I was happy with my decision to come down the hill. Because to me, heading down the hill might not be the most optimal decision but it was the right decision.

Why is it right? It was right because I deemed it “right”. If I were to continue hiking, I wouldn’t have enjoyed it, because of all the worries of not getting downhill or something might just happen. Moreover I was absolutely certain I would not want to stay overnight up top of a freezing hill deep in the cold forest.

So the reason why I wrote this event, was because, just like investing (especially) value investing , some decision you make, might not be optimal , as in, they might not give you the best return over a year or over 5 or 10 years time. As value investors, some of us tend to compare with other people from other school of thought such as trading, which also has its merits, do not get me wrong. By comparing we sometimes feel bitter and envious inside about how some people can get over 300-400% returns in a year, but like I said, it might not be optimal but it is the right choice, made and deemed by yourself so that you can sleep peacefully at night =)

Credit Card Horrors

2010-05-13T01:22:00.005+08:00

Credit card horror stories

I got my very first credit card in my 2nd year at a local university. I told myself “Hey, this is great I’m finally becoming a full-fledged responsible adult”
The credit card was issued to me through a company along a Dean's List enrollment plan. So I said to myself
“Hmmmm.... it sounded good to me so I added my signature to that little form, dropped the postage paid envelope in the mail and a couple of weeks later had a shiny new piece of plastic in my hands”. Now my limit was low (max $500), so I thought it couldn’t hurt to use this a few times? As i convinced myself that I will never fall into one of the horror stories told so often by my financial ad visors at AIA, moreover I did a financial planning module before and was working a full time job while studying.

Well, here I am a number of years later. Now married to a beautiful wife, mother of 2 great kids, good job, friendly in laws, an almost perfect family. What was not prefect is that I have acquired 8 different credit cards since that first one with such a nice low limit. The ones I have now have limits that are higher than what I paid for my BMW. My wife thinks that I have full control over our finances and that we have good saving amount in our joint account. But the thing is, I do not dare tell her that even with all our savings was not enough to pay the monthly recurring interest that I’m incurring from all those damn cards. How did I end up like that? Why are the horror stories coming true? Some more right in front of me?

Well, the problem started when I use one card and then another. I was always too ill-disciplined to pay off all the principal owned to the respective card companies. Bills would be rolling in and I would pay the minimum payment at least, but rarely had extra to pay off the principal sum owned. Then it got to where it was hard to make the minimum payment and paying the other bills on time. I would pay the telephone and PUB bills with one credit card and use another to pay for groceries. Then I would constantly look out for discounts in the newspaper to buy the necessaries for my family etc Diapers for my baby boy, I would cut coupons when my family wanted to eat at Mac Donales, bargain furiously with the fruit store uncle, because I was trying to scrap up enough money to pay the credit card payment’s.

It got to a point where I couldn’t even buy my kids a 50 cents ice cream cone when they pleaded for it. I felt useless, horrible and depressed. It came to a point when the interest payments were taking everything I had to buy even a decent meal. I am finding that late fees and over the limit fees are really adding up. I can't keep up with any of my regular bills because I have maxed out all of the credit cards I have. I can't get a lower interest rate with any of the companies anymore because I have been late within the last six months on my minimum payments. Letters upon letters would arrive at my mail boxes, reminders from banks didn’t make the any situation better. I finally had to confessed to my wife and declared bankruptcy immediately. As of today, I am proud to say im still a bankrupt, but one that has cleared almost 70% of the debts.

The moral of this story is simple. Credit cards are a great thing to have only if you are truly disciplined in paying off ALL, yes ALL! Your credit debts. The interest rates charged are horrible! @(#*(@#&). It’s all in the mindset, being young and arrogant; I thought I couldn’t fall into the typical situation, but what was really lacking in me was financial Prudence, and the ability to not only read what I’ve learn, but to apply it in real life.

Cheers
The Determined fighter
Mr Lim.

Thought this story is somewhat one sided, there are also good points in using credits, the rich uses these cards to get discounts when dinning, get air mileages when flying, discounts on petrol, privileges during certain events or attending concerts and many other attractive perks. But like what Mr Lim have mentioned, be discipline and pay off ALL your credit debts on time and on Target. =D

Evaluation by an expert:
Hi Akat~
Very interesting story i must say. My take is unfortunately, our emotions usually depicts our spending habits. Out of the 5Cs , the 2Cs give people a false sense of 'power' and 'invincibility' manifested our spending power, which highlights our status or 'better' our lifestyle. Whether consciously or not, many too, turn to shopping to make themselves feel better whenever Life's stresses knocks on their doors. For some, they become overly-dependent on them.

My take is that people who find it difficult to manage money, it is not so much as the inability to do simple caculations it has more to do with managing their emotions.

A message from my investment idol.

2010-05-04T01:21:00.002+08:00

Hi XXXXX,
Thanks much for your email.. Appreciate it!

Criteria for choosing stock as a value investor..
For me, it will have to be companies, with good business which for whatever short-term reasons, were trading at significantly below book value.

Next, if it's a profitable company, it should be one trading at not more than 10 times PE, for small or mid cap stocks, and not more than 14 times for big cap. These have to be companies with little debts, with return on equity of above 15 per cent and return on assets of at least 10 per cent. Dividend yield at least 3 or 4 per cent. Book value not more than 1.5 times. Generating good operating cash flows.

These are some criteria off the top of my head :-)

Cheers,
Hooi Ling

Investing doesn’t come from the DEVIL!!

2010-04-25T13:01:00.006+08:00

Wow, the stock market has indeed turned out to be a proverbial “V”-shaped recovery, from a peak of 3875 points on Oct 11 2007 (known to be the year of Euphoria) the STI (Strait Times Index) took a dive to a low of 1,456 points just last year march 2009. Since then, prices have rebounded strongly, picking up steam in the last few weeks. Yesterday the STI ended at 3,007 points.
Some of the best performing stocks relative to trough of Mar 9 2009 are Z-OBEE, HTL international, Hong Leong Asia, Sinomem Tech and Broadway Industrial, all these stocks shot up to about 1000% since their lowest point in 2009.
And best performing stocks relative to the peak of 2007 are Etika, PH Petrogas, Think Environment and GMG Global with about 150% increase.

Companies such as Wilmar International which is a company that deals with palm oil, in 2007 the stock price was $4.02, in 2009 it was $2.86 and now the share price is at $6.99.
Another stock called Noble Group that deals with trading commodities (like soybeans, wheat eg) in 2007 its share price was $1.98 ouch so expensive! In 2009 it dropped to $1.02 and now its share price is $3.21! A whopping 300% increase if bought at the right time.
Ask yourselves; wouldn’t it be nice to be someone who held all these stocks or rather bought all these stocks during these times?

It is also true that during the crisis many people lost money in the stock market and these were some of the ways they lost it..

1) The prophetic way: They sold their stocks during the strong market correction and many more sold during the market bottom, interesting these people were the ones shouting to buy during very happy times and were confidently predicting the market to hit 4500, but started screaming sell during market bottoms, which was indeed the best time to buy.

2) The blur way: Not knowing exactly what they bought, these are people who either bought at a very high price during the 2007 Euphoria, or assumed they bought very low, since that particular share price had fallen a lot based on price perception (e.g. Cosco dropped in stages from $8.20 to $5.15 to $3.10 to $1.20) and are still a making a loss. These are a person who probably are now staying quiet or swears never to buy a stock again.

3) The Rumor way: Listening to friends, brokers and analysis who recommends certain stocks but end up holding stocks that were once darlings of the market and now becoming or became bankrupt champions (Think Ferro China, China paint /Dye and Oriental Education group )

Of course the key is “buying at the right time” then you would have made a lot from the market, but is it possible to do so? Is it possible for mere students like us to profit from the market?
The answer to that is a definite yes!

As young adults our age give us the advantage, we need to understand how some people are able to prosper while other get burn and destroyed and thrown into the rubbish shoot by the stock market. =)
One of the surest ways to prosper in the stock market is to be an investor. Not a prophetic, rumor blur or any kind of investor, be a VALUE investor!
By practicing some of the principals of value investing which is actually quite simple , one can actually know roughly when to buy and roughly when to sell.
In fact all the value investors I know have made not just lots of money, but truck loads of it.

Apply one of the principals of value investing:
We now look at more affordable stocks such as Osim which plunged from 58.6cents on Oct 11 2007 to a sickening 5 cents in March 9 2009, now because Osim is one of the companies I labeled under “luxury dependent” stock I didn’t have much interest in it. But then again had I known that Osim dropped to such a price I would have bought it! What depicts my buying is simple; using the “NAV Safety rule” Osim’s NAV as at March 2009 was roughly about 0.10-0.12 cents, which means to say if the entire company had collapsed and liquidation was in progress, then in theory I would get back at least $0.10 cents per share and by buying at a price of 0.05cents that will give me a 50% discount to the NAV per share what an OPPORTUNITY! In the 13 months since then, Osim stock is now currently trading at 0.97cents, that’s about 1840% increase in less than a year. A mere $5000 which most Uni students have or could reasonably have amassed would turn out to be $97,000 today excluding trading fees.

Another principals: Calculating your IV
How about the previous stocks that was mentioned above? Looking at Wilmar International, if the share price where to drop anywhere belong $3.15 it is a value buy! A discount! How did I get $3.15 as a guideline? Is it by calculating an intrinsic value based on past earnings of over 10 years. There are online intrinsic value calculators in the web; all you need to do is key in the past net profits of the company and POP! You got your magic number.

What to invest now?
With the market at its current state, frankly speaking I do not see value in it. My Forex trader friend Matthew asked a very good question, as value investors what do you do during such times of positive upheaval of the market index? Where do you put your money if you cannot find value buys?
That got me thinking and these are some of the solutions I think value investors ought to do especially now:

1) Do nothing. Yes, I’ve said it. I rather put my money in the bank then buy stocks that have shot up to heaven (think tower of Babel).

2) Put your money in safe instruments, usually in times of great euphoria the governments will usually raise their interest rates to prevent inflation. Great alternative instruments will be to put your money in bond funds, government long term bonds, blue chip- corporate bonds and or apply for a capital guaranteed fund.

3) Do your research! Research on more stocks you think could be of value, and then build a list of stocks that you would buy if there was a crash. Perhaps it is also better for people new to value investing to read up more on it and it’s principal

4) Do Merger Arbitraging ~No information yet on this topic sorry.

There are many lessons and principals you can learn from value investing, all you need to do is to take time and keep an open mind, as you go deeper into the subject , you will sort of realize that V.Investing is not about how much money you can amasses, but its real joy comes from the process. =D

News Highlight 7

2010-04-15T10:34:00.002+08:00

How to find undervalued companies
Key points
Once you find a sound business whose value is greater than its price, buy it with confidence
Price is what you pay, value is what you get
Also in this section
Cutting edge: new ways to trade
Go for gold
Savvy investor....get a lot for a little
Gas stocks light up
Uranium take-off

Value buying requires you to do your homework.

How do you find undervalued companies? It's a challenge, the greatest one in share investing. Anyone who can consistently get this right will end up astonishingly wealthy. Just ask the "Oracle of Omaha", Warren Buffett, the world's richest investor who is worth around $US52 billion ($60 billion).

Buffett is the world's greatest exponent of so-called value investing. That is, seeking out and buying into companies with genuine business operations, sound fundamentals and good balance sheets — including low debt and high returns on equity — that are, for no particularly good reason, out of favour with the market and resultantly priced below their intrinsic value.

One of Buffett's great adherents in the Australian market is Roger Montgomery, managing director of listed funds manager Clime Asset Management. He bases his very long-term investment focus and company selection process on his mentor's model.

Montgomery says that once you find a sound business whose value is greater than its price, buy it with confidence, and buy lots of it. Furthermore, if the price falls further, he says you should buy even more.

Montgomery is not enamoured of widely-used valuation tools including CAPM (capital asset pricing model), beta (an indicator of short-term volatility and risk) or EMRP (equity market risk premium). He is particularly dismissive of pronouncements on a share's value based on its price-earnings ratio (PE).

This puts him at odds with many analysts and professional market commentators, who do place emphasis on a stock's PE ratio as an indicator of value. (The notion is, the higher the PE ratio, the more expensive the share, and therefore the greater the probability it is overvalued; the lower the PE ratio, presumably the more likely it is to be undervalued).

The main problem with PE ratios, says Montgomery, is that they only tell you about price. They don't tell you anything about value, because "value is independent of price. Price is what you pay, value is what you get. Valuing businesses and assets has nothing to do with observing where the price is, or where it has been, or where it is going."

An asset's price may be higher or lower than its value — the objective is to buy it, if it's worth buying at all, when its price falls below its separately determined value.

Montgomery determines a company's value using a number of inputs including return on equity (the higher the better), debt level (the lower the better) and dividend payout ratio.

Furthermore he needs to determine whether a target company has the ability to convert $1 of retained earnings into at least $1 of additional market value, and whether it has "competent management with integrity that acts more like an owner than a caretaker".

If all this comes up trumps, and the share price is below his conservative valuation, then it's a buy.

If you're thinking this all sounds pretty complex and intimidating, you'd be right. After all, if it was simple to pick value stocks everyone would be doing it and we'd all be rich.

Montgomery and Clime Asset Management do it using a software package, Clime's own, which incorporates the above inputs (plus more), called StockVal. This program, including ongoing price and performance updates, is available to the general public and costs $1595 for one year ($67 a month thereafter). See www.stockval.com.au for details.

For those investors reluctant to go down such a path, or for those of us who aren't all that proficient at reading company balance sheets, you can do what Greg Canavan, senior equity analyst at Fat Prophets, suggests when it comes to looking for value.

He recommends reading widely, noting the opinions of share analysts (not surprisingly) and favouring high-yielding, large-cap stocks with proven businesses and good management, while also taking note of their debt levels (the higher the debt, the riskier the company and the less appealing).

Russell McKimm, an executive director of Shaw Stockbroking, says to look for companies with sustainable earnings that are hopefully growing. He says profits drive share prices, but prices can get out of synch with fundamentals.

One way to find value is to look for sound companies that have taken market punishment due to a short-term glitch, but whose long-term prospects remain favourable. He points to Suncorp and IAG suffering a correction following the bad NSW June storms, but whose share price will bounce back as business returned to normal.

Busy busy busy in Business School

2010-02-28T13:39:00.003+08:00

Dear Readers, me will be busy with school work and grade. That depicts the typical life of a singaporen student. Oh well. Anyway if Musicwhiz if youre reading this, keep up the good work! as im constantly read your entries to keep me updated ^_^.

Another way to pick Mutual Funds

2010-02-11T10:34:00.004+08:00

Pointers in picking a country fund.

According to Ms The Hooi Ling (CFA,MSc ,BBA NUS) senior correspondent of Singapore Business Times, her research shows that the strategy in which picking the worst performing country fund the year before turned out the be a terrible one and does not advise blindly going into a market just because it has been in the top loser spot of that year. The results are as follows

Using 17 Asian country indices downloaded from Bloomberg.
1) Japan’s Nikkei
2) Hong Kong Hang Send
3) Australia S&P ASX
4) China’s Shanghai Composite Index
5) Shenzhen Composite
6) Taiwan’s TWSE Index
7) Korea’s Kospi
8) New Zealand’s NZSE
9) Pakistan’s KSE
10) Sri Lanka’s CSEALL
11) Thailand’s SET
12) Indonesia’s JCI
13) India’s Sensex
14) Singapore’s STI
15) Malaysia’s KLCI
16) Philippines’ PCOMP
17) Vietnam’s VNIN

Data of each index was observed from Dec31 1981 to Dec31,2003 and the yearly returned for each year are shown below

The Best
Year Country Return
1982 Nikkei 2.40%
1983 KLCL 37.90%
1984 Hang Seng 39.70%
1985 Hang Seng 41.70%
1986 Nikkei 88.00%
1987 Taiwan 156%
1988 Taiwan 116%
1989 Thailand 114.70%
1990 Sri Lanka 97.20%
1991 Pakistan 136%
1992 Hang Seng 29.80%
1993 Philippines 129.30%
1994 Nikkei 15.20%
1995 Hang Seng 19.40%
1996 ShenZhen 186.60%
1997 Shanghai 57.00%
1998 Kospi 83.90%
1999 Jakarta 95.10%
2000 ShenZhen 64.50%
2001 Kospi 39.40%
2002 Pakistan 105.20%
2003 Thailand 131.60%

The worst
Year Country Return
1982 Hang Seng -49.50%
1983 Kospi -12.60%
1984 KLCI -25.60%
1985 KLCI -25.40%
1986 India -4.60%
1987 India -22.20%
1988 Sri Lanka -30.60%
1989 Sri Lanka -14.40%
1990 Taiwan -57.40%
1991 Kospi -22.40%
1992 Sri Lanka -32.70%
1993 ShenZhen -15.60%
1994 ShenZhen -44.90%
1995 Sri Lanka -39.40%
1996 Thailand -36.80%
1997 Thailand -70.50%
1998 Pakistan -53.20%
1999 Sri Lanka -7%
2000 Kospi -54%
2001 Nikkei -28.80%
2002 Vietnam -26.80%
2003 Vietnam -10.90%

The pattern here is that a lot of “doubles” are seen from the tables, particularly in the worst performer’s list. In other words, there was a tendency for a country index which had done badly in one year to continue to do so the following year.
Another point to take note is there were less repeated top performers in the top gaining indices list.
However do observe that price momentum for country indices lasts longer than a year , with the exception of a country going bankrupt (etc Iceland) a rebound will have to come at some point. So when is this point?

Let’s look at a scenario where you started investing your money in 1982, you observed Hong Kong Heng Seng Index dropped 49%, the following year it slipped again for another 6.5%. So you pumped your money into the market in 1984 and left it there for two years. End of 1984 Heng Seng jumped by 40% and the following year another 42%, hence doubling your money in just two years. Keeping an eye for the next “potential bad apple turning good” Malaysia’s KLCL was dropping at a rate of 25% a year (1984-1985) So at the end of 1985, you switched your money from Hong Kong to Malaysia , though the returns for the following year 1986 for KLCL was 4.3% it was still a positive one. The experiment was repeated and the outcome was an extremely positive one. By the end of 2002, the $1000 at the beginning of 1984 had grown to some $36,000. That is a compounded return of 20% a year!
No doubt there were occasions that this strategy doesn’t work. Example Korea’s Kospi fell 15% in 1995, 33% in 1996 and a whopping 61% in 1997. So sharp price declines is but ONE of the signals for investors to consider while placing their bets on country indices. For this implementation to work, it has to be backed up by an understanding of domestic economy. The explanation is as follows , if the stock market slump was a result of some structural impediments in the economy and the government was taking steps to correct them, then perhaps a rebound is bound to happen after two or three years of meltdown. Generally chances of the market coming back with a vengeance after having lost 40 or 50% of its value in the previous two or three years are good.

Summary
The strategy is to pick country index funds that underperform greatly for 2 years, study the country’s own government actions, see what are they doing to make the situation better and go in once deemed right.

Ps, im current very busy with my school work and other related competitions, pradon me for not updating new entries lately =D. All in all wishing all my readers a happy CNY

Possible Gems

2010-01-20T10:07:00.003+08:00

Hi guys, I am looking at stocks that fit a few criteria,

1. Below book value
2. Increase in EPS
3. PE below 15
4. Issue Dividend

With this four criterias, Only a few companies are listed and i will be doing some instant screening on them.

This is the result.

Haw Par Corporation Ltd.

Its price is relatively high now with a PE of 14+, but it is below book value by 11%.

Very healthy balance sheet and reasonable profit. There is a sharp decline of profit from 150m last year to 78m this year. Prior to the last 6 years, its profit is rising consistently.

They have 2 core operation, medication and leisure.

Medication would be the Tiger brand. Your medical sticker and cream. Leisure would be underwater would in singapore, pattaya and chengdu. Haw par villa also under them.

They dabble heavily into investment also, which caused the severe drop in profit.

Upon furthur research, their increase in profit is not due to their core operation. Core operation remains stagnant and they focus alot of time in investment. Obviously, they have poor marketing. >_<

Reccomended by stock analyst to buy. But i don't really reccomend it due to lack of economic moat and lack of focus by management. Currently, its price is trading at $5.9.

Tye Soon Limited
PB of 0.5562 and PE of 11.6580. Seems like there is a 45% MOS on the NAV. However, they made a huge lost of 6.1M in 2004 and only till 2007 did they break even that lost.

Didnt do any furthur research due to lousy earnings.

Time Watch Investments Ltd.
PE of 5.210, Lousy Earnings. Net profit margin is less than 7%

Hiap Moh Corporation Ltd
Dividend of 43.7975%
PE of 7.4151
PB of 0.6921

WAH! So high dividend and seems pretty undervalued! Lets look at the business and financials.
Aww... No wonder so hi dividend.. They delisted already..lol Akat..
-By Norman Yeo founder of private group investors Project zero

Oh! the WONDERFUL ratios

2009-12-28T18:28:00.002+08:00

My classmates and i recently created a group for young value investors to discuss,debate and disgust with each other. Among some of the topics, i feel that relearning all the useful finanical ratios is important. Hences the following..

#EPS
Calculated as:
(Net income -dividends on preferred stocks)/average outstanding shares

Understanding: The portion of a company's profit allocated to each outstanding share of common stock. EPS serves as an indicator of a company's profitability

Examples: Assume that SMART has a net income of $25 million. If the company pays out $1 million in preferred dividends and has 10 million shares for half of the year and 15 million shares for the other half, the EPS would be $1.92 (24/12.5). First, the $1 million is deducted from the net income to get $24 million, and then a weighted average is taken to find the number of shares outstanding (0.5 x 10M+ 0.5 x 15M = 12.5M).

Application: Investors also need to be aware of earnings manipulation that will affect the quality of the earnings number. It is important not to rely on any one financial measure, but to use it in conjunction with statement analysis and other measures

#Simple PE ratio
Calculated as: Market value per share/Earnings per share

Understanding: This ratio basically shows how much investors are willing to pay per dollar of earnings. If a company was currently trading at a multiple (P/E) of 20, the interpretation is that an investor is willing to pay $20 for every $1 of current earnings.

Examples: Your chicken rice stall currently trading at $43 a share in the stock market and earnings over the last 12 months was $1.95 per share which is your EPS, the P/E ratio for the stock would be 22 times.

Application: A low PE ratio is considered as below 20. A high PE ratio is 20 and above in general. However it is best to compare it with another company of the same nature of business.

#PBV
As known as price to book or price book value
Calculated as: PBV= STOCK PRICE* ALL OUTSTANDING SHARES/ (TOTAL ASSETS-INTANGIBLE ASSETS+ ALL LIABILITIES)

Understanding: A ratio used to compare a stock's market value to its book value. It is calculated by dividing the current closing price of the stock by the latest quarter's book value per share. This ratio also gives some idea of whether you're paying too much for what would be left if the company went bankrupt immediately.

Examples: Companies with a regular inflow of new assets, such as capital expenditures in the case of capital commercial trust bought on march 2009 , the share price was trading at $0.70, if the trust delist and give back all the asset back to its shareholder, it would be roughly $1.40 per share. So we take 0.70/1.40 we have a book value of 0.5. So in other words, good value could be found if the company is trading way below its PBV (Below 1)

Application:
P/B is best used for asset-heavy companies, such as financial institutions, manufacturing companies, and other capital-intensive industries. However, this ratio has a weakness, it does tell you whether the assets are really worth that much (asset bubbles), moreover companies that have super low PBV are usually entities with bad management.

#ROA
Calculated as: ROA = Net income / Total Assets
Understanding: The Return on Assets (ROA) percentage shows how profitable a company's assets are in generating revenue. This number tells you "what the company can do with what it's got", i.e. how many dollars of earnings they derive from each dollar of assets they control. It's a useful number for comparing competing companies in the same industry.
Application: Return on assets is not useful for comparisons between industries because of factors of scale and peculiar capital requirements (such as reserve requirements in the insurance and banking industries). Since the figure for total assets of the company depends on the carrying value of the assets, some caution is required for companies whose carrying value may not correspond to the actual market value.

#ROE
Return on Equity (ROE, Return on average common equity, return on net worth)

Calculated as: Net income / average share holder equity

Understanding: This ratio measures the rate of return on the ownership interest (shareholders' equity) of the common stock owners. ROE is viewed as one of the most important financial ratios. It measures a firm's efficiency at generating profits from every dollar of net assets (assets minus liabilities), and shows how well a company uses investment dollars to generate earnings growth.

Application:
But not all high-ROE companies make good investments. Some industries have high ROE because they require no assets, such as consulting firms. Other industries require large infrastructure builds before they generate a penny of profit, such as oil refiners. You cannot conclude that consulting firms are better investments than refiners just because of their ROE. Generally, capital-intensive businesses have high barriers to entry, which limit competition. But high-ROE firms with small asset bases have lower barriers to entry.

Limitations: ROE is presumably irrelevant if the earnings are not reinvested.
• The sustainable growth model shows us that when firms pay dividends, earnings growth lowers. If the dividend payout is 20%, the growth expected will be only 80% of the ROE rate.
• The growth rate will be lower if the earnings are used to buy back shares. If the shares are bought at a multiple of book value (say 3 times book), the incremental earnings returns will be only 'that fraction' of ROE (ROE/3).
• New investments may not be as profitable as the existing business. Ask "what is the company doing with its earnings?"
• Remember that ROE is calculated from the company's perspective, on the company as a whole. Since much financial manipulation is accomplished with new share issues and buyback, always recalculate on a 'per share' basis, i.e. earnings per share/book value per share.

#ROI
Return on investment (ROI)
Calculated as: Net income/ total investment by the company (looking under cash flow investment)

Understanding: Also known as the rate of profits; the amount of money gained or lost may be referred to as interest, profit/loss, gain/loss, or net income/loss. The money invested may be referred to as the asset, capital, principal, or the cost basis of the investment.

Examples: A $1,000 investment that earns $50 in interest obviously generates more cash than a $100 investment that earns $20 in interest, but the $100 investment earns a higher return on investment.
• $50/$1,000 = 5% ROI
• $20/$100 = 20% ROI

Application: It is common practice in finance to estimate monetary returns by averaging periodic rates of return; these estimations are most useful when the averaged periodic returns are all positive, all negative, or have low variances.

#Profit margins
Calculated as: Net income/ Sales

Understanding: Refers to a measure of profitability. It is calculated using a formula and written as a percentage or a number. The profit margin is mostly used for internal comparison. It is difficult to accurately compare the net profit ratio for different entities. Individual businesses' operating and financing arrangements vary so much that different entities are bound to have different levels of expenditure, so that comparison of one with another can have little meaning

Examples: China Milk product limited business has many segments, one of its segment which is the bull semen trade & sales has a profit margin of 35%, as investors you want this margin to be stable or go higher.

Application: Many a times, new investors get tricked into investing companies with super high margins such as Sino tech fibre which sells cloths, since margins is highly dependent on the business outlook and competition, it is wise to find companies whose profit margins have been sustained or increasing throughout the years (say about 5-8 years)

#Current ratio

Calculated as: Current assets/ Current liabilities

Understanding: A liquidity ratio that measures a company's ability to pay short-term obligations

Examples: The ratio is mainly used to give an idea of the company's ability to pay back its short-term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables). The higher the current ratio, the more capable the company is of paying its obligations. A ratio under 1 suggests that the company would be unable to pay off its obligations if they came due at that point. While this shows the company is not in good financial health, it does not necessarily mean that it will go bankrupt - as there are many ways to access financing - but it is definitely not a good sign

Application: The current ratio can give a sense of the efficiency of a company's operating cycle or its ability to turn its product into cash. Companies that have trouble getting paid on their receivables or have long inventory turnover can run into liquidity problems because they are unable to alleviate their obligations. Because business operations differ in each industry, it is always more useful to compare companies within the same industry.

Hock Lian Seng IPO.

2009-12-17T19:32:00.001+08:00

A quick information on Hock Lien Seng for people who have bid for their IPO shares.

got my hands on the propsectus the next day and found that the financials diclosed to us by the broker were inaccurate (bottom line) always check what you are being told with the official documentation. Here is what I found out on going briefly through the prospectus:

a) gross cash as at end Dec 2008 was S$62.9mn and as at end of June 2009 was S$106.8mn.

b) prepayment was S$7.7mn. There was no debt with shareholders funds of S$33.18mn

c) Net profit margin since 2007 till H1-2009 is between 7-12%

d) company has an order book over 4 projects worth S$1.1bn to be completed between 2009 till 2015

e) IPO comprises 110mn new shares at S$0.25 bringing total issued share base to 509.97mn

f) issue manager is UOB with Kim Eng being the placement agent

The issue looked undervalued for the following reasons:

a) after the IPO - the gross cash of the company would be S$133mn compared to its post IPO market capitalisation of S$127mn - so its trading below cash levels

b) net profit for 2009 should come in between S$19-20mn based on its half year net profit of S$9.39mn. Net profit of 2008 was S$15.54mn

c) IPO PER based on expected net profit of S$19mn is 6.7 (fully diluted) but the business is actually free given that market capitalisation is below cash

d) the order book of S$1.1bn with more than S$1bn due between 2010 till 2015 means that if net profit margins of 7% are maintained will generate a future net income stream of about S$74.2mn - assuming they dont get any new contracts from now (which seems unlikely).

So if the company can trade up to where its peer construction group is trading at -10 times than based on FY2009 earnings - the conservative price target is S$0.37 a gain of 48%.

Some concerns - why does the company need a listing given that it has so much cash ? One possibility is that as its undertakes larger and larger cotracts, it needs more money for its performance bonds. Why is the placement agent Kim Eng and not UOB Kay Hian given that the issue manager is UOB - maybe the issue is too small. I dont have the answers but on the surface, it looks like an attractive IPO and if you are like my golf buddy being offered some placement script - I think its worth taking some shares....for at least 50% upside. But this is golf course analysis - our analyst will produce a more formal review later this week before the close of the IPO this Friday.

For your amusement =D

2009-12-13T01:34:00.009+08:00

Heeeheheheheee..Merry Christmas to all and a Happy 2010!!!

Rise of the PENNY STOCKS?!

2009-12-08T00:32:00.005+08:00

I was cleaning my room one rainy morning, as I stood there miserable with my hands all black and dusty; strong gusts of wind welcome itself into my room and blew stuff all over. Like a little annoying kid that have gone out of control, my documents, old newspapers, dated research reports and past homework flew like never before. Frustrated, i decided to just stop for awhile and enjoy the strong breeze while my stuff continues to get bashed by the naughty wind.

I however spotted an old newspaper cutting that was stuck between my 8days (nearly flew out the window), as i held and took a good look at it, i found something interesting to talk about.

Dated Thursday August 2 2007 Money page , title “End of the penny party as share prices take a dive” the article reads, that the penny dropped with a resounding crash yesterday: Small-cap stocks are no longer a licence to print money. Some shares dived more than 20% while the UOB Sesdaq (now is known as catalyst) plunged 10.3%. Shocked retail investors- the main buyers of penny shares, could do little but watch as their hefty paper profits were washed away in a tide of red ink. One investor whose portfolio plunged 10% told the Straits Times: “Bloody hell! It was a bloodbath la, can’t do much I’ll just have to ride it out” . Construction sectors stocks were the worst hit yesterday, with no gainers, 32 losers and six closing unchanged. The biggest loser in the sector was Permasteelisa Pacific Holdings, which plunged 8 cents or 18.6%. Axle-maker Baker Technology was down 8.5cents or 20.2%, while Chasen Holdings known as China Entertainment Sports dropped half a cent to 1.5 cents.

Biggest loser over the five-day free fall was Alantac Technology, down 46.08% to 27.5cents, another punter’s favourite-Jade Technologies slumped almost 31% to 30.5 cents over the same period. UOB Kay Hian the biggest brokerage in Singapore restricted online trading in 13 stocks earlier this month, these include Alantac, Ban Joo, BBR Holdings and Jade. The article goes on to ask, is the worst over? The expert response was “they usually last 16 trading days based on the last four corrections, a month after the last four corrections the market would resume its normal behaviour after a few days if fickleness combined with fear, so it is a waiting game for those with nerves” Another investor who lost 10% said “Im quite confident the market will rebound, as corporate profits and economic fundamentals are still very strong”
Based on hindsight, we can see how short-sighted people were at that point in time, experts were giving wrong advice and retailers were as oblivious as ever. We also see major investment errors such as holding on to losing positions and hoping for a rebound. Nevertheless, what’s past is the past. But like many things that happened in the past, the probability of it happening it again i believe is quite high (talking about cycles in the market). So my next question is, will penny stocks rise again? Given that they have already tumble so badly these past two years? We relook at past penny stocks that rode the rally and made huge profits for investors
1) Alantac Technology estimated highest price : $0.33
2) Stratech Systems : $0.06
3) Middle East Development: $0.26
4) K Plas Holdings : $0.13
5) VGO: $0.07
6) Armarda Group:$0.27
7) Advance System Automation: $0.10
8) Lereno Bio-Chem : $0.14
9) Eastgate Tech:$0.07
10) Baker Tech:$0.35
11) Oculus:$0.24
12) Lantrovision:$0.21
13) The Lexicon Group:$0.07
14) Berger International:$0.19
15) Amplefield:$0.06
16) HLG Enterprise: $0.42
17) Startech Electronics: $0.06
18) Jade Tech:$0.33
19) Select Catering services:$0.55
20) Cyber Village Holdings:$0.10

What much do you know about Gold?

2009-12-05T14:49:00.007+08:00

Im clueless about gold. How does one go about knowing the true value of gold? Unlike shares, or real estate ,the precious mental (i also don't understand why is it that precious) does not generate cash flow! To me it only provides bright golden lights that look good on black people's skin. Ive heard Gold prices touches $1221 per Oz this week, shocked by the raise of this mental, i took look at some reasons why people are buying gold.

Positive on GOLD

+People say the $US dollar is weak and is getting weaker due to national economic policies which don't appear to have an end.

+Gold price appreciation makes up for lost interest, especially in a bull market.
The last four years are the beginning of a major bull move similar to the 70's when gold moved from $38 to over $800.

+Central banks in several countries have stated their intent to increase their gold holdings instead of selling.

+All gold funds are in a long term uptrend with bullion, most recently setting new all-time highs.

+The trend of commodity prices to increase is relative to gold price increases.

+Basic demand and supply of economics suggests that in the world, gold production (supply)is not matching demand. The price is assumed to go up with assumed increase in demand.

+So where does this consumption come about? In India and China, their demand for gold is ever increasing with their increase in national wealth.

+Several gold funds reached all-time highs in 2007 and are still trending upward.

+The short position held by hedged gold funds is being methodically reduced.

+U.S. government economic policies over the past decade have systematically projected the U.S. economy down a road with uncontrollable federal spending and an uncontrollably increasing trade deficits. Both causes the dollar to lose its international value and will increase the price of alternative investments, such as gold.

+With the recent devaluation of many international currencies, the U.S. dollar was the international safe haven of last resort. Some are seeing signs of this ending due to many financial factors, the most important one being a falling dollar.

+There are over One Trillion dollars ($1,500,000,000,000) of U.S. debt owned by foreigners,hence the fall in dollar as it is not backed up by real value but "confidence" of the nation.

+Gold has been a proven method of preserving value when a national currency was losing value. If your investments are valued in a depreciating currency, allocating a portion to gold assets is similar to a financial insurance policy.

Now i'll explore reasons why gold isn't the right investment

-Gold doesn't pay income or interest.
Except for the last five years, gold has been in a bear market after a peak in 1980.

-Central banks have tons of bullion which they occasionally threaten to sell.
If you don't count the last five years, gold stocks have not done well either.

-Since gold funds have made big moves over the past five years,espcially this year..reaching $1200 and all it's time for them to drop back? Beaucse i don;t know how to value it, i also cannot say it has or hasnt reach a fair value based on price alone. But i know one thing for sure, the higher a price you buy, the harder you fall.

Some ways of investing in GOLD
Investment in gold can be done directly through ownership, or indirectly through certificates, accounts, spread betting, derivatives or shares.

Other than storing gold in a safe deposit box at a bank or in your home (btw if i really have gold i would store it under my chinchilla cage hehe), gold can also be placed in allocated (also known as non-fungible), or unallocated (fungible or pooled) storage with a bank or dealer.
Other ways include investing in

Gold bullion. - Refiners produce gold bars from one gram to 400 ozs.

Gold coins. - The most popular are one oz coins such as the American Eagle, Canadian
Maple Leaf, the South African Krugerrand, and the Austrian Vienna Philharmonic. They are easy to keep and transport and closely match the price of gold with a small premium. More specific details.

Numismatic coins. - Older coins which fit the description of collectibles have a premium to the value of gold included in the coin. The holder is dependent upon an accurate and fair appraisal.

Gold certificates. - A certificate which represents ownership of gold bullion held
by a financial institution for convenient and safe storage. There is a fee for storage and insurance.

Gold futures and options. - A futures contract traded on one of the futures exchanges, such as the COMEX in New York. This method is generally leveraged and options provide price movement much more than that of gold itself. It can be used to sell short and can be used to benefit from a drop in the price of gold.
Gold Mining stocks. - Stock ownership of a company traded on one of the exchanges. The price movement is dependent not only upon the price of gold, but also upon the future of the corporation and management. It's price movement is almost always more than the movement of gold itself. Market Vectors Gold Miners ETF (GDX) is one way to invest in stocks.

Jewelry. - Representing the largest consumption of gold each year, jewelry is a major method of savings in developing economies.

Exchange Traded Funds (ETF)- Perhaps the safest method of buying and owning gold by buying shares in a fund based solely on the existing market price of gold. No leverage or storage problems. Etc: UOB Gold Units, DBS Gold unit trusts.

Gold Mutual funds. - A relatively safe method of buying and owning gold stocks allows the owner to diversify among many stocks and allows the investing decisions to be made by a professional. Investment methods vary among funds and provide many different styles of portfolio management for an investor to choose from. Prices move faster and further in both directions than the price of gold.

What some expert say about GOLD
Gold has been, more often than not, regarded as a good hedge against inflation. With the skyrocketing prices of commodities in the first half of last year(2008), inflation across the world started to move towards double-digit terriory. Countires like India and China had inflation of upwards of 12%. With the rising inflation gold was a prime investment theme then. Inflation has now fallen back to single-digit levels in most economies and there seems to be a real threat of deflation with falling consumption.
After having exhuasted all the above theories, the lastest story is that of safe investment in uncertain times. With falling stock prices, falling treasury yields and the sovereigns default risk inching upwards, investing in gold seems to be the buzz word again. The reason this time is that gold is a real tangible that has been considered valuable for centuries. The supply of gold is limited, hence making it a perfect investment.

Central banks across the world have tonnes of bullion which they occasionally use a political motives to threaten to sell. The question is will they act on this threat if national debt needs to be repaid? Central banks have pledged gold in the past to obtain foreign debt.
Does gold growth with time or generate income or pay interest?
Consider holding physical gold, it incurs storage, insurance and even GST charges.
What would happen if the gold funds faced redemption pressure or if the IMF decided to sell its gold reserves?

Finally in my opinnon, investing in gold now.. is not of value, perhaps then i should seek more understand of the material and how to derive its true value. If i can't understand it wouldnt invest, another golden rule in my principles of investment. On another note, Akat and i wishes all my readers and friends a happy and wonderful new year ahead. =D

Oh well..goodbye.

2009-11-03T10:23:00.005+08:00

As much as it pains me to document this for my future use. It is necessary to learn from the mistakes of my stock holdings so far.

Divested China Milk 3th November 2009
Reasons:
-Revenue derived from the sale of our pedigree bull semen dropped by approximately 91.6%. -China Milk lost almost all its margins -Operating Profits drop by 80.8% -Cannot see what the management is doing to overcome the obstacles they are facing.
Did not study company’s external factors-Government impact, their suppliers.

-The drop of the raw milk price was mainly attributable to the raw milk buyers/milk processers exercising more testing/quality procedures which have led to their costs going up and that they are reluctant to absorb such costs; and on the other hand, the influx of cheaper imported milk powder.

- More stringent government controls on the quality of raw milk resulting from melamine incident in China lead to higher costs of keeping dairy cattle by local farmers.

-Increase in cheaper imported milk powder was mainly caused by excess supply of milk powder from overseas which resulted from excess raw milk being produced in overseas countries. This has also caused the decrease in the raw milk prices abroad too.

Did not study their competitors, not only locally but aboard.
-Intense price competition by local and overseas producers of bull semen and cow embryos will continue to keep prices of China Milk’s bull semen down and the demand for the Group’s cow embryos low

- Imported milk powder is now selling in China at more competitive prices => milk processors may choose to process milk products with the imported milk powder rather than purchase raw milk from farmers.

-There are also some advantages that milk powder possesses over raw milk, for example,
i.) as long as you have bought the milk powder from a reputable source, then there would not be any quality issues;
ii.) Easier shipping and transportation; and
iii.) Longer shelf-life as compared to raw milk which is significantly more perishable.
Did not apply buffet’s rule no.1: Invest in companies with long good record history.
Did not apply buffet’s rule no.3 properly: Know the industry, is it price competitive.
No doubt, the milk industry is very lucrative in China, but competitors overseas outshine China Milk taking away its future growth prospects, moreover management don’t seem to be doing anything to tackle this problem.
China Milk going forward process
-Focus on herd size expansion
-Actively participated in marketing events such as food fairs, sampling booths at supermarkets and promotional activities at shopping malls => showcase Yinluo brand of dairy products and gather consumer feedback
-Adopting an effective cost management strategy as the Group envisions lower revenue and smaller margins ahead, in view of the challenging business environment

Willing to buy back again, if the company can get back its margins &Operating profits in the coming quarters. The company needs to show me it is able to overcome competitors & their advantages, to take back their market share.

Divested SinoTechFiber 3th November 2009
Did not act fast enough when fundamentals were dropping.
Focused too much on their high profit margins, contracts with the government, high ROE all these are too good to be through. Especially its industry (Textile) where competitors very easily come in taking away its profits and future growth. In addition, consumers in this industry is also very flicked minded, certain times they demand cotton then fibre then linen.
Mistake learnt: Study the industry properly! Have a long term vision (2-3years from now) of where the company will be given that it is operating in this industry, what are they doing to keep it their edge?

Divested China Essence 3th November 2009
The business involves selling potato starch/protein and products related to that commodity.
The company is expanding very rapidly since the beginning of this year, the expansion is so rapid that a huge chunk of their cash reserves are gone and there have to take up extra loans and debt related instruments. A quick look at the latest balance sheet/cash flow highlights indicates the following
-Cash balances from FY 08: 484.3million drops to FY 09:168.3million
-Gearing shot up to 61.8% in FY 09 from 36.5% in FY 08
-Debtor Turnover up 77 days from 34 days
-Inventory turnover up 85 days from 53 days
-Operational cash flow drops from a positive 217.3million to a negative 62.5million
-Net decrease in cash flow 314.3million due to heavy investment inputs
Despite all these, this is the result they give me,
-Revenue drop 36%
-profit drop 58%
-Company losing its margins.
-Gearing is not improving, increased to 61.9%.
-Their growth prospects do not excite me any longer.
Lessons learnt here: Be vigilant and take time to update all released reports by the company, especially those small to medium size firms/ high growth firms/start ups.
-Best is still stick to Buffet’s 1st rule: Invest in good long track record companies.
Company’s argument
-Current slowdown in demand is temporary
-Long term demand for potato starch remains firm due to its wide application in food and non-food industries
-Earnings supported by China Essence’s wide range of other potato starch-based and by-products
-China Essence continues to expand its distribution network in China, especially in Guangdong and Fujian in the Southern region; as well as Shanghai
Perhaps then the company will prosper through its good local distributors and product quantity coverage, in the mean time; all those expansions do not seem to yield any good result by far, debtor turnover is what worries me.

Total Invested: $4347
Total Loss Accepted: $1437
Final word: Perhaps I’ve made another mistake? Are my reasons for divesting these stocks too short sighted? Are my initial reasons for holding on to these stocks like
Huge cash reserves
Good economics of scale (Didn’t study enough)
Strong economic moat (Did not understand enough, how strong it is)
Low PE ratio of 7 times, acceptable PBV of 1.9, Strong ROE
Also too short sighted?
Any advice?

Save early. It's as simply as that.

2009-10-22T19:27:00.003+08:00

Start saving early, its as simply as that... and it could make a world of difference to your retirement plans. Time is your best friend as you will find in this story. Here, we assume five individuals at different stages of their life, from those earning at entry-level, to those close to retirement age. All aim to achieve a monthly income of S$2,500 during their retirement years from age 62 to 82. We also taken into account that the inflation rate stands at 3% per annum, meaning that the general cost of goods and services rises by that amount each year.

Further, we assume that whatever the investors save during their pre-retirement days will earn 8% annually. After they hit the age of 62, we assume that the return on their savings drops to 4% per annum as they take less risk in their investments. This simple illustration does not take into account your other financial needs, such as whether you have planned for your insurance needs (life or term insurance, mortgage insurance, health and hospitalization plans).

If You're 25
Savings: S$0
Monthly Salary: S$2,500
Rate of Increase in Wages: 3% p.a.
Number of Months in Bonus: 2 months
Housing Loan: Not Required
What You Need to Save per Month for the next 37 years: S$158.30

Planning for your retirement when you are 25 years old may seem a bit far-fetched. But the benefits of starting early cannot be underestimated. Assuming that a person starts working at 25 with a salary of S$2,500, you would need to save S$158.30 per month to ensure that your retirement income can stand at S$2,500 per month during your retirement days, which we assume will run from the age of 62 all the way to 82. Even with no savings to start with, having a regular savings plan (RSP) may be a good way to start planning. An RSP would ensure that you have the discipline to force yourself to invest – there is little room for excuses! Very often, we may be tempted to use up our savings for a travel trip or to purchase that dream car. And even for those who believe in the merits of investing, they may not have the discipline of investing regularly because they feel it is not the "right" time to invest. This could be especially true when markets are going through a bull run and some may feel that it is too expensive to go into markets. An RSP is a disciplined way to ensure that you will invest no matter markets are up, down or sideways.

If You're 35
Scenario 1
Savings: S$0
Monthly Salary: S$6,000
Rate of Increase in Wages: 3% p.a.
Number of Months in Bonus: 2 months
Housing Loan: S$800 per month over 30 years
What You Need to Save per Month for the next 27 years: S$666.57

Scenario 2
Savings: S$40,000 (earning 1% p.a.)
Monthly Salary: S$6,000
Rate of Increase in Wages: 3% p.a.
Number of Months in Bonus: 2 months
Housing Loan: S$800 per month over 30 years
What You Need to Save per Month for the next 27 years: S$620.73

At the age of 35, the monthly salary is assumed to have risen to S$6,000. But being able to afford an expensive lifestyle has meant that there are no savings in the bank account, and now you have a housing loan to deal with. While things do not look very bright, it is not too late. Save S$666.57 per month and you could ensure that you have S$2,500 every month during your retirement days.

If You're 45
Scenario 1
Savings: S$0
Monthly Salary: S$8,000
Rate of Increase in Wages: 3% p.a.
Number of Months in Bonus: 2 months
Housing Loan: S$800 per month over 20 years
What You Need to Save per Month for the next 17 years: S$1692.34

Scenerio 2
Savings: S$40,000 (earning 1% p.a.)
Monthly Salary: S$8,000
Rate of Increase in Wages: 3% p.a.
Number of Months in Bonus: 2 months
Housing Loan: S$800 per month over 20 years
What You Need to Save per Month for the next 17 years: S$1582.63

At the age of 45, things will get tougher if no plans have been made yet for retirement. After all, the time horizon till the retirement age of 62 is less than 20 years. Assuming that there are no savings in the savings account, you would need to save S$1692.34 per month. And even with savings of S$40,000, you would still need to save S$1,582.63 per month.

If You're 55
Scenario 1
Savings: S$0
Monthly Salary: S$10,000
Rate of Increase in Wages: 3% p.a.
Number of Months in Bonus: 2 months
What You Need to Save per Month for the next 7 years: S$5319.54

Scenario 2
Savings: S$40,000 (earning 1% p.a.)
Monthly Salary: S$10,000
Rate of Increase in Wages: 3% p.a.
Number of Months in Bonus: 2 months
What You Need to Save per Month for the next 7 years: S$4937.02

The lesson is to start early. The later you drag your retirement planning, the higher the cost. You would need to save over S$5,000 per month (over half your salary) from the age of 55 to 62 to ensure that you have S$2,500 per month during your retirement days.

Information was provided by CIMB BANK

Taking a break.

2009-08-12T00:27:00.002+08:00

The organization will be taking a break. Any problems or questions do feel free to email the one in charge at nwcigotbetter2009@live.com.

Newshighlight (6)

2009-08-05T19:28:00.005+08:00

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.

Portfolio Update :July 2009

2009-07-24T16:08:00.011+08:00

Every half a year, I will do a simple summary update on my companies; what have they been doing during this past six months and if possible what are they going to do for the imminent future. So to start off a simple recap on my current holdings are as follows
1) Capital Commercial Trust (CCT)
2) China Milk Products Group Limited
3) China Essence Group Ltd
4) First Shipping Least Trust (FSLT)
5) China Paper Ltd

Let's begin with..
Capital Commercial Trust (CCT) has a portfolio consists of 11 quality office buildings primarily situated in the prime location - Central Area - of Singapore. The properties are Capital Tower, Six Battery Road, One George Street, HSBC Building, Starhub Centre, Robinson Point, Raffles City Singapore (60% interest through RCS Trust), Bugis Village, Wilkie Edge, Golden Shoe Car Park and Market Street Car Park. In Malaysia, CCT holds 30% stake in Quill Capita Trust (QCT), a commercial REIT listed on the Bursa Malaysia Securities Berhad that owns commercial properties in Kuala Lumpur, Cyberjaya and Penang. CCT also has 7.4% stake in the Malaysia Commercial Development Fund. Going forward, CCT will unlikely be acquiring new assets/buildings due uncertainties of the future, until such that the latter proves otherwise, CCT will continue to expand seeking out good assets to enhance shareholder value according to Lynette leong CEO of the trust.
In addition, CCT has recently issue rights to pay down their current debts in doing so reducing their debt ratio from 40%+ to a low of 31%, the rights was issued in May-June period and was oversubscribed by 1.35times.
CCT’s latest quarter to quarter distribution per unit increase 29% from 2.58cents to 3.33cents after factoring in the rights unit. Which give an 8.2% annual yield using June 2009 share price of $0.81 and a 9.5% yield for my own holdings in the company which averages out to be $0.64 per share? This is because of improved operating margins, higher rental rates and good cost cutting measures.
Net asset value after rights issue is $1.54 which gives me a 140% margin of safety which in my view is substantial enough to continue to hold on to CCT.
In debt aspects, CCT has 8 assets to secure additional debts, strong balance sheet due to the rights issues and about $665million untapped balance from S$1.0 billion multicurrency medium term note programme. This is important to know, because it shows that CCT has at least defences against downward risks for the coming future. The ability to refinance is therefore in my opinion decent. About $900million of debts will expire in 2011.

A question was posted to the CEO of CCT during the Asian investment conference on the new supply of offices in Singapore, what is CCT going to do about this in light of new supplies that might push down rent rates and entice tenants to switch. Her reply was that the government have been reducing new supplies of A graded office spaces about 8million sq feet in total for the next 5 years and should the time to get new good valued office buildings comes, CCT will not let the chance go by.

On overseas acquisitions, CCT unlikely be buying foreign office buildings because of reasons such as “not in vision”, “the lack of influence and economics of scale”, “political issues” and “the lack of expertise”.
Comparing CCT with my requirements of holding is as follows
* The trust must focus on office rentals in Singapore
* The trust must have good debt management
* The trust has to actively enhance DPU
* The trust must build good relationship with tenants
* Share Price must be significantly below NAV
* Share Price must allow a yield of more than 8%

China Milk
The only company whose annual report is that of a glass of milk. :] A quick look at their finances
Total revenue for 2009 is 723million RMB, up 25.5% from 2008, net asset value per share up 0.5cents to 2.96 RMB which equates to $SG0.59so far so good ya, but as we look at other components net profit dropped by a whopping 20.4% and EPS from 65RMB cents drop to 52.0cents..Why arh? Upon closer inspection of the P/L account, the accounts "Change in fair value of derivative financial instruments" dropped from a positive 76.9million at a negative 12.6million RMB. Just to keep things simple, this account has something to do with repaying their zero coupon convertible bonds that are due 2012. , as stated in their notes to financial statements "The fair value loss resulting from change of the derivative component of convertible bonds...blahx3"

China Milk's Chairman 2009 message indicated the effects of the melamine scandal the on the company. The bad effects are poor public confidence in some local brands thus giving more opportunities for foreign brands to enter the market which they are perceived as safer. Stricter government controls have resulted in higher cost for the farmers, thus they who are clienteles of China Milk will scale down their herd size thereby reducing the demand for bull semen and cow embryos. The positive effects is that most small milk companies in China are either wiped out or having a hard time coping with the strict high cost requirements, therefore China Milk has a n increase opportunity to build their own brand "YinLuo" instead of relying on others for their milk processing business.

On another aspect, the balance sheet of China Milk at first got me worried, because their receivables increased substantially from 60.2million to 119.3million, management reviews that some of their customers were facing tighter cash flows...however the management stated that 2/3 of this balance has been subsequently received. Whatever that means, I will be subsequently reviewing this matter, the thing about S-shares is that once receivables start building up, something is really wrong...soo as an investor of the company must really take note of such figures. Operational cash flow remain healthy ,cash balance stays at 1.6billion rmb and once their convertible bonds mature in 2012, the convertible debts will amount to 1.4billion or less.

Comparing China Milk with my requirements of holding is as follow
*Company must maintain their profit margins
*Company must take care of their high debts with their also high cash holdings
*Company balance sheet must be healthy with receivables in check (looking into it)
*NAV must be increasing
*The usual must also be strong /Operational cash flow/EPS/ROE/Net margins.

China Essence
The business involves selling potato starch/protein and products related to that commodity.
The company is expanding very rapidly since the beginning of this year, the expansion is so rapid that a huge chunk of their cash reserves are gone and there have to take up extra loans and debt related instruments. A quick look at the latest balance sheet/cash flow highlights indicates the following
-Cash balances from FY 08: 484.3million drops to FY 09:168.3million
-Gearing shot up to 61.8% in FY 09 from 36.5% in FY 08
-Debtor Turnover up 77 days from 34 days
-Inventory turnover up 85 days from 53 days
-Operational cash flow drops from a positive 217.3million to a negative 62.5million
-Net decrease in cash flow 314.3million due to heavy investment inputs
Have to keep a vigilant eye on the coming quarters of China Essence, especially its trade receivables that have increased to about 150% from 104million to 269million. Yes no doubt it could be good for a commodity linked company (especially in China) such as essence to expand fast, but if they compromise their capital management because of their rapid expansion then it's not worth holding on to this stock as this might result in bad debts in turn casing troubles like banks demanding back their money, thereby draining the company's cash balances and it could be a going concern problem.
First Ship Lease Trust (FSLT)a.k.a (FSL)
FSL Trust owns and leases vessels to maritime companies (lessees) on a long-term bareboat charter basis (7 years at least), with a total of 23 vessels in their portfolio all of which the trust does not operate thus saving on operational cost and are diversified among different vessel types and of course different clients.

FSLT has the highest debt to equity ratio among the companies under my holdings, with 67% DER; $544 debts vs. $366millio in equities. Refinancing will be needed by 2012 $265million of expiring debts that is..In light of this situation the trust have already started reducing their distribution pay outs per unit (DPU) since 4th quarter of 2008. Previous policy was 100%, now it has been reduced to 75%, 15% of which will be used to repay debts. Total DPU for 2008 was $0.17 Singapore cents. Estimated DPU for 2009 will be $0.17*0.75=$0.12 holding other things constant like current exchange and DPU payouts for the 3 other quarters. OCBC mentioned that they believe the Trust will further reduce their DPU payouts to 50% in the near future, so my estimated DPU should be around 0.08-0.09 cents for this year. This ultimately gives me 17-19% yield for this year and 14-15% next. Well, some people might find the yield high but my previous expected yield was 34% when i bought it at $0.47 during sept 2008... lol. Kudos to those who bought below $1. Going forward, the trust will probably not acquire new ships, more reducing of DPU to be expected and hopes that the shipping industry will recover asap.
FIY, none of FSL clients have delayed payment or negotiated payment on rentals.
Comparing FSL with my requirements of holding is as follows
*Trust must still have diversified clients and rental of ships (Duh...)
*Trust must take measures with regards to its high debt levels
*Trust's policy of not incurring operating cost must still be implied
*Whether or not the company is even able to sustain this dividend payout has yet to be tested in this strong bear market. However, setting a limit of tolerance, of 7 cents, if company dividend should go below that payout for 2009 and 2010, activate sell.
*Any default by the clients, have to be taken noticed. Consider a sell; if there are two or more defaults in 2009.So far, clients have not created any problems.
I had at first difficulty completing this post, because there are so many annual reports and analyst report to read T_T. Imagine those people with 50 or 60 companies in their portfolio! How hard will it be for those people to keep in touch with their companies?

The next coming crisis. Beware.

2009-07-20T10:54:00.004+08:00

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:

Sarbanes-Oxley increased corporate disclosures and government oversight
Federal Reserve's cheap money policies created the subprime-housing boom
War budgets burdened the U.S. Treasury and future entitlements programs
Trade deficits with China and others destroyed the value of the U.S. dollar
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

News Highlights (5)

2009-07-13T10:03:00.005+08:00

Is there still trust in Reits?

Real estate investment trusts do look attractive in the long term at current prices, but investors must choose carefully and diversify their investments accordingly.

With lower prices, S-Reits (Singapore listed Reits) now offer dividend yields of around 12.4%, compared with around 7.3% a year ago and 4% in june 2007. Sibor rates have also fallen, from 2.7% in June, to the current 0.7%. Dividends yield premium has thus improved to 11.9%, from just 1.4% two years go. Prices of Reits are also at more affordable levels now. For etc, the prices of CMT (CapitalMall Trust), A-Reits and Mapletree were at $1.40,$1.59 and $0.56 respectively as at june 30 2009, around half the prices in june 2007. Do also note that, even though the prices of Reits have almost halved, it doesn't mean its a value buy because systemic perceived risk have more or less doubled in 2009 as compared to 2007. -Akat

Most importantly, the good and bad Reits are now easier to differentiate. How is this so? The lower "tide" (which means the current economical problems of the world) has exposed Reits that have bad assets and have been poorly managed making investment decisions easier then two years go.

Reits do look attractive in the long term at current prices, but investors must choose carefully and diversify their investments accordingly. Here are a few important factors to consider:

1)A Reit's (Not A-Reits) ability to raise funds, especially in times of turmoil, will determine its ability to thrive and survive. This is an important factor. In good times, most Reits will enhance their yields through higher leverage , but only well managed ones will be able to reduce this leverage, in challenging time or risk being challenged themselves. Without this ability, badly managed Reits will find it difficult to refinance or raise sufficient equity to repay their loans, putting them in danger of liquidation.

2)The quality of assets is another important factor, and Reits that own properties beyond just Singapore would be a plus. Too much emphasis has been put on dividends and too little on assets. Investors must bear in mind that they are buying the underlying assests hen investing in Reits-the dividends are the result of the ownership and management of the assets.

However, good assets can produce poor returns if poorly managed.

3)The quality of the managers or management is therefore another vital factor. Good managers will continuously enhance the yield of the assets and use an appropriate debt-equity mix at all times.

A sudden fall in rental revenue (poor assests? or business model), rental collection issus (High recievables) and below average rental yields (Industry not resilient) are some signs of poor management. Such Reits should be avoided.

4)Last but not least, investors must check if a counter is a Reits or a business Trust, such as CapitalMall Trust vs India Bulls Property Investment trust. The difference between the two is that the former is required to pay 90% of distributable income to unit holders, the latter has no such requirement, thus investors should therefore look closely at what they are picking to ensure the counter they choose is in line with their investment intention.

Article written by Roger Tan as at 11th July 2009

News highlight (4)

2009-07-05T15:59:00.010+08:00

Heading for inflation or deflation?
Senior correspondent Teh Hooi Ling says that specialists and experts on these topics are divided and are most likely unsure which notion will take place in the future, therefore it is sensible for investors to hedge their bets. She goes on to say that those in the deflation camp are befuddled by reports of Singaporeans queuing and rushing to snap up new properties. The enthusiasm is lifting the prices of resale properties off recent low. Leaning more towards the deflation camp, her basis is that demand is too weak to fuel inflation, in addition the horrible unemployment rate in the US with a staggering 9.5% in the month of june, suggests that inflation and unemployment are inversely related (when inflation is up , unemployment is down and vice-verse).

However she adds that as of May 2009, deposites of non-bank customers with domestic banking units and finance companies amounted to $374billion, with another $158.6billion with CPF board, in total, the sum of these three cash hoards is equivalent to the total market capitalization of all the stocks listed on the Singapore exchange. To some fund managers , a high cash holding relative to stock market capitalization is an indication of market UNDER-VALUATION.
The rally of the past few mths has brought the ratio back to levels seen at the end of 2003, when Singapore then was emerging from the slowdown caused by SARs. But now despite relatively high cash holdings, investors are not rushing into the stock market and rightly so, given the uncertain economic outlook.
Things are also never crystal clear at ths part of the recovery because by the time they are, markets would have moved even higher, leaving those on the side lines to either hope for another retracement in prices or regret not having to act fast.

Ms Teh then advice the sensible thing to do is hedge your bets, positioning your portfolio to cater to an inflationary environment and some to deflationary.
Gold commodities and inflation-linked bonds and real estates (Reits too) are natural inflation hedges.
Good Reits to consider are CapitalMall Trust/Ascendas Reits/ Frasers Centre point Trust/ and CapitalCommerical Trust are expected to be the most resilient against external shock.
But in a deflationary environment , cash and cash equivalents are king.

News information was collect from Business Times as of 04 july 2008, writers by Teh Hooi Ling/Wong Sui Jau and S&P data

When should you sell a stock?

2009-06-12T11:30:00.006+08:00

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:

The company is slow in billing its customers.
Customers don't have the cash to pay.
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

The answers from Mary Rowland:

1. Do you have too much emotion wrapped up in a stock?

"If you want to be a successful investor, you have to separate yourself from the emotions," said John Zbesko, senior equity researcher at Schwab Equity Ratings at the Schwab Center for Financial Research. "The market doesn't care about your feelings." So don't hang on to a stock just because you inherited it from Grandma or its ticker symbol matches your initials.

2. Do the reasons why you bought the stock still hold?

You can't know when to sell a stock unless you know why you bought it.

"Think about the reasons why you thought the stock was attractive in the first place, and if those reasons are no longer true, then you should [consider selling]," Mr. Zbesko said.

3. Have the company's financial health and future prospects deteriorated?

This is the key question you need to ask.
Assess the reliability of your company's profits well into the future. Does it have sustainable competitive advantages, or can competitors easily horn in on its turf?

Is the company's debt increasing?

Growing debt isn't necessarily bad if the company's profitable and it's using the funds to invest in growth projects or buy back shares. The key question is whether the company can pay its debts long term. Are inventory levels rising? Make sure "accounts receivable" – money owed the company – and inventory aren't growing faster than sales, as that suggests things are getting out of control.

But be careful of bailing just because a company misses earnings estimates.

"You're going to miss some earnings estimates," said William Reichenstein, investments professor at Baylor University. You can overlook an occasional setback, he said, if the reasons why you bought the stock are still valid.

4. Did you miss something when you first evaluated the company?

"Perhaps you thought management would be able to pull off a turnaround, but the task turned out to be bigger than you thought," Pat Dorsey, director of equity research at research firm Morningstar, wrote in an article.

"Or maybe you underestimated the strength of a company's competition, or overestimated its ability to find new growth opportunities," he said. "If your initial analysis was wrong, cut your losses and move on."

5. Has the stock become too large a part of your investment portfolio?

A fundamental tenet of investing is to diversify your holdings. You may want to consider selling if you're overloaded in a particular stock.

6. Is the stock soaring while earnings at the company aren't growing?

"By themselves, share-price movements convey no useful information, especially since prices can move in all sorts of directions in the short term for completely unfathomable reasons," Mr. Dorsey said.
How a stock performs in the future is largely based on the expected future cash flows of the company, so when you're making a sell decision, look to the future, rather than the past.

7. Is the overall stock market rallying but your stock isn't?

Consider selling, especially if it's a stock that tends to move in sync with the market, but don't take that step before analyzing what's going on with the company.

8. Is there a better stock to buy? "The decision whether or not to sell a stock boils down to one rule: Sell an existing holding if a superior stock is available," said Greg Forsythe, senior vice president of Schwab Equity Ratings. Sell a stock if another that suits your risk tolerance and has more return potential – after subtracting any taxes and transaction costs – is available, he said.

9. Do you really need the money and have no other resources?

Stocks are long-term investments, so hold on to them if you can. But if you need the money, by all means sell.

In the future, however, if you expect you'll need the money in fewer than five years, consider putting the funds in a money market mutual fund, which has less volatility.

10. Have you hit your predefined pain threshold?

How bad does the loss have to be before you head for the exit? Once it hits that threshold, consider selling.

Undiscovered Gem sector- Managed Futures fund!

2009-06-09T14:19:00.003+08:00

Many individual and institutional investors search for alternative investment opportunities when there is a lackluster outlook for U.S. equity markets. As investors seek to diversify into different asset classes, most notably hedge funds, many are turning to managed futures as a solution. However, educational material on this alternative investment vehicle is not yet easy to locate. So here we provide a useful (sort of due diligence) primer on the subject, getting you started with asking the right questions.

Defining Managed Futures The term "managed futures" refers to a 30-year-old industry made up of professional money managers who are known as "commodity trading advisors" (CTAs).

CTAs generally manage their clients' assets using a proprietary trading system, or a discretionary method, that may involve going long or short in futures contracts in areas such as metals (gold, silver), grains (soybeans, corn, wheat), equity indexes (S&P futures, Dow futures, NASDAQ 100 futures), soft commodities (cotton, cocoa, coffee, sugar) as well as foreign currency and U.S government bond futures. In the past several years, money invested in managed futures has more than doubled and is estimated to continue to grow in the coming years if hedge fund returns flatten and stocks underperform.

The Profit Potential. One of the major arguments for diversifying into managed futures is their potential to lower portfolio risk. Such an argument is supported by many academic studies of the effects of combining traditional asset classes with alternative investments such as managed futures. Dr John Lintner of Harvard University is perhaps the most cited for his research in this area.Taken as an alternative investment class on its own, the managed-futures class has produced comparable returns in the decade before 2005. For example, between 1993 and 2002, managed futures had a compound average annual return of 6.9%, while for U.S. stocks (based on the S&P 500 total return index) the return was 9.3% and 9.5% for U.S. Treasury bonds (based on the Lehman Brothers long-term Treasury bond index). In terms of risk-adjusted returns, managed futures had the smaller drawdown (a term CTAs use to refer to the maximum peak-to-valley drop in an equities' performance history) among the three groups between Jan 1980 and May 2003. During this period managed futures had a -15.7% maximum drawdown while the Nasdaq Composite Index had one of -75% and the S&P 500 stock index had one of -44.7%. An additional benefit of managed futures includes risk reduction through portfolio diversification by means of negative correlation between asset groups. As an asset class, managed futures programs are largely inversely correlated with stocks and bonds. For example, during periods of inflationary pressure, investing in managed futures programs that track the metals markets (like gold and silver) or foreign currency futures can provide a substantial hedge to the damage such an environment can have on equities and bonds. In other words, if stocks and bonds underperform due to rising inflation concerns, certain managed futures programs might outperform in these same market conditions. Hence, combining managed futures with these other asset groups may optimize your allocation of investment capital.

Evaluating CTAs Before investing in any asset class or with an individual money manager you should make some important assessments, and much of the information you need to do so can be found in the CTA's disclosure document. Disclosure documents must be provided to you upon request even if you are still considering an investment with the CTA. The disclosure document will contain important information about the CTA's trading plan and fees (which can vary substantially between CTAs, but generally are 2% for management and 20% for performance incentive).

Trading ProgramFirst, you will want to know about the type of trading program operated by the CTA. There are largely two types of trading programs among the CTA community. One group can be described as trend followers, while the other group is made up of market-neutral traders, which include options writers.

Trend followers use proprietary technical or fundamental trading systems (or a combination of both), which provide signals of when to go long or short in certain futures markets. Market-neutral traders tend to look to profit from spreading different commodity markets (or different futures contracts in the same market). Also in the market-neutral category, in a special niche market, there are the options-premium sellers who use delta-neutral programs. The spreaders and premium sellers aim to profit from non-directional trading strategies.

Drawdowns Whatever type of CTA, perhaps the most important piece of information to look for in a CTA's disclosure document is the maximum peak-to-valley drawdown. This represents the money manager's largest cumulative decline in equity or of a trading account. This worst-case historical loss, however, does not mean drawdowns will remain the same in the future. But it does provide a framework for assessing risk based on past performance during a specific period, and it shows how long it took for the CTA to make back those losses. Obviously, the shorter the time required to recover from a drawdown the better the performance profile. Regardless of how long, CTAs are allowed to assess incentive fees only on new net profits (that is, they must clear what is known in the industry as the "previous equity high watermark" before charging additional incentive fees).Annualized Rate of ReturnAnother factor you want to look at is the annualized rate of return, which is required to be presented always as net of fees and trading costs.

These performance numbers are provided in the disclosure document, but may not represent the most recent month of trading. CTAs must update their disclosure document no later than every nine months, but if the performance is not up to date in the disclosure document, you can request information on the most recent performance, which the CTA should make available. You would especially want to know, for example, if there have been any substantial drawdowns that are not showing in the most recent version of the disclosure document.Risk-Adjusted ReturnIf after determining the type of trading program (i.e. trend-following or market-neutral), what markets the CTA trades and the potential reward given past performance (by means of annualized return and maximum peak-to-valley drawdown in equity), you would like to get more formal about assessing risk, you can use some simple formulas to make better comparisons between CTAs.

Fortunately, the NFA requires CTAs to use standardized performance capsules in their disclosure documents, which is the data used by most of the tracking services, so it's easy to make comparisons.The most important measure you should compare is return on a risk-adjusted basis. For example, a CTA with an annualized rate of return of 30% might look better than one with 10%, but such a comparison may be deceiving if they have radically different dispersion of losses. The CTA program with the 30% annual return may have average drawdowns of -30% per year, while the CTA program with the 10% annual returns may have average drawdowns of only -2%. This means the risk required to obtain the respective returns is quite different: the 10%-return program with a 10% return has a return-to-drawdown ratio of 5, while the other has ratio of 1. The first therefore has an overall better risk-reward profile.Dispersion, or the distance of monthly and annual performance from a mean or average level, is a typical basis for evaluating CTA returns. Many CTA tracking-data services provide these numbers for easy comparison. They also provide other risk-adjusted return data, such as the Sharpe and Calmar Ratios. The first looks at annual rates of return (minus the risk-free rate of interest) in terms of annualized standard deviation of returns. And the second looks at annual rates of return in terms of maximum peak-to-valley equity drawdown. Alpha coefficients, furthermore, can be used to compare performance in relation to certain standard benchmarks, like the S&P 500.Types of Accounts Required to Invest in a CTA Unlike investors in a hedge fund, investors in CTAs have the advantage of opening their own accounts and having the ability to view all the trading that occurs on a daily basis.

Typically, a CTA will work with a particular futures clearing merchant (FCM) and does not receive commissions. In fact, it is important to make sure that the CTA you are considering does not share commissions from his or her trading program - this might pose certain potential CTA conflicts of interest. As for minimum account sizes, they can range dramatically across CTAs, from as low as $25,000 to as high as $5,000,000 for some very successful CTAs. Generally, though, you find most CTAs requiring a minimum between $50,000 and $250,000. ConclusionBeing armed with more information never hurts, and it may help your avoid investing in CTA programs that don't fit your investment objectives or your risk tolerance, an important consideration before investing with any money manager. Given the proper due diligence about investment risk, however, managed futures can provide a viable alternative investment vehicle for small investors looking to diversify their portfolios and thus spread their risk. So if you are searching for potential ways to enhance risk-adjusted returns, managed futures may be your next best place to take a serious look.If you'd like to find out more, the two most important objective sources of information about CTAs and their registration history are the NFA's website and the U.S. CFTC's website. The NFA provides registration and compliance histories for each CTA, and the CFTC provides additional information concerning legal actions against non-compliant CTAs.

by John Summa (Contact Author Biography) taken from
http://www.investopedia.com/articles/optioninvestor/05/070605.asp

News Highlight (3)

2009-05-31T16:47:00.005+08:00

Mature man earns $800,000 in capital gains and more

Full time retail investor Isaac Chin, 60 , was waiting on the stock market sidelines with $3million in cash when the local benchmark STI sank to a record low in march.

He decided that the market has bottomed out and backed his judgement by investing the full $3m in four REITs that month.

"When the STI hit 1,457 i bought heavily into A-Reits, CapitaMall Trust (CMT), Suntec Reits and CapitalCommerial Trust (CCT) he claims. "At that time, my friends advised me to wait for better bargains should the STI hit the 1260 level as predicted by soo many" My rationale was that a further 'discount' of 200 points was good but unnessary as the STI had dropped from about 3900 a year ago. I was proven correct.

The sum of $3million came from loans from two banks in August last year against his thee condominium units , which werw valued at about $6million then. Based on the interest charge of 2% on the loan, the monthly instalment works out to about $20,000. This amount includes the principal and interest repayment for 14 years.

"I pay a 2% interest on the loan based on the reducing valance. The four were bought at very attractive prices with dividend yields averaging 10-12%. Simple mathematics taught me that i can make a difference of at least 8% per annul with a further potential for enormous capital gains when the economy and share prices recover in a few years' time", he said.

He said that he had bought A-Reits at $1.03, CMT at 97c , Suntec Reits at 65c and CCT at 0.62c a unit. He added that he liked the four Reits as their dividends are non-taxable and they represent prime real estate here. As of Friday 29Th May 2009 , all Four Reits rose in share price giving him a capital gain of about $800,000.

Taken from Weekend Business Times 30-31May 2009

Possible lesson learnt from here.

1) Have guts, to invest when others are fleeing

2) Find low interest borrowing methods and invest in financial instruments that give high yields

3)Benefit then from the spread.

4) Know what you re doing. In terms of weigthing risks and returns

CCT update 22nd May 2009

2009-05-22T14:51:00.008+08:00

What are rights issues?
Under a secondary market offering or seasoned equity offering of shares to raise money, a company can opt for a rights issue to raise capital. The rights issue is a special form of shelf offering or shelf registration. With the issued rights, existing shareholders have the privilege to buy a specified number of new shares from the firm at a specified price within a specified time. A rights issue is offered to all existing shareholders individually and may be rejected, accepted in full or accepted in part. Rights are often transferable, allowing the holder to sell them on the open market.
To issue rights the financial manager has to consider:
Subscription price per new share
Number of new shares to be sold
The value of rights
The effect of rights on the value of the current share
The effect of rights to existing and new shareholders
A right to a share is generally issued on a ratio basis (e.g. one-for-three rights issue). Because the company receives shareholders' money in exchange for shares, a rights issue is a source of capital.
Rights issues may be underwritten. The role of the underwriter is to guarantee that the funds sought by the company will be raised. The agreement between the underwriter and the company is set out in a formal underwriting agreement. Typical terms of an underwriting require the underwriter to subscribe for any shares offered but not taken up by shareholders. The underwriting agreement will normally enable the underwriter to terminate its obligations in defined circumstances. A sub-underwriter in turn sub-underwrites some or all of the obligations of the main underwriter; the underwriter passes its risk to the sub-underwriter by requiring the sub-underwriter to subscribe for or purchase a portion of the shares for which the underwriter is obliged to subscribe in the event of a shortfall. Underwriters and sub-underwriters may be financial institutions, stock-brokers, major shareholders of the company or other related or unrelated parties. The Panel’s guidance covers both non-underwritten and underwritten rights issues.

Basic example
An investor: Mr. A had 100 shares of company X at a total investment of $40,000, assuming he purchased the shares at $400 per share.
Assuming a 1:1 rights issue at an offer price of $200, Mr. A will have the option to subscribe to additional 100 shares of the company at the offer price. Now, if he exercises his option, he would have to pay an additional $20,000 in order to acquire the shares, thus effectively bringing his average cost of acquisition for the 200 shares to $300 per share ((40,000+20,000)/200=300). Although the price on the stock markets should reflect a new price of $300 (see below), the investor is actually not making any profit nor any loss.

What this means is that you have been “forced” to pump in more of your money just to maintain your ownership of the company.

The company: Company X has 100 million outstanding shares. The share price currently quoted on the stock exchanges is $400 thus the market capitalization of the stock would be $40 billion (outstanding shares times share price).
If all the shareholders of the company choose to exercise their stock option, the company's outstanding shares would increase to 200 million. The market capitalization of the stock would increase to $60 billion (previous market capitalization + cash received from owners of rights converting their rights to shares), implying a share price of $300 ($60 billion / 200 million shares). If the company were to do nothing with the raised money, its Earnings per share (EPS) would be reduced by half. However, if the equity raised by the company is reinvested (e.g. to acquire another company), the EPS may be impacted depending upon the outcome of the reinvestment.

CCT ISSUES RIGHTS
CapitaCommercial Trust (C61U.SG) said Friday that it will offer 1.4 billion units under a rights issue to raise about S$828.3 million. The trust will offer one rights unit for every existing unit at S$0.59 each, it said in a statement. Units of CapitaCommercial closed Thursday at S$1.06 each. Proceeds will be used to reduce borrowings, and for general corporate and working capital purposes. CapitaCommercial is managed by CapitaCommercial Trust Management Ltd., which is an indirect wholly owned unit of CapitaLand Ltd. (C31.SG). The rights issue is fully underwritten. DBS Bank Ltd., Cazenove & Co. (Singapore) Pte. Ltd. and United Overseas Bank Ltd. are the joint lead managers and underwriters, the trust said.

The reasons for doing so is to reduce their gearing, improve financial flexibility by boosting its balance sheet and improving its credit profile. According to Daiwa Institute of Research, CCT is building up capacity to refinance debt and creating a buffer against potential asset write-downs. What this simply means, is that CCT’s assets (their buildings) are falling in value and are raising more capital in order to build more confidence with their existing or future lenders and to prevent early redemption of loans for etc their $885million due next year in 2010.

WHAT TO DO NOW?
Basically there are only three decisions for the unit holder to decide. Either..

1)Activate your rights issue

2)Sell your rights issue.

3)Sell everything.

Do give me the opportunity to explain the process of each decision in detail to the best of my knowledge :)

Take for example you bought CCT at 0.70 per share in march 2009, say you bought 10 lots, spends a total of $7000 barring out all commission and extra transaction cost to make things simple. So, initially your expected yield from CCT for FY 2009 is $1200 which is 17.1%

Now, if you choose decision 1) which is to activate your rights issue, you have to spend another (0.59*10,000)= $5,900. The rights issue share price of 0.59 represents a 44% discount to the stock’s last traded price of $1.06
And a discount of 61% discount to their new estimated calculated NAV figure of $1.51 after taking into account the revaluation and completion of the rights.

Therefore in total you spent $12,900 in order to maintain both your expected yield % for FY 2009 which is $1200 and margin of safety to NAV. And if you have noticed, the % yield has dropped from 17.1% to a mere 9% , this is because i did not factor in any positive effect coming from the extra capital that will help CCT this year or in the future, just to be conservative. Therefore the downside here is, the opportunity cost , what you can do with the $5,900 if you didn't put it into the rights?

Ok, now.. if you choose decision 2) which is to sell your rights issue, then you need not spend $5,900 and he initially get the extra profit if he sells his right at $1.06? WRONG! The stock market will not be soo stupid to maintain the share price of CCT at $1.06, my good guess is that the market will pressure the share price of CCT to about $0.80-0.91 at best. So, if we assume that the share price of CCT after their trading halt is lifted at $0.80, the profit made from selling his rights would probably amount to ($0.80-$0.59= $0.21*10,000 = $2,100). Looks like a good decision to make right? Can save the extra $5,900 plus get another extra $2,100 from selling his rights. However... if he decides to sell, he compromises his dividend yield for FY 2009 and the future years for holding CCT. His expected dividend yield will fall 50% from getting $1200 to getting only $600 for FY 2009 and for the rest of the years. Your margin of safty from NAV was intially 75%, will drop to 53% , this then is evident of dilution.

Finally, if you choose decision 3) which is to sell everything, you probably earned, assuming share price of CCT is 0.80 after trading halt , [(0.10*10,000)+(0.21*10,000)]= $3,100 , you get back roughly $3,100 in pure profits and no worries of any exposure to things related to CCT. CCT also will have no worry to you dividends for the future years to come. All is settled,closed and silent

To decide which decision creates more value for the holder, it has to be determined by the investor him or herself. It all boils down to whether you still have confidence in CCT's growth and business model and assets.

As for me, lets look at the reasons why i bought CCT in the first place.

1) Want to gain exposure to Singapore’s rental of Office buildings, mainly banking, insurance and financial sector. In addition, a bit of Malaysia’s rental business
2) This Trust has formidable reputation with strong backing from parent company CapitaLand
3) This enables the trust to easily obtain loans, like the recent $580million using one building as collateral. Refinancing in this credit crunch environment is supposedly not a problem.
4) Past performance reviews consistent increase in revenue/profit margin and operational cash flow. Note that these are bull years, might be misleading.

5) It is also known that the trust builds good relationships with their clients

6) Their clients’ a.k.a tenants are well known and respected, like GIC, Starhub, JP Morgon, Standard Charted Bank (Big client with 15.2%)

7) Potential Upside in the future, involves increasing of rent rates (cause theirs is low as compared to market rates $7.18 vs. $11.40 psf), growth in further acquisitions in the future via Asia or mainly Malaysia.

Soo, since they issues the rights at 0.59 per share..should i choice 1)? 2)? 3)? Hahah :]

News Highlight (2)

2009-05-17T22:06:00.005+08:00

Value Hunting

Since the start of the sub-prime meltdown, investors' confidence has been at an all time low. In fact, investors' risk aversion has never been so low in the past decade. The US $/Jap Yen cross rate used often as a risk aversion barometer by the market, reached a historic low earlier this year. For a value investor, such times represent a once in a decade (if not a lifetime) chance to pick up beaten stocks at very cheap valuations. It's like your favorite departmental store offering more then 50% discount. In the financial market however, there appears to be a tendency for investors to go against such a logic. They tend to buy only as prices rise, however they will be better off behaving like the rational departmental store shopper and buy only when assets are on sale.

A tired and proven method of successful investing is to buy stocks selling at a low multiple of their earnings. Earnings are what a company has left after it has paid its expenses, a company selling at low earnings multiples is very often a better value pick then say another which is selling at a high earnings multiple.

Of course we have to compare the price-earnings multiple to its peer companies in the same industry( or/and its historical PE ratios) and also the broader indices to determine whether this company us indeed a value buy. Also a company's price to book value (PBV) is an important measure of a company's value.... those companies trading at a very low price to book ratios tend to outperform those with a high price-to-book ratios over the long run (then again, the chances of a low PBV survival rate for the next 5-10years is lower then those with a higher PBV).

And as many good old value investing books will tell you, having a "margin of safety" is imperative, especially in markets like this where it is possible to buy way below your perceived value of the stock if one is patient. This will not only minimise your gains in the long run when the market recovers-as long as one is patient and disciplined enough to follow this strategy religiously.

Many investors aim to buy only at the market bottom (especially those with limited capital), but many fail simply because it if often harder to predict the market bottom then to chose a value stock. Instead given the current conditions right now when many fundamentally strong stocks are priced at cheap valuations, it might be time to start nibbling on some of these value stocks, rather than attempt to catch the market at its bottom and risk missing out on this opportunity entirely.

Value investing is no rocket science, but it requires more effort than brains to discover the best value stocks out there. Just be warned that value investing is not for those looking for a quick gain. Only those who are patient enough to see out the end of this entire sub-prime crisis and the start of the next bull run will make a decent gain on the value stocks that they have picked up today. Caveat emptor.

Writtern by Jason Low end of 2008

News highlight (1)

2009-05-11T10:44:00.009+08:00

News highlight, a special feature to be included in my blog, where i pick certain phrases/paragraphs of notion/ideas/good advise from the news , stored it up for future reference and debates. :] Enjoy..

"Should we be invested at this stage of the equity market? The past may shed some light in helping us to strategies our move. According to a study done by Fidelity, it is shown that historically,bear market inevitably give way to bulls (Duh..) The 12mths following bear market troughs have always with one stock returns averaging nearly 46%. The implication is that we cannot afford to miss out investing during the first year of a bull market. However, we do not know if or when the market has hit its trough, therefore dollar cost averaging is the way to go. My conclusion is that investing should be based on strategy. Look at time-tested and proven strategies such as dollar cost averaging, diversifying to instruments that carry different risks and returns, locking in profits in a systematic manner and letting time win the war for you. Stay away from the new and exotic financial instruments that sounds to good to be true (probably time is need to test how good this investment product actually is) and do not try to maximise your returns . Do not be fixated with a strong view and place all your investment or a significant amount into a particular asset. The stock market will make a complete fool of us at some point. Try not to take an all-or-nothing approach. For example, in the current market conditions, when there are conflicting views on whether the market has hit a bottom, a sensible strategy would be to allocate 50% of your investment to a regular investment programme into growth funds and 20% into regions, countries or sectors that you think have hit the bottom and are now recovering on a firm uptrend. Hold the balance 30% in cash as spare capital. This is to wait for the "real" bottom, in case the market has yet to do so. Using this strategy, investors will benefit regardless of whether this is a bear market rally or the start of the next bull market because you already have investment exposure.

To highlight one final point, i will quote Mr Buffett : "No matter how great the talent or effort, some things just take time. You can't produce a baby in one mth by getting nine women pregnant" Investment requires time in the market."

Writtern by Albert Lam
Invesmtnet Director
IPP Financial Advisor

Update on Cash Rich Portfolio

2009-05-07T10:26:00.005+08:00

Update on the top 7 cash rich firms that meet both my requirements and Graham's NCAV.
China HongX bought @ 0.09 as of 7/5/09 is 0.18 total % gains = 111.76%
Sino FibreTech bought @ 0.07 as of today is 0.13 total % gains = 97%
Synear Food bought @ 0.16 as today is 0.255 total % gains = 59.38%
Sinopipe bought @ 0.07 as of today is 0.10 total % gains = 42.86%
China Sky Chem bought @ 0.16 as of today is 0.175 total % gains = 9.37%
China Flexi bought @ 0.13 as of today is 0.14 total % gains = 12%
China Paper bought @ 0.13 as of today is 23.08%
Total average gains soo far = 51.21%

I noticed something, it seems that firms whose shares are traded below their net cash, if they have a larger share holder base etc China Hx with 2.751billion shares they tend to raise faster then those with ..say China Paper with only 475million shares?

This is the trend i observe la.. I also note that because these firms present more risk to investors, therefore more returns are expected and received. Portfolio information is available at http://www.box.net/shared/fp65zs6krg

I'm i happy with my gains so far? Yes of course, who wouldn't? 51% gains within a mth. However as a value investor, i ought to know that these gains might be temporary. I have to be well grounded , stay alert on when to sell, when to buy more, constantly check if there is a change of fundamentals especially their net cash. and have a bit more guts to buy when others are fleeing. :]

Note:China Milk was also bought @0.20, today share price 0.495, which shouldn't be included in this cash rich portfolio. But is included in mine, so an investor should stick to the top 7 picks if he or she wants a purely cash rich portfolio.

On Behalf of S-shares

2009-05-02T00:14:00.011+08:00

Again i touch on the topic of S-shares.. many people just love to condemn them, they're dishonest, disgusting, disgraceful etc etc. Nick names... of course, are plenty.. S-shares = Sucker shares/Ass Shares/ Stupid shares. Many claimed them to be worse then the over heated tech stocks that traded in 1999-2000, others, just simply disregard them and run 360 degrees the other way. (Photo edited by Lawrence Law Wen Yong)

Of course, there are good reasons why these are happening to them.. names like FerroChina/Sino-Environment/China dye (Just to name a few) are synonymous with titles like "High receivables" "Going concern?" "Frauds" "Runaway" "Cheap China".

In my honest opinion, its because of these bad happenings-calling of name, shunning them, fleeing 360 degrees the other way, which is why S-shares presents great value to investors in Singapore. If an investor seeking huge gains, were to take time to analysis in detail and determine their comfort level of whats good "corporate governance" "Company's prospects" and "Company's balance sheet/PL sheets" properly to them and have the guts to invest in these beat down S-shares.. huge gains are of course more or less certain! I say these with confirmation because my "Cash-Rich Portfolio" have already risen to almost 80-120% within this one mth.

Yet im not trying to boast or anything, what im trying to say is, that some ppl will say "aiyo, ure lucky thats why.." well maybe i was lucky..but the main reason why i created my "cash-rich portfolio" was because i wanted to test out Graham's theory, and "S-shares likely the only ones to meet his strict requirements and presents these opportunities (probably once in a life time) to young investors like me!" I could also say that, "invest when fear is the greatest" could very well be applied in this notion where everyone simply hates/shuns these shares, presenting great upside to anyone who dares put their money into these shares.

And as a investor/recommend/support of these shares, i get people and friends, they expressing their concerns saying things like I'm taking too much risks ...that i need more experience..i will most probably get burned etc. In my honest opinion again, i think one of the personality of risky investors the one who chase after high flying stocks or blue chips too early relative to those who seek out those "good" companies that are heavily avoided and beaten down to a blup. For example, blue chip SIA trading at $11.20 per share in feb this year, from $11.20 dropped to $9.60 in late march 2009 while S-shares like China Hx dropped from $0.17 to $0.05. So.. if investor A buys 10 lots of SIA , he would have lost $16,000 while investor S would have lost $1200, relatively speaking. So this is the risk im talking about, because i have limited capital, i cannot stomach the lose of 16k, while losing 1.2k is alright to me. A stock such as a blue chip has most of the good news factored into the price already, Thefore, if things changes, there are lots of profits that people can take away, thus leaving holding investors to suffer on the downside.

And with regards to getting burned, yes to be honest.. i have already got burned, bought Sino-Fibre Tech at 0.60 (1.4k) played with warren ts (3k) and possible lose of another (5.6k) IPO, total lose amount to 9k. 9k is indeed alot, but its better to lose 9k now, then lose 900k in the future right? Whats important is, to analysis the reasons why i lose this amount, what can i do to prevent this from happening again, and what lessons have i learnt from here? And of course being young have its advantages! So i don't see whats wrong with taking more risk at a young age, or getting burned for that matter as long as mistake could be learnt not be repeated in my future years and if you think of it, getting burned in S-shares is sort of limited relative to getting burned by blue chips. With that, i urge all young investors to start investing.. not next mth or week or tml..start NOW!!! and if you can't afford Blue chips, there is always the all soo juicy S-shares sector to explore for hidden market Gems!!!

Additional Information

Investing in Gold stock to hedged against the downside of the market. Big Gold companies such as Barrick Gold Corporation (ABX), Newmont Mining (NEM) and Gold Corp (GG) are trading on the New york stock exchange. Advise to act on:

1) Buy only on serve correction $300-$450 per tonne

2) Buy if US dollar collapses in the future, deal to over supply and mounting debts (both trade and balance sheet)

Risker Gold Stocks Royal Gold (RGLD) and Almaden Minerals (AAU)

China Paper

2009-04-26T14:58:00.009+08:00

The next candidate for my cash rich portfolio and testing of Graham's Cash rich firm theory, China Paper comes to met these requirements.

Company :China Paper

General information:

The Group currently produces two main categories of products, namely paper products and paper chemical products. Paper products are its core business and this category is split into four types:
I) Printing paper – Used for general printing of books and reading materials.
II) Lightweight packing paper – For wrapping and packaging of clothes, clothing accessories, shoes etc.
III) Newsprint paper – Used in printing newspapers, flyers or brochures. Iv) Semi-finished toilet paper – Sold to customers requiring further treatment to produce finished toilet paper

Reward

Price Advantage-Current market share price ranges within 0.12-14 as @ 26April 2008 give significant margins to...

Net cash value is 17cents which gives me a 28% pure discount margin of safety.
Intrinsic value is 30cents which gives me a 58% discount to intrinsic value (average)

EPS of 7 SG cents for FY 2008 /ROE of 0.15%-0.13% on average

Strong cash flows/Strong balance sheet

Industry looks resilient and business model resembles more of a need then that of a want

Cash rich company which is expanding, in times such as these. Indication of good management decisions

Deal with recent problems such as environment water treatment plants, swiftly and efficiently.

Possible to receive high dividends this year.

Growth:

Development of new products:
The construction of the production facilities for coated paper by subsidiary Linyi Zhenyuan Paper Co. Ltd. Using $210million RMB which is funded by internal funding coated paper is generally used for printing a broad range of materials, including high quality magazines, leaflets, advertisements, brochures and educational materials.

Expansion in capacity:
Expand the production capacity of its existing paper chemical products facility using $80million RMB funded by internal funding

Huge untapped market potential: In the Shandong Province alone, there are just 22 players left from the previous 320 due to such regulations. Hence the industry trend can play nicely into China Paper’s hands.

Risks
Biggest risks involving S-shares are governance, as such the following have to be take noticed of:

Should not be taking extra loans due to high amounts of cash in it’s cash balances as of FY 2009

Take note of the usage of the cash reserves, they either have to declare dividends or expand.

Take note of more fund raising (done it twice so far), twice once in IPO the other in addition of 42million as at Aug 22nd 2008, possible red flag here.

Take note of sudden changes to independent directors

Ensure that receivable do not spike without a proper reason. Current total receivables are 108m RMB relative low when compared to 300m+ RMB in cash.

Low liquidity, share price might stay stagnant for quite some time.

Competitors are unknown. Future IV will depend on how they expand and how prudent the management is.

Company might lack economic moat, despite resilience of industry, not much is known about its competitors. Or how easy it is for others to compete its profits away

What others say:
In light of the economic crisis in China, sectors that have been flagged out to be
relatively resilient are paper production, printing, tobacco and health care, just to name a few.
China Paper’s growth is also strongly supported by the rampant education sector in China,
which can be said to be recession-proof in some ways. Moreover, in China today, there is a
strong demand and a general under supply for printing paper. This was mainly due to
environmental regulations causing the shut down of smaller uncoated printing paper players
since mid-2007, leading to a drop in supply of 6.5m tonnes/annul. In the Shandong Province
alone, there are just 22 players left from the previous 320 due to such regulations. Hence the
industry trend can play nicely into China Paper’s hands.

China HongXin

2009-04-11T11:16:00.007+08:00

China HongXin Ltd is one of the many cash rich S-shares, which im very interested to look at and possiblily include in my portfolio...the share price as of this writing is $0.13. Their Net cash value per share (using only cash less off all liabilities then dividing the dearrived figure by the total amount of issued shares) is $0.10 and Net current asset per share is $0.23. What these data means is..if i buy into China Hx at a share price of $0.13, i should get back at least$0.10 in cash, another $0.06 in value and get their business for free! In addition (according to them) their business is doing well with strategic plans and contracts being established, opening 100 new sport stall, having a consistent history of earnings, strong cash flow (barring this FY 2008) expected to bring in higher profits and revenue. Wow, sounds very attaractive hor.. but whatever sounds too good, it usually is!

Soo i took the liberty to research on a few thing, with regards to the company.
I believe the following factors are the reasons why China Hx is trading at such an attractive or (disgusting) share price to some investors.

Reasons are as follows :
· Fear of fraud, inflated cash and accounts related beacuse we are dealing with an S-share!
· Fear of poor internal control and governace
· Is the cash really there?
· What have they been doing with the cash if its really there? Huge jump in recievables.
· Business of selling Sports apparels not that attractive or resilent in a sense, plus their industry is very competitive as well.

So to address the following concerns and risks, this is what i found out.

To answer the first question ->Does China HX have proper Governance in place?

I looked at their Cooperate Governance report which indicates
· No signs of directors or independent ones leaving the company soo far
· Board Composition and Balance.
The Board consists of five (5) directors of whom, three (3) are independent.

The list of directors are as follows:
Executive Directors Wu Rongguang (Appointed 28 April 2005/ Chairman of the Board)

Wu Rongzhao (Appointed 6 May 2005/ Chief Executive Officer)
Non-Executive DirectorsBernard Tay Ah Kong (appointed 20 September 2005/Independent)Chan Wai Meng (appointed 20 September 2005/Independent)

Alfred Cheong Keng Chuan (appointed 20 September 2005/Independent)

· A bit about the independent directors
-Mr Bernard Tay Ah Kong is currently the Non-Executive Chairman of Horwath First Trust, which is a Certified Public Accountants firm. Mr Tay is also an Independent Director of several public companies listed on the SGX Mainboard and Catalist. He is the Senior Advisor to the Government of Huzhou City, Zhejiang Province of the People’s Republic of China. The President of the Automobile Association of Singapore and Vice-President of the Singapore Productivity Association

Then i look at who chairs the committee's of the company.
· People in the Nomittee/Audit/Remuneration committee
Mr Chan Wai Meng (Nominating Committee Chairman)
Mr Alfred Cheong Keng Chuan
Mr Bernard Tay Ah Kong
All three committee’s are chaired by independent Directors

· Foo Kon Tan Grant Thornton have expressed their willingness to accept re-appointment.
· Update: RSM Nelson Wheeler and Tan Grant Thornton have expressed their willingness to accept reappointment their verdict for FY 2008 accounts "A true and fair view will established".
In addition China Hx was listed 166th position on the governance and transparency index (march 2009) which is quite high relative to 679 positions in the index.

Next question: Is cash really there? Did they inflate their cash holdings?

Research shows that in FY 2006 , their cash balances were 545,442k rmb

in 2007, this figure jumped to 2.6billion rmb, the reason...
There was an Issue of shares on placement 2,376,959 on FY 2007
Latest FY in 2008
Share premium: 2,645,397
Retained profits: 997,480 increase from FY 2007 of 598,192

· Basically the fear of created cash figures should have subsided due to the glaring fact that 2.3billion RMB were raised from SGX IPO listing on 2007.

However.. the worry that net profit for FY 2008 was inflated 448,515k increase 7.7% from FY 2007 or through out the years cannot be deal with , just by simply looking at their annual reports. The reason why i think China Hx Net profit of 2008 should be lower then in 2007 is due to terrible economic conditions and stiff competition in the industry, yet one can argue that it could be that the Olympics last year helped with it’s increased sales?

The next Question to ask is, having received 2.3billion, what exactly did the company do with it after 2 years?

Their accounts stated on their Balance Sheet's assets are as follows
-1.98billion in Cash
-1.159billion in Receivables
Equity
-Share premiums of 2.6billion
-Retained profits of 900million

As mentioned by some analysts, they were not comfortable with the high recieveables and they indicated that the risks here is that the amount stated in Cash is not actually there, but in other accounts like inventories or receivables (account manipulation) etc.

The cash amount is place in
China Construction Bank
Zhanlan Branch
1st floor, Mingfa Hotel
Nanhuan Road
My take is that, they indeed have cash , whether or not there was manipulation in the accounts i also cannot tell.. that's why the FY 2008 auditors opinions are vital in my deduction of whether China Hx is honest in their accounts. Having a "true and fair view" should more or less prove that China Hx is honest? Some more got two auditors appointed, should be enough.. i think..i don;t expect them to issue any more shares to gain capital or establish any more loans in the future though.

Proceeding to the next question:
Why a huge jump in prepayments/receivables?

------SGX questions to China Hx management--------

Prepayments, deposits and other receivables increased from RMB278.7 million as at 31 December 2007 to RMB1,159.2 million as at 31 December 2008. Approximately RMB1,155.5 million (2007: RMB277.5) was advanced to distributors to facilitate the setting up of approximately 358 (2007: 100) new stores in 21 (2007: 20) provinces/cities during the year ended 31 December 2008. The RMB277.5 million advanced to distributors in 2007 was fully collected in 2008.

Please disclose the terms of the advances to distributors (ie. repayment period, penalties).
The advances to distributors are unsecured, interest-free and repayable within one year. In the
event of a default in repayment by a distributor, the Group will take over the distributor’s operating rights to the store and its assets in accordance with the advance agreement made with the distributor.

Please provide an indication if there are any difficulties in recovering the advances
particularly given the current market conditions.

As at to date, the Group has recovered up to an aggregate amount of RMB50.3 million from the distributors. The distributors have kept up with the repayment schedule and we have not encountered any collection problems from the distributors.
As at 1 January 2009, the Company has ceased to provide such advances to the distributors. The Company will continue to pursue collection of the outstanding advances from distributors and will provide updates of the repayment of advances from distributors in its quarterly results.

Why keep soo much cash?
The cash will be used to support the Group’s operations in the current financial year.

Why don’t declare dividends for final part of the year?
In addition, the Board would like to clarify that in view of the uncertain economic environment, it
was deemed prudent to maintain its cash position and not declare a final dividend for the year.

Quickly, i ran thru my "spotting the red flags" screening test for China Hx
Checking Red Flags in balance sheet of China HX.

1) Is there a growing gap between cash flow from operation activities* and earnings (total cash flow has to be higher then net earnings for refinancing purposes ), the important thing is cash flow from operation have to increase as much as NPAT
2008 (‘000) and 2007 (‘000)
Operational Cash flow: (357,503) and 79,991
Net income: 448,515 and 416,453
Problem here, failed test.

2) Net Earnings grown faster then sales? No

3) Disproportionate increase in account receivable vs Sales increase
Sales: 2,889,000 and 2,046,000
Accounts receivable: 1,159,152 and 278,665
Problem here as well.

4) Unusual increase in inventories vs. sales increase
Not a problem here

5) Any Large assets write off? (No)

6) Quality of the earnings
-Did they include profits from the past periods? (No)
-Under provide for future expenses with current sales, bad debts? (Possible)
-Increase in reliance of earnings sources apart from main business? (No)
-Cutting pay in workers, employees, R&D etc? (No)
Important point to take note, because company has already bleached two of my screens, I must take note that every quarter I must see that receivables top drop and operational cash flow to increase.

Insider data reviews that
Overlook Partners fund bought 25million shares on March 4th @9.5cents
Chairman bought 1million at 19cents in November 2008
Wasatch fund sold at 6cents @ 28.9million 12th March 2009

Summary of good and bad points
+ Governance is alright, no directors have quit
+ Nomittee/Audit/Remuneration committee all chaired by independent director
+ Cash is there, in FY 2007 IPO was established, 2.3billion RMB was collected
+ Net Cash is 0.17cents, still give a decent margin when comparing to a share price 0.10-12
+Don’t foresee any borrowing, as the IPO issues are more then enough, high liabilities incurred by the company is not visible as of now.
+With respects to the questions asked by SGX, I don’t see how the Chairman could have answered any of them better, the company just IPO in 2007,of course Capital cash is need to kept with them, to expand and to support operations!
+ Share price advantage at 0.09-0.11 give significant margin to target price of 0.25cents NCAV. 66%!
+Positive new and forecast by the company

The bad
-Question about it’s net profit sustainability, fact or inflated?
- Question as to whether what exactly they did with the cash, are the components reflected correctly in the accounts?
-Their receivables are super high which gives raise to bad debts, but $0.17 is the Net cash per share so it still worth it to invest at $0.13 do take note.
- Questions asked by SGX and replies from Chairman not those satisfactory, sounds fishy especially the part about not declaring dividends.
-Business model might not be resilient in this crisis, despite optimistic forecast for the company, possibility is high for the company to bleed cash this year and the next.

Scenarios
Scenario 1: Pure and out alright fraud
China HX Management really did inflate accounts, possible higher amounts in receivables and lesser of cash. Share price cannot sustain 0.13cents (buying level), however if liquidation of company is activated, confident to get back more then 0.17cents per share.

Scenario 2: Running away
This is the worse possible outcome. CEO runs away with cash, lawsuits plus investigation, might result in the loss all invested capital.

Scenario 3: Deterioration of share price
As time goes by, receivables are denied or written off as bad debts, company yield in huge net loss because of huge expanding. But confident that share price would’t vary much at 0.09 cents.

Scenario 4: Honest accounting
Share price will raise drastically, back to 0.23 or more, yielding a 200-300% return.

Comments:
"Well, you are a vested shareholder in this company thus you will know more about the workings of this company.I am referring to the loans given to distributors from a standalone point of view. What you said is true since such a good loan given to distributors can indeed build goodwill between the company and them. From the standalone point of view, I find it to be strange that the company lends money to distributors and the guarantors are the significant shareholders and the executives of the company. The guarantor of any loan is not supposed to be the lender itself. Now let us think of the risk. In the event that the company is unable to recover the loan from the distributors, it will recover the loan from the guarantors of the loan instead. However, the guarantors of the loan are the significant shareholders of the company. So what can they do to prevent themselves from paying this loan ? Since they are the significant shareholders and the executives of the company, can they write off this loan ? In short, there is a potential for the abuse of power for this scenario.The scenario that I am suggesting may seems to be far-fetched and I'm trying to evaluate the risk of this arrangement of loan with the distributors. There is no right or wrong actually as I'm trying to raise this point up for discussion. I hope this helps". -Moneytalk.sg

Questions with (Answers) to value investors updated*

2009-04-07T11:18:00.014+08:00

Notion 1 (Fundamental pain of holding)

Lets say you've studied and researched and analysed as much as you can about a particular company in doing so believing that the company currently in your watch list is worth at least 0.70cents per share, based on current and past data you used for your analysis, you determine the strength company's economic moat, strength of balance sheet and future growth. The share price now is 0.40 which give you a perceived discount of 40%. You buy into the stock , setting cut loss at 0.20.

After a few monthers, the company posted good quarterly results , yet despite these achievements the share price continues to drop, you constantly tell yourself , i will hold the stock because the fundamentals haven't change?

Q:Now after more few months, you realised that the share price have already fallen to 19cents, what will you do?

Q:Do you cut loss because you already set a stop loss limit?

Q:Or do you hold on or buy more, because the fundamentals are still there?

Q: How does one set a stop loss in the first place? Based on dropping fundamentals then sell? Wouldn't that be too late already? or set an absolute amount?

Notion 2 (Technical advantage over you)

You have many friends, whose does investments as well. They however are not rooted in value investing and thus are traders affected by short daily movements of the market. One afternoon on msn, there was a commotion among your investment friends. The commotion was about a rumor/ or technical revelation that strongly suggest this particular stock will raise drastically due to this and that. Your friends insist you buy NOW, before you miss the chance to make a profit. You took a quick look at the stock, a quick glance of the company's balance sheet, profit and loss account and cash flow statements, you realise that its a blue chip with an alright earnings history, decent balance sheet and strong cash flow.

Q: Do you straight away jump in and buy, just only having a quick glance?

Q: Will you feel bad and envious , should the share price rise but you didn't buy because you did;t have enough time to study proper the fundamental?

Notion 3 (Keep a constant look out?)

The balance sheet, income statement and cash flow statements are important data capsules for investors to base their determine value on a particular company. But because these capsules of information are only capture at that point in time, anything from management's decisions to economic/industry happenings, will change these accounts and the deemed value will likewise change.

Q: So a true value investor is one that constantly is on a constant look out for any development with regards to the companies that he/she holds?

Q:So what if the company you re holding loses it's fundamentals? Will this fact force you to sell? What happen if next year the fundamentals improve or become even better? This will result in a buy action ? If so, isn't this a result of trading and not value investing?

Notion 4 (The problem with valuation)

Discount cash flow model, the favourite technique used by Buffet and many value investors out there to derive a value of a company. But upon closer look, the discount cash flow requires a lot of guess work, from guessing the company's operation this year to the next, estimating discount rates to forecasting weighted average cost of capital. Other valuation techniques like Dividend discount model to relative ratio comparison, likewise requires one to guess guess and guess.

Q: Since valuation is a big part of value investing, isn't it somewhat similar to Technical analysis? Both school of thought revolves around guessing. Some will argue that one school of thought requires more effort and thinking then the other, then the next question is , who are you to judge which school of thought is better then the other? Based on your perceptive thoughts?

Q: Some investors feel that valuation is pointless and problematic as well..which leaves me even more bewildered and confused, if valuation is pointless, then what for invest on a company in the first place? Since there is no determined value, wouldn't every stock in the exchange seem extremely overvalued too you?

Q: What other valuation techniques is used besides the ones already mentioned?

Notion 5 (How big is BIG?)

Gross and net profit margins, return of equity (ROE), operational cash flow margins discount to intrinsic value, discount to price to book value and even discount to net cash value are some of the ratios used to determine whether the stock price gives the investor this so called margin of safety.

Many analysts will report statements like, company A has a healthily profit margin of 15%, a ROE of 12% which indicates this and that..

Q: What determines a healthy margin? 15%? What if its 14% then its consider not healthy? Who or what factors were used to determine that this number "15%" is deemed as a healthy implication for the company?

THE ANSWERS

Some possible answers are (subjective to ones opinons and own thinking if it's ture of false)

My answer to all the questions would be :-

1) to select fundamentally sound companies and use trend lines to determine when to get in and when to get out.

2) you will miss a lot of high flyers but you will also avoid permanent capital impairment due to financially unsound companies being suspended or forever becoming penny stocks.

-by focus1974

__________________________________________________

1) I will sell if the fundamentals of the company has changed or the stock is overvalued. If the stock price has fallen though the fundamentals are still sound, I will buy more. Patience is the key here.

2) I will not jump in and buy straightaway. You have to decide which plan are you going to follow i.e. investing or trading or a combination of both or buy on news ?How about I rephrase your question in another way. Will you feel lucky and good, should the share price drop but you didn't buy because you didn't study proper the fundamental ?

3) Fundamentals don't change overnight. It is better to sell if the fundamentals have changed. You can't predict what will happen in the future but you can control what you wish to do presently.

4) I don't exactly use a discount rate. I define it as my required rate of return. If I want my counter to return 20% annually, I will use this number as my discount rate and put into the model to see what price should I buy. I would prefer to use P/E personally.

5) You can compare it with the leading companies regarding these financial ratios and numbers.

-by moneytalk.sg his blog is at http://www.moneytalk.sg/

__________________________________________

Relating to 1, 4 amd 5

I guess:"But having a margin of safety will make very sure that you will not lose your shirt. Even if you are damn wrong on your intrinsic value, you may lose a bit of money, the stock may tank 20%, below your buying price but quite unlikely to tank 80% below your buying price. And chances are after it tanked it will creep back up again, it will not bankrupt you. That's the strength if you have a huge margin of safety."

-by whatdoing367, his blog http://8percentpa.blogspot.com/2009/

___________________________________________

Just trying to answer some of the questions

1) on fundamental grounds, you dont sell because of some stop loss price you set. you sell, if the outlook changes. in fact, you should be buying more because it is cheaper now. or stop buying more if you already have a substantial holding in the same stock. diversification still plays an important part

5) the absolute number in % does not mean anything. you need to compare among companies in the same industry

-by MikeDirnt78 his blog http://sti-stocksinfo.blogspot.com

__________________________________________

1)I do not practise the cut loss strategy. however, i will sell if the fundamental that i buy into is beginning to fade. fundamental can mean different things to different ppl. for me, the business landscape of the sector that the company is in must have existing potential (theres alot to be elaborated on this but juz imagine selling steam locomotive today in singapore).the board should be reliable in making their statements. you can check this by referring to previous annual reports and see if they meet the KPI they set. i think it is quite fool proof that if insiders are buying or theres a buyback by the company, its a strong buy signal to average down ur existing holdingsometimes, id just leave a small holding to remind myself of my folly

2)I will not jump in. i do not have sufficient confidence and knowledge to handle speculation. lol without enough knowledge, i am only increasing my risk for speculating the same stock with someone who knows what he is doing. anyway, if someone is very good in trading, i think hes probably earning more trading derivatives with all the leverage

3)Yeah, like what the other poster has said. fundamentals do not change that quickly unless you can somehow change the board of directors and kicks the founder or ceo out overnitebut yeah, if wat u believe in no longer exists... sell

4)I do not think warren buffett's method is very applicable to me. so gotta be selective to pick from this techniquelike u said, sometimes it can get very operational and he absolutely has no prob knowing those infohe buys companies in double digit % holding and able to get 10% P.shares from GM i think!theres no way retail investor like me can do thati prefer phillips fisher style of valuation.

5)Yeah, financial ratios are sector specific, you can use industry avg or leading firms' ratiobut nowadays... its harder to determine nowtoo many companies are in many different sectors, its almost impossible to have a good gauge.unless u really dig for info and find out the revenue/cost distribution and break down into ratios againfor example, msft.... how much of their revenue are in serverware, services, entertainment, database software, desktop software, etc ??if u want to compare it with oracle or EA or ibm.... how can it be accurate when the revenue composition in all these companies are different ?if revenue composition cannot be determined, how is it possible to determine a fair profit margin at corporate level ? lol maybe product level margin is easier.as long as we are comparing orange to durian, we are nt goin to get accurate ratios or numbers imopaisae for the unstructural answers lol but i tink the qns are worth answering

-By Jarlaxle

Graham goes to China.

2009-03-17T20:38:00.006+08:00

S-shares..
ARHH, EEEeee, omg.. NO!...shit you.. enough with the Shouting/Screaming/Squealing, not much good can be said S-shares nowadays, from inflating accounts to runaway CEOs , S-shares has indeed made an infamous impact to investors all over Singapore, especially value investors out there who taught they bought it cheap, but it went even cheaper on them.

Yet despite all the negative sentiments and great avoidance, could there be value in these S-shares that are soo oversold to the point where market caps are way below Net current asset value? Could the testing of the theory "The best time to find a value buy is when fear is the greatest" be especially applied to S-shares, since people are indeed very fearful of this part of the investment world?
If so what should one do , if one is considering placing some of their investment capital into these shares?

I attempt to answer these questions by using Benjamin Graham's Net Current Asset Value Strategy.

Finding low-risk stocks should be priority number one in this market. Benjamin Graham, considered by many to be the architect of fundamental analysis, described a strategy for identifying deep value stocks, which in his view are low-risk candidates, in his book, “The Intelligent Investor,” published in 1949. Graham’s strategy, dubbed the “net current asset value” approach, apparently works very well.

One research study, covering the years 1970 through 1983 showed that portfolios picked at the beginning of each year, and held for one year, returned 29.4 percent, on average, over the 13-year period, compared to 11.5 percent for the S&P 500 Index. Other studies of Graham’s strategy produced similar results.

Despite the impressive results, Graham’s net current asset value (NCAV) approach is relatively unknown to individual investors. That’s probably because finding stocks meeting Graham’s requirements requires some digging or perhaps for such a long time, no or very little stocks were trading that low.

No Web site provides tools to screen for NCAV stocks. However, it’s not hard, and anyone willing to devote a couple of hours to the task should be able to come up with a few candidates.

Graham's Value Strategy Graham’s NCAV strategy calls for buying stocks trading below their calculated value. Many value stock selection strategies can be described similarly. What’s different is how Graham determines value. Book value, the usual value measure, is a firm’s assets minus its liabilities. Graham does the same calculation, but only includes current assets (cash, inventories, and accounts receivables) in the computation. He ignores long-term assets such as buildings, equipment, patents, and the like. However, he still counts all liabilities including short- and long-term debt, and everything else that appears in the liabilities column of the balance sheet.

Thus, net current asset value is current assets minus total liabilities. Graham’s NCAV strategy calls for buying stocks trading at two-thirds or less of their net current asset value.

That’s a stringent requirement, since most companies have negative NCAVs. But Graham was looking for firms trading so cheap that there was little danger of falling further. His strategy calls for selling when a firm’s share price trades up to its NCAV.

Finding Graham's Value Stocks According to Graham, some of the companies meeting his NCAV criteria could end up failing, so he recommended buying a large number of stocks to diversify the risk. the rest of the Article is from:http://www.sfgate.com/cgi-bin/article.cgi%20file=/c/a/2002/07/01/BU40722.DTL&type=printable

For further reading do visit http://www.grahaminvestor.com/articles/finding-undervalued-stocks-revisited

So, after reading that article i was thinking, if Graham was here right now, and he was taking a good look at these S-shares, which of these shares will he pick according to his NCAV strategy?

Therefore, using the formula given (Total Current assets - Total Liabilities)/ total no. of shares i went to look at 40 over S-shares, barring and deleting the ones i already know that didn't meet Graham's NCAV etc Cosco, i accumulated the results via this excel file.

Excel file sharing link http://www.box.net/shared/fp65zs6krg

Based on the excel file, the second table shows a total of 12 of S-shares that meet Graham's requirement,while the third and final table shows only 7 out of 12 S-shares get selected in the final portfolio of proposed S-shares to diversify upon
How these 7, got selected was based on 3 criteria that would hopefully increase the chances of landing a "higher quality" S-shares that also satisfy Graham's requirement. The 3 criteria are as follows..

1)They have to yield in positive net profit and cashflow for the whole of FY 2008 and this year's 1st quarter results despite current economic downturn! This is to make sure that as of now, their current are not affected by negative net profits burning away the cash reserves. Sino-Environment and sunshine with massive losses to their net profits for FY 2008 failed these criteria and didn't make it into the list.

2)Current asset components has to be more of cash and less other accounts especially receivables. Receivables are accounts that people owe to the company, so by avoiding s-shares whose net assets consist mainly of receivable we avoid a situation when these S-share's receivables are not received thus turning into bad debts and write-offs. Take for example, of the 15 S-shares that pass Graham's test, China Angel Food and Pan Hong Property group didn't make it into the list because their current assets consist mainly receivable and the latter has other accounts like "property under development" in their current accounts.

3)Their business model must make sense and their websites are properly managed/updated. Even simply things like keeping a website updated like broadcasting the latest annual report cannot be achieve, how can the firm take on big stuff like expanding, surviving the current crisis if small simple things cannot be managed well?
With that said, some risks involved in diversifying into the 7 S-shares even though it was filtered by both Graham's formula and me,
-Include currency risks,
-Future use of the current assets by management,
-And of course probability of fraudulent data presented by the firms due to lack of cooperate transparency is still quite high, especially with recent news regarding some S-shares.

However...

One problem i find about using Graham's NCAV strategy is that , if the formula only favour firms that have huge current assets, it leaves out firms that are expanding or hold higher amounts of long term assets..I'm curious about,what is the management going to do with those cash or current assets? Why aren't they expanding or using the assets to improve their economic moat? Isn't that prove that management has no clue as to how to invest their current assets? The NCAV has already factored out ChinaMilk/China Essence/ which i deem a few good firms with a vision and are expanding.

Nevertheless, this current crisis is soo server that it FINALLY presents the opportunity to apply Graham's NCAV on some of these shares, i will keep track of these top 7 S-shares and calculate how much they will yield after a year or so.

Any thoughts on the 7 S-shares? Do let me know :] Happy investing.

Heart of a value investor.

2009-03-06T09:46:00.007+08:00

Ouch ouch ouch~It's my 10th mth anniversay of value investing, started since May 2008 when i first started buying equities listed on the exchange. And yes, no doubt like many other value investors out there, i feel your pain. Portfolios have been more or less destoried by the current economic crisis. None of my market gem soo far have exceeded their buying value, some even detoriated to a point that, almost all of its value are gone (drop 80-90%). Soo far, my porfoilio have dropped by a whooping 50-60%, no surpise there of course, since most of my market gems consists of mid-market caps and S-shares. Then MANY people will say, oh you should not have bought into S-shares, S-shares sucks or say something like, you shouldn't have gone into the market too soon, or you should have bought into options to hedge your losses etc.

What i have to say to these people is, you say it best..when you say nothing at all!(In other words shut the hell up!), because your opinions are based on hindsight and by making comments based on events that already happened makes your sound like a hypocrite. I say to you people, if market were to raise drastically or that the recession wasn't as bad as predicted, then the same people with the same comments and opinons will sound like this "Oh you should have bought earlier, why soo fearful? or Damn, S-shares are really super shares, how come you never buy more?"

Nevertheless, what happened, has already happen, now the important thing is what you do now with the time that is given to you? What measures can i take as a value investor?

The first step is to reaffirm my faith in value investing.

I strongly (and will always) believe that value investing is one of the best ways to go about building your wealth. History has already proven it (thru people like Buffet/Filch/Graham), market cycles of upturns and downturns have been going on since the dawn of investing, and no doubt the downside will eventually lead to an upside vice versal.

The second step is to reconfirm the principals i have established with regards to my investing.

I re look at the small piece of parchment i wrote before i bought my very first stock in may 2008. This is what i wrote..

-Buy into good companies at acceptable or low prices
the word "good" is defined by me as companies whose business model is more related to a need and that of a want. The words "Acceptable" or "low" prices is defined as margin of safety relative to it's intrinsic value or Net asset value

-Do not buy into any stocks without doing proper research or understanding regardless of how cheap it is or how many people are talking about it

-Go slow. Do not throw everything into one company and do diversify.

-If mistake are made, write it down, cut loss once fundamentals have changed.

Regards
Yourself at 18th May 2008

The third step is probably to go review my investments with my principals have i followed it soo far?

1st Investment made on 18th May 2008
CHINA MILK
Type:S-shares
Business: Selling Bull semen, milk process etc. Their business is simple to understand, and its more of a need because milk is a commodity and cannot be substitute easily by soybeans. As long as demand is there for products like yogurt/sweetener/ice cream/dairy products/cheese in China, China Milk's revenue is sustainable of course pending the intrusion of competitors, frauds etc

Research: Have been doing for 1-2mths, studied the industry, its historical ROE/Revenue/Net profit/Margins/PTB/Future plans/Capital structure/Risks involved

Price bought at 0.705 per share, give me a discount of 30-40% below its intrinsic value of $1.20 which i calculated with a conservative approach.

Bought only 2 lots, just in case the share price were to drop.

Soo, these are the thought processes that goes thru my head and when I'm planning to buy a certain company. Of course China Milk's share price have dropped to $0.30 as at 6th March 2009. However I'm not upset because, the fundamentals are still there, their business model as expected is still strong (due to increased in revenue/net profit/sustained margins etc) and paper loss was acceptable because i only bought two lots.

Although i have to admit, i made a few mistakes soo far, like buying into SINO-TECHFIBRE at 0.60 2 lots as an Olympic gift to myself without doing much study on it's industry , which is super competitive and their business model is not much of a need. No surprise, Sino-tech went Olympic on me and drop to a disgusting low of $0.10 per share. Then ppl will ask, how come you never cut loss? Well, because i didn't study the industry it was in, and still not interested in doing so, Sino-Tech's internal fundamentals were still very strong for the whole of 2008, until when it came to it's 4Q results, it shocked me that their net profit/margins have dropped by 24% and 50% respectively. Plus, by the time i know about this, the share price have already fallen to $0.12. Soo i was thinking, if i were to cut loss now, i will lose about 80-90% of my investment capital, which i deem pointless to save that $240 (Bought only 2 lots heng arh), its as good as losing 100% of my capital. I rather keep, in hopes that the company will regain its fundamantal :].

Step 4 is to see if my principals need any adjustments.
Probably nothing much to change, maybe i just add this :

The words "Acceptable" or "low" prices is defined as margin of safety relative to it's intrinsic value or Net asset value. But do take note that intrinsic value has it weaknesses like using past data to discount and Net asset value can change drastically etc: REITs due to high valuation from the pass years, that's why margin of safety is very important.

and maybe this

-If mistake are made, write it down, cut loss once fundamentals have changed. Your cut loss, have to be in detailed, either absolute amount (Must cut if it's drops to 0.45 etc) or by percentage (cut when it drops by 50%)

Step 5, what have i learnt soo far

For the entire investing year 2008, i learnt
-To separate noise from real information. Noise might include friends opinions,rumors and some times even analyst's forecasts and buy calls
-Don't be swayed by movement in market prices
-You can copy your investment idol's holdings and try to mimic them, provided that own research and understanding of the company have to be well established first.
-Study the industries in which the company is in. It's economic moat etc.
-Beacuse of the incidents regarding S-shares, even figures and data cannot be trusted. Although this cannot be applied to all S-shares, a note to myself to be alert about this. Check internal control and Auditor's commentary.
-My process of calculating intrinsic value needs improvement, need to study more on Dividend Discount model and Discount Cash Flow model.
-Fundamentals can change drastically, very good exmaple is Sino-Tech Fibre. Thats why , and again i say, margin of safety, buying slowly, deep reserach will more of less lower this probablity of change.
-To countiously learnt from experience investors, their thought processes, their experiences in past recessions, keep a filterated open mind and humble yourself.

Lastly...
As a young value investor, i think the most important thing now is not how much my portfolio have dropped or have been beaten to a pulp by the market. It is, what lessons where learnt, during the this process, such as my investment thoughts,opinions and valuation and how to apply this experience in the future to avoid mistakes or reason for success that have been made since my journey soo far.

China Essence update

2009-03-04T14:16:00.005+08:00

China Essence have been agressively (in my opinon) expanding it's operation since mid of FY 2008. It's growth strategies are as follows for the coming year/s

1) Increase Potato Starch production from 170,000 to 250,000 tonnes. (To commence in FY2010 3Q)

2) New production line to increase Potato Protein from 8,000 to 16,000tonnes (To commence in late FY 2009)

3) Likewise Potato Fibre from 80,000 tonnes to 160,000 tonnes. (To commence in May 2009)

All three growth strategies, were funded by internal fundings and bank loans amounting to 570RMB million spent in 2008.

Without the aid of new revenue in place of the new productions by all three sectors, China Essence's Net profit for 9mth to 3Q of 2009, dropped by 8% despite a 21% increase in revenue. This was due to increased in Selling/Distrubution costs up 3.6% to 1.1million, Adminstratives up 35.6% to 8.2million due to expansion and loss of disposal of old factories and lastly finnace cost up by a whopping 103% to 18.4million due to increase in loans paying interest.

With that month full, now i shall touch on the risks that China Essence faces

1)Up coming loans need paying: DBS's $USD 60million (RMB about RMB 460.8million) to be paid by June 2009. Currently China Essence balance sheet states only RMB 262.5million in cash while the rest of the value is stuck in trade receivables 170.1million and inventories 245million. The risk here is, China essence must convert it's inventories and receivables back to holding cash on time and on target or risk borrowing more, especially at times like this when credit is scared.

2)Aggressive expansion plan for upcoming years in late 2009 and FY 2010, apparently these production lines will be activated only if demand meets its supply. According to statistics regarding potato related products as such, demand is at 800,000 tonnes, while supply is about 450-500,000 tonnes. These data is apparently taken from 2007, might not be applicable in 2009-2010, in fact no one knows what will be the actual demand for potatoes in China by 2009/10 all are estimates and cautiously outlooks. If however the demand were to drop drastically, China Essence is more or less doomed, with high interest rates to pay, aggressive expansion of new production lines but cannot activate cause no demand etc, China Essence will have to be forced to sell off it's new assets or old ones to pay back its loans, efforts and hard earned retained earning thru out 2006-2008 will be wasted, share price will plunged further (although its already at 0.19 cents).

Well then again, this are just risks that might not happen after all. Being a shareholder of China Essence, i wish the company all the best in the coming future especially its aggressive expansion, pray that demand will out strip supply still by then.

Note to self* once production begin, expect net profit to increase as well, if not might as well don;t expand if the company cannot earn more then its WACC (Weight Average Cost of Capital).

Good morning,

We understand that investors’ confidence in S-chips have been shaken recently, especially when some of the high profile SGX-listed Chinese companies have defaulted on their payments and suffered from negative media publicity. In addition, the prolonged global economic uncertainties have impacted the earnings outlook of some companies which are susceptible to fluctuations in consumer demand. Due to uncertain economic outlook and poor market sentiment, stock prices of many S-chips have suffered one of their worst declines in recent memory.

As you may be aware, China Essence’s share price has not been spared from the current turmoil. However, the company being one of the leading producers of potato starch products in China, is confident of the long-term outlook of the industry which is well-supported by strong growth fundamentals. While China Essence remains committed to its capacity expansion plans, it is adopting a prudent and cautious approach in order to minimise exposure to unnecessary risks.

If you have any queries or concerns pertaining to China Essence, feel free to call us or drop us a note. You may also wish to browse through the online Q&A which the company conducted with its investors post Q3 FY2009 results. Please click on “Online Q&A” at this link: http://www.chinaessence.com/ir.html Let us know how we can help to address your concerns.

Regards,
Charis

Ascott-ART is a blast?

2009-02-25T09:27:00.007+08:00

Having developed a keen interesting searching for value in beaten down REITs, i stumbled onto two REITs that interest me the most. They are Ascott Residence Trust and CapitalCommerial Trust. But since i already stated that CCT is one of the best REITs i found soo far and have mentioned the good points about it, i will only mention about Ascott for today's short entry.

A little information about it as stated in their website : Ascott Residence Trust a.k.a (ART) is the first pan-Asian serviced residence real estate investment trust (REIT) established with the objective of investing primarily in real estate and real estate-related assets which are income-producing and which are used or predominantly used, as serviced residences or rental housing properties in the pan-Asian region. In other words, this REITs is just like a trust fund buying condos and rent it out.

ART has an initial asset portfolio of 12 strategically located properties in seven pan-Asian cities (Japan/Singapore/Vietnam just to name a few). The Trust was listed with an asset size of about S$856 million and as at early 2009 ART’s portfolio has expanded to 38 properties with more then 3,550 units in 11 cities across seven countries, with a total portfolio asset value of around S$1.688 billion.

Ok, so let take a quick look at what a value investor will look out for in Ascott.

Trading at a disgusting low unit price of 0.355 as at 25th Feb 2009 9:44am, the value ratios are as follows

- A 75.8% discount to its NAV (Huge discount)

- A 17-20% yield expected to received in 2009 (Estimated DPU of 6-8cents)

- A price to book value of <0.35>

Then upon studying its debts and refinancing issues, ART in my opinion should have no problems in this area, because their gearing remains a low of 38.5% with $614million debts partnering an asset value of $1.688billion. Moreover it has already obtain refinancing for 2009 of $111million with a low interest rate of 3.5% , while the rest of its debts matures in 2011 and beyond.

Other fundamental value i find interesting is that, ART has backing and possible pipeline help from Capitaland for being a service arm to it's group, ART's asset portfolio value was not highly inflated soo much those past few years as compared other REITs like SunTec or CCT, which means to say should there be devaluation ART's portfolio will not be that much affected. Lastly there are only 610million units , which means that DPU is easily maintain with that lower amount of shares, no deferred units, management is pay fairly via the units etc.

So, ART sounds like an excellent REIT with all the little extra positive factors here and there. However upon closer look, ART has one major issue (which is probably why their share price keep plunging to new lows) their portfolio is not resilient. Apparently their business model is mainly to service business travellers and expatriates , attract them to use their condo and thus collect rent from them. The problem here is, these people usually stay for 1 to 12mth in that rented condo while going about doing their businesses in Asia countries. Statistics show that 28% stay only 1 mth, while 39% stay 12mth or longer. Which means to say, ART's DPU depends very much on how long the client stays in their properties and the severity of the current financial crisis destroying businesses prospects here and there, obviously will affect travellers and business people by inducing them to cut down on business trips or find a cheaper alternative then to stay in, rather then staying in the extravagant condo's of Ascotts.

Despite ART's strong brand name and diversed portfolio with prudent asset allocation, their margins for the 4th Quarter of 2008 dropped from 53% to about 44% and DPU drop from 2.12 to 1.69 (20%) for the 4th Quarter this will deal to an one off expense. (Therefore ART is consider high risk investment)

So being a relative young REIT, as compared to other REITs like CCT, the market probably figured out that the DPU for ART is very uncertain and cannot be sustained, they also assume that ART's Revenue/ DPU for the coming years, to drop drastically, so that bags the question... is a unit price of $0.355 a good buy? USING Gordon's dividend discount model, i made the assumption that ART's DPU were to drop by 40% from its last year DPU 08 of 8.8 cents to 5.28cents , forecast it for the next ten years , using a high risk free rate of 3% (US-3mth Treasury bills almost zero hor), with 0% growth for the next ten years, the intrinsic value is 0.43 per unit. Of course one can argue that what makes me think ART can survive for the next 10 years, or why i assume that their DPU is only 5.28cents? Too high la, possible to drop further etc, but an optimist can also argue that i assume their DPU too be too low la,and their growth rate cannot be 0% too conservative etc etc. Whatever the case im sticking to 0.43 as its intrinsic value, i might just spend some of my capital buying a few lots of ART, because i feel that ART is a blast! Whether its in a bad or good sense , hopefully its the latter hehe..

Who moved my REITs?

2009-02-21T14:00:00.009+08:00

What are REITs?

They are securities that sell like a stock on the major exchanges and invest in real estate directly, either through properties or mortgages. REITs receive special tax considerations and typically offer investors high yields, as well as a highly liquid method of investing in real estate.
Individuals such as you and me can invest in REITs either by purchasing their shares directly on an open exchange or by investing in a mutual fund that specializes in public real estate.

An additional benefit to investing in REITs is the fact that many are accompanied by dividend per unit (DPU). Among other things, REITs invest in shopping malls, office buildings, apartments, warehouses, ships, retail spaces and hotels. Some REITs will invest specifically in one area of real estate - shopping malls, for example - or in one specific region, state or country.

With current market being so depressed, good REITs have fallen to a point where their unit price are significantly below their NAV, of course the word "good" is subjective to ones' own research and opinion on this security.

So, the question is how to identify good REITs to invest in? The ideal would be to buy into a good track record REIT that offers sustainable high yields, prudently managed capital/assets, low gearing, ability to easily obtaining capital for refinancing, strong reputation and backing by a well known group and trading at a huge discount (40-50%) below its NAV.

With that mouth full, let’s start with a 8 simply steps on what to look out for and what to think about with when investing in REITs listed in our local exchange.

Step1: Knowing the REITs

-Which country/ries does the REITs have assets in?
For example, Asscott REITs have about 50% of its assets in developed countries like Japan/Singapore and the other 50% in developing countries like Vietnam.

-What are some of the good qualities stated in their website?
Information like, the FIRST REITs established in Singapore, the BIGGEST REITs in South East Asia, 10 YEARS of diligent distribution of dividends etc...

List them down here.

-What caught your attention at first?

This sub-step is basically for you to written down, what caught you attention, that invoked you to spent your previous time researching this REIT instead of the other hundred over different REITs listed in the world. 30 REITs in Singapore

Like for example, Saizen REITs caught my attention because

1) It's high yields

2) Share price have dropped way below NAV per share

3) Exposure to Japanese residential market etc

Step2: Study the C & I in more detail

C refers to countries and I refers to the industries.

Basically, this step is for you to research a bit more in detail about the countries and industries that your REITs assets are allocated at. Do touch a bit on the following such as

The country's status:

-Population figure and growth

-Demand and Supply figures

For example, in Singapore Office rental spaces are forecasted to increase in supply , but the demand is to drop etc, drop by how much?

-Employment levels are they drastically falling?

-Governments policies on REITs (if any): Any help available for them? Like allowing them to reduce their minimal distribution to 50% etc

-What type of industry is this REITs involved in? Properties/Officers/Retail/Malls/Shipping/Residential/Hospital and healthcare Some REITs have a combination mixture of both industries, say for example Sun Tech REITs rent out both retail malls and offices spaces.

-Industrial Cycle: Look at charts in that particular country and industry, estimate, basically how long the cycle whether properties/shipping etc took to bottom out (Indonesia's longest downtrend for properties is 16mths), my best guess is that now , or perhaps most of the cycle charts are at their over sold level or have fallen from a great high since 2007.

Get to know the industry itself more, which industry is more resilient, why is it that Hospital and medical industries are more resilient to say as compared to shipping industries?

Of course, according to value investing principals, "Invest when fear is the greatest" The best time to invest in these REITs is when there is server downturn or a recession such as now, this then results in very low REITs unit price, higher yields and the downside is some what limited.

But one has to be at least aware where the REITs allocation is at, you don't want a REITs that allocates its assets in countries like Iceland (renting out igloos) or North Korea (renting out military faculties for nuclear war-heads) etc

Step3: Past Performances -How old is this REITs

According to some industrial experts, it is best to invest in REITs that have at least 3 years of consistent good history. This is because (I think), the longer the REITs have been in profitable operation, the more likely its business model, asset allocation , capital management, refinancing matters are more or less taken care of.

-Data collection table

Create a table, that shows the REIT's revenue/operational cash flow/operational margins since listing. In this way you'll probably get a clearer picture as to whether the REITs you are looking at, is or has been doing well these past few years. Basically I avoid REITs that have a very inconsistent history of revenue/operational cash flow and margins, these is because, for the last 3-5 years if you cannot show me consistent increasing results, what makes you think you can do so for the coming tough years, that this particularly drastic crisis have caused?

Step4: Knowing the Management

-Who is managing the trust

-What policies are established into the REITs? Policies like deferred units establishments (Dilutes your yields in the future), management payment via units(Ensures management work hard to increase the Share price of the unit) etc Establishing good relationships with tenants for example, passing government benefits, yearly free estate fixtures. All these can be found in the REIT's quarterly presentations and pass news.

-Any strong backing/pipelines?

Like Keppel REIT is backed by parent company Keppel Corp and Capitalmalltrust/CCT backed by Capitaland. I believe backing is important, this is because say Capitalmalltrust were to ever be short on cash, I’m confident the parent company CapitaLand will pump in money from its $7billion or so cash reserves. This backing provides investors an extra safety net to ease our worries.

-Are they confident in the business? Look out for significant holdings by Directors/CEO and insider buying, these information should be easily obtain either via the RIET's website or go to SGX.com or simply call the investment relationship manager.

-What are the managers doing about any short/long term problems? Like what are they doing to conserve cash (Converting short term loans to long ones?) What plans are taken to reduce debt? What meetings, conferences, negotiations, measurements are going to settle matters like refinancing

Step5: Health of the REIT's finances
Years/Acc 2005 ~2006~ 2007~ 2008

Receivables 2,762 ~12,987 ~10,246 ~27,749 ~(PASS)

DER ratio 0.240 ~0.230 ~0.210 ~0.350~(PASS)

Shareholdings 0.890b~ 1.201b ~1.321b ~1.361b~(PASS)

NAV per share $1.62 ~$1.85 ~$2.69 ~$2.94 ~(PASS)

Here we look at accounts like receivables, finding out whether they are increasing drastically as compared to the pervious years? If so, then ask yourself, why is this so? Am ever increasing receivable would mean a higher chance of bad debts occurring. Means that clients or tenants are not paying up! Just like Peter Parker (Spiderman)...despite his heroism, he is always late paying his rent, causing a lot of anger to his landlord. You don’t want too many of him in staying in the properties of your REITs because parkers are really fuckers to your dividends. Next will be Debt to Equity Ratio. If the ratio shows 1.5 times in any of those years, one have to be alert. Because the higher the REITs debts, the more interest it needs to pay, the chances of going bankrupt (if loan is not refinanced) is high. A healthy REIT is one that takes up 50% less its market capital.

And lastly the most important measure, the NAV value. Especially for REITs, the higher the NAV, the better it is for investors and for the company to refinance its loans via collaterals. In fact, the intrinsic value should also be based on the NAV of the REITs, however in times like this, prices of REITs per unit have fallen way below its NAV, so a good buy would be a price that is about 40-50% to its NAV. Also take note of falling property values, because the more the prices fall, the more jittery banks become, the faster they want their loans back. Likewise borrowing will also be hard for REITs if its properties are falling in value.

Step6: Their investment portfolio
Only four simple questions to be answered here
1) Are their portfolios well diversified?

2) What are some good points they mentioned about their properties? Award winning, most traffic alluring buildings,

3) What are their current plans or future plans?

4) Have you seen their portfolio in action?* (subjected to certain REITs only)

What I mean in question 3 is that, for etc, CapitalMallTrust (CMT) has its investment income generating properties like IMM/ Tampinies mall, seeing them in action simply means just going down to these malls, take a look at the crowd, the influx of people, the general feel of the place. Because more crowds means more business, more business means more sustainable occupancy level means more stable dividends. Speaking of sustainability, that brings us to our next step

Step7: Sustainability of the yield
Step7 is basically putting all the data relating or influencing the sustainability of the yields in a table. So you have a better view of what's falling or rising

Years/Acc ~2006~2007~2008

Rent rates ~$7.00~$8.73~$8.00 ~(PASS)

Rate ~99%~98%~99% ~(PASS)

Investing FCF ~(151k)~(842k)~(39k)~(PASS)

Revenue ~1.67m~1.88m~2.55m~(PASS)

Interest Rate ~3.3%~3.4%~3.9%~(PASS)

Shareholdings ~0.890b~ 1.201b ~1.321b ~1.361b~(PASS)

Here we again look at the historical data of the rent rates/occupancy rates/investing cash flow etc. With regards to rent rates, its best to invest in REITs that have been charging low rental rates with its clients in the pass years, in that way there is buffer for both down and up side. What I mean here is, take CapitalCommTrust for example; they charge an average of $7.14 per sq foot to their office tenants, while the market average is a high of $11.40. So, if this downtrend were to drag this office rental space to $7.40 according to some property valuator expert, if this happens, CCT will be able to more or less maintain this $7.14 per sq foot regardless, likewise there is an potential upside if the market were to raise back to $11.40 giving CCT the ability to chare more in the future. Next we look at occupancy rate and interest rates, in which both variables are likely to increase in the coming months or years; investors will have to taken note and expect a lower DPU. Ensure also, that investing FCF, if there’s huge spending from the last year (the REIT bought another building or ship or space), the next year should or must yield back a higher revenue figure.

Lastly we come to our finally step,

Step8: Summary
This finally part, involves listing down the latest NAV per share, your intrinsic value via Gordon's dividend discount model with realistic assumptions http://www.answers.com/topic/gordon-model The current share price, risks involved, margin of safety etc. It would look something like this

NAV per share as of Dec 2008: $1.55 per share
Intrinsic Value: $1.40 per share for the next 10 years using 5% discount rate
Current Share price: $0.77
Risks involved: Possible deflation, Assets not that diversified, $600m to be refinanced in dec 2009
Margin of safety: (I’ll use NAV in this case) about 40%-50%
Yet, despite doing so much (subjective) research on particular REITs in mind, there will always be risks in any investment, and these risks are sort of heightening in these current market. Some risks to take note of, socially for REITs is

1) Deflation. If you noticed, under most REIT's balance sheet their long term assets socially the account like their buildings/ships/estates has been inflated through out these many years. What I mean by inflated is for example, CMT (Capitalmalltrust) bought IMM for 1.6billion in 2001. So in 2002, the value of IMM rose to 1.8billion, in 2003 rose to 2.2billion , in 2004 rose to 2.6billion and so on, so you can see, these properties are inflated in their holding value by a property value. So, if their value can raise so fast, isn’t it possible to even drop that much? That has yet to be seen in this current market, and if drastic devaluation takes place, problems like Loan to value will take place, banks start to panic and ask for more compensation or return them their loans, refinancing will thus take place.

2) Ability to refinance, due to credit crisis now, REITs faces a drying pool of credit. What happens if a REIT is not able to get refinanced? Then bankruptcy will occur, possible unfortunate events like fire sale of their assets might be possible, that why the importance of buying way below their NAV per share gives you that margin of safety from this unfortunate event. In addition, but looking into track records, past performance, strong balance sheet, reputation, consistency in DUP payouts, who are the shareholders etc will more or less screen out those good REITs that can easily get refinanced.

Hopefully this simple guide will be useful to investors looking to invest in Singapore REITs which have fallen to such a level deemed very attractive to me.

2009-02-14T08:58:00.002+08:00

The stimulus package is finally finished. President Obama is promising a tough new bank-rescue plan to boost lending and limit outrageous pay. Troubled homeowners may even get some relief. All told, the government could spend more than $3 trillion to help end the recession.
So now all we have to do is sit back and watch the economy grow like a beanstalk, right?
If only. One risk of the unprecedented government intervention is that it won't do all that much to hasten the end of the recession. Another risk is that consumers, expecting a magic-bullet fix, could fail to prepare for tough times that still lie ahead. "This is going to be a difficult year," Obama himself said at his first press conference. "If we get things right, then starting next year we can start seeing some significant improvement."

Next year? Afraid so. Most economists agree that it will take that long, at least, before the biggest problems - mounting layoffs, the housing bust, the banking crisis, and plunging confidence - start to turn around. Here's what to watch for to tell whether the stimulus package is actually working, and when the economy might start to mend.

An improvement in the unemployment rate. Of all the economic indicators, this is probably the single most important. But you might want to avert your eyes for awhile.
Obama has talked about creating 3 to 4 million new jobs, and if the stimulus plan works, it might come close to that - over several years, combined. But it's almost certain that through this summer and into the fall, there will be a net job loss, not a gain. Most economists expect the unemployment rate, now 7.6 percent, to hit at least 9 percent by the end of this year. That represents up to 2 million more lost jobs. Many of those cuts are already in the works - just follow the recent layoff announcements from companies like Caterpillar (20,000), Boeing (10,000), SprintNextel (8,000) and Home Depot (7,000). But the pink slips haven't all gone out yet, so the layoffs haven't shows up in the official numbers

The first sign of an improvement will be...corporate silence. As in no more draconian job-cut announcements. Once that happens (or doesn't), the unemployment rate will plateau. Then, companies might start hiring again, and a couple of months after that, the unemployment rate will start to fall. Three straight monthly declines would be a good sign that the economy is really on the rebound. That probably won't happen until 2010.
If you're wondering what's the point of the stimulus package if it won't do much to help workers in 2009, look to 2010. And 2011. That's where the plan will make a bigger difference. Moody's Economy.com estimates that by the middle of 2010, the unemployment rate will start to drift back toward 8.5 percent. But without any stimulus plan, it would have hit 11 percent. Viva la government.

More stable home prices. The realestate boom and bust is what torpedoed the economy in the first place, and the economy won't start to recover until the housing bubble fully deflates. The good news is that housing prices have already been falling for more than two years, with prices down more than 20 percent nationwide. And we might be more than halfway toward the bottom: Moody's Economy.com predicts that housing prices should stop falling nationwide by the second half of 2009. Overall, the forecasting firm predicts a 30 percent drop in home values from the peak values of 2006.

Others think it will take longer, but whenever it happens, an end to the housing slide will mark an important turning point. Hardly anybody thinks that prices will shoot back up or there will be another buying binge. But a boomlet, maybe. Once prices stabilize, buyers will stop worrying that they could be purchasing a costly asset that's falling in value. As they buy, other kinds of consumer activity - like shopping for furniture and kitchen upgrades - will follow. Slowly.
A consumer confidence rebound. Since consumer confidence closely tracks the job market, the dismal numbers of the last few months probably won't improve by much until late in 2009, or 2010. Homeowners have lost more than $3 trillion worth of value in their homes over the last three years, and investors have seen their stock portfolios shredded. So even people who feel secure in their jobs are dour.

Turnaround in the housing or stock markets would break the gloom and help some people feel better off. So would easier lending by banks, which would help solvent consumers buy a few more cars, appliances, and other goods. But consumer confidence won't really start to improve until workers start to feel more secure about their jobs and income. Think 2010.

A less volatile stock market. Every investor hopes that beleaguered stocks will come roaring back in 2009 and regain some of the ground lost since the peak in 2007 - when the S&P 500 stock index was nearly 50 percent higher than it is today. But a better indicator of economic health would be a steady recovery - without the manic swings that seem to come from every hint of undisclosed trouble at some big bank or rumor of new government intervention.
The stock market is harder to predict than most other parts of the economy, since it's deeply dependent on psychology and other intangibles. The market could bounce back by mid-summer. Or it could remain stagnant for years, like it did for most of the 1970s. The experts can't be any more sure than you or I.

One hopeful sign would be less market sensitivity to events in Washington. The biggest market mover these days is the federal government, since fortunes stand to be won or lost - mostly lost - depending on how deeply the government intervenes in the activities of megabanks like Citigroup and Bank of America, and how much federal spending will be available to stand in for plunging consumer spending. The markets will be back to their old selves when earnings reports, IPO announcements, and M&A deals are what send stocks up or down, and utterings from Washington amount to little more than an echo. Since the government seems to be the only institution spending money so far in 2009, it could be awhile before Wall Street returns to form.
Economic growth turns positive. By economic standards, the current downturn has already lasted longer than the typical post-World War II recession. Yet there's still a lot more pain to endure. A recent survey of economists by the Wall Street Journal found that the majority think the economy will continue to contract for the first half of 2009, with growth turning positive in the second half of the year. That outlook is much worse than a few months ago, and even when growth turns positive the economy could sputter along without many new jobs or bold moves in the private sector.

It's always possible that impatient consumers will get sick of holding back, and start running up their credit card balances once again (if the banks let them). The bank-rescue plan might spur more lending than expected, goosing businesses and consumers alike. Or the stimulus plan might spread goodwill and optimism throughout the land. If you get the urge to spend, that might be the strongest indicator of all. Call the economists.

http://finance.yahoo.com/news/How-To-Tell-When-The-Economys-usnews-14351762.html

Who directs your investment lighthouse?

2009-01-29T20:49:00.007+08:00

Whenever you buy a stock, what are the factors to look out for before doing so? What kind of mentality should you have before even placing your hard earn money into that stock? What then should you do, after you have bought a stock? How do you go about monitoring it, like what to look out for? All these questions i just might have answers to.

So what factors to look out for before buying a stock? I put my hands up in an attempt to get my own attention.

Simple, i said to myself, the business must be 1)understandable, 2)the Return of Capital (ROE) must be 15% or high amount its competitors, 3)consistent history of strong cash flow, revenue and net profit, 4) the price i pay must be 50-60% discount to my intrinsic valued i calculated whether using discount cash flow model or dividend discount model or below its NAV per share, 5) management must be seen as buying or holding on to more lots of the company, 6) the company also cannot be always spending huge expenditures without a significant increase in revenue for the following year, 7) the share holdings cannot increase too much, 8) Price to book value cannot be too high like 3-4times etc etc etc.

When i ask some of my other friends who invest, some say that factors that depicts their buying would be to look at BT( Business Times) under analyst recommendation , if its a strong buy then buy lor, some like me also apply measures like ROE and PE ratio must be high and low respectively before they buy, some say their portfolio manager will help them pick, some people just invest in blue chips or mid caps that have dropped the most in value like Cosco and Golden Agri , some, look at the companies' transparency and place their money in accordance to TA (Technical Analysis) etc. Soo many methods, views, opinions and techniques.

So! How do i know which advise to follow? Who was the one who taught me how to think this way or rather apply these measures before i start buying a stock? They are none other then my investing mentors i refer them as my investment lighthouse keepers , their words, articles,blog,books and stories inspire and guide me thru the maelstrom of noises in the investment world. Each take their turn to make sure my lighthouse shines in the right direction ( I hope), for ships carrying wealth,income,dividends and cash into my shores (my bank la!)

4 of them to be exact, and they are..(drums roll please*)

1) Warrent Buffett

2) Ms Teh Hooi Ling

3) MusicWhiz

4) Adam Koo

Warrent Buffett~ The main man

OKok , i know what some of you all might be thinking, "Aiya, Warrent Buffett again?! , who don't know? Everyone keeps saying Warrent Buffett this Buffett that, Buffett Buffett make gives me comfort, we know already move on! "

Which i will.. nothing much can be said also , its just that he was the first one, whose books really gave me a general feel of what value investing actually is, his principals, methods and application to investment inspires and guide me through the many noises produced by the media and the market. Buffett the main man who is incharge of my investment lighthouse.

Some Lessons learnt from him in general
-Invest when fear is the greatest
-Investing in a stock is exactly like investing in a company
-Admit your mistake fast and move on
-Research, understand and justify your buying
-Margin of safety

Ms Teh Hooi Ling ~ The Brillant scientist

(Who is she arh?)
She is a Singaporean (chey!),
who holds a NUS BBA(so?)
and she is a CFA achiever (wow!)

Yes, with soo many academic accrediting on her belt, it is no surprise that her research not only impresses me but it brings a whole new light to things or factors that i wouldn't have guessed possible to do research on. Research that involved stock market timing via Bond yields, equations that involve finding relationship between interest rates and the stock market, deriving whether individual investors can beat professionals by doing this and that, a great fan of low Price to Book stocks, testing out the reliability of cash flow model, creating different themed portfolios to see which ones are the best etc etc. I bought all four of her books and constantly on a look out for her writ tern work on the business times. Exciting and enlightening, she is in charge of the the density of the light coming out from the lighthouse.

MusicWhiz~ The Detailed one

Yes! He is a real person. A devoted and strong believer in Warrent Buffett's value investing principals and methods. Why then is he consider one of my mentors since Buffett has already more then enough? Simple, because Buffett is an American, and most of the books written by him or other writers are about American stocks and how to pick them. I needed to find someone who is well rooted to Buffetts' teachings and yet have an Asian Flare to it. And that's where Musicwhiz comes in, his blog contains excellent examples of how to analyst companies, like example: where did this operational cash flow come from? What implications and possible outcomes will happen because this figure say this, this data recommends this, what is the current state and health of this company is in now? His reports on certain companies and how he picked them are soo detailed that it puts many analyst reports to shame (that's if they even do proper research), his blog is in my opinion one of the best I've ever come across, the essences of diligent fundamental analysis, i believe starts there. His blog is accessible via this link http://sgmusicwhiz.blogspot.com/. Best of all i have direct contact with him via a certain blog website. He is my Asian lighthouse keeper, helps Buffett direct my investment lighthouse while he is sleeping lol..

Adam Koo~The Inspiring One

Hopefully you have seen his books in popular or Kino , titles like "How to become a millionaire investor", "Secrets of self made millionaire" are dotted everywhere in the financial or self improvement section, reading his books actually first inspires me to think differently, to create different sources of income, to become value added in the job i take in the future and most importantly to invest like a millionaire , which is again no surprise- similar to Buffett's teachings. Whenever i feel kind of tired ,after doing soo much research on companies, his books, when i re look at them, re-engergizes me. In fact, the first valuation model belongs to him, then as time goes by i did up my own and modified it to become more applicable and useful to my own liking , which then again its all thanks to him. Adam Koo is therefore in charge of changing the light bulbs when it goes dim.

Therefore, these are the people, whose teachings ,advise ,books and comments , form the very foundations of reasoning behind purchasing a certain stock at that certain price. Their brilliance, and the intention of me following their ways will determine the success of my portfolio in time to come. Yet despite my many praises for them, i do not guaranteed 100% success if anyone should follow their teachings and advise, some people follow Peter Flich's advise, some are pure believers of Technical Analysts which i do not despise at all, i practice market timing as well. So the point of writing this article is actually to find out, who are the people who directs your investment lighthouse? What methods or combination of views do they teach you? Care to share? Thanks :)