Investment Based On The Character Of Those At The Helm

Dear readers, I found it! I done a search on Fundsupermart.com website and I found that article of a success story that I shared in my write-up “How to evaluate a company’s business (part I)” dated 30 Aug 2007. The following is an extract from the article, credit goes to Fundsupermart.com. Before we go on with the wonderful story, I like to declare that I have an investment account with Fundsupermart.com. But I do not have any business relationship with Fundsupermart.com.

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December 26, 2002

This Cabbie's Worth A Million Bucks

G.K. Singam came to Singapore over 30 years ago with just $7 in his pocket. Today, he has an investment portfolio worth $1.1 million. He tells Fundsupermart Magazine where he has put his money to work and what he plans to invest in.

by Bharathi Rajan

Fundsupermart
Jan/Feb 2003 issue

Sim Wong Hoo Was His Regular Customer

In his 20 years as a taxi driver, "Singam" (as he's known to his colleagues) has driven possibly thousands of passengers. So over the years he has accumulated a wealth of knowledge from the conversations he has had with his customers who come from all walks of life. One of his most memorable encounters was with Creative Technology's Chairman Sim Wong Hoo. "Creative's boss was my regular customer 20 years ago, when he had a small office at Ayer Rajah Crescent. I learnt a lot from him. He was very humble and never had a chip on his shoulder. He would treat his staff very well and his character is good. I don't believe he'd ever do any hanky-panky." It was this regard for the character of Sim that led him to buy stocks of the local tech behemoth.

"I purchased Creative's stock at around $7. When it went up to $38, I sold it off. Then when it went down to $17, I bought some more; those shares I have kept," says Singam, who has an investment portfolio worth $1.1 million. That is quite an achievement for someone who left Malaysia 37 years ago, and arrived in Singapore with just $7 in his pocket………

………Not one to rely on charts, graphs, and price-to-earnings ratios, Singam has a different approach to stock picking. He places a premium on the character of those at the helm, the relative financial stability of the company, and the kind of environment it operates in. And he has a bias for government-linked firms. "I don't like stocks that aren't government backed. Think about how many people depend on the government." Elaborating on some stocks, which he owns, that fit the bill, he says: "Take Comfort Group, for example. They gave me 25,000 shares first and then topped it up to 50,000. When the share price hit $1.32, I sold the shares. And when the price dropped to $0.62, I bought the shares back. I like the company because I work for the company and I know what is going on inside. And Comfort Group has more than 11,000 cab drivers. This is not a company that the government will allow to go bust. How many other companies have this many staff? It's the same with SIA. Look at how many people it employs. And it has paid up for its planes. Very few airline companies can do that."………..

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So I hope that you will be inspired by this success story. This is not a success story of a man far away in America, but a simple man who is here right on this little island. He probably didn’t realise that what he has been doing (or his approach) is exactly the teaching of Warren Buffett.

How To Evaluate A Company's Business (Part I)

Correct Mindset of Stock Investment

If you ask around the meaning of buying stocks, most of the people will tell you that it is about buying stock at a cheap price and sell when the price gone up. And don’t be surprised that such answer may also come out from those so-called “financial consultants”.

Now, please, the answer is not wrong, but indicates that these people are treating stock investments like “buying a piece of paper (or record since we are scripless now) and sell it when the price of that paper went up”. If you use this approach or having such mindset, you are not a value investor and you are largely affected by market sentiment. You are just another player.

This is certainly not the Warren Buffett or Peter Lynch’s way. So what is the Warren Buffett or Peter Lynch’s approach? When you buy a company’s shares, you are effectively investing in that company’s business. And you should behave likewise. It is not uncommon to find share price of a company moves (appreciates/depreciates in paper value) in opposite direction against its business. If you focus on the paper, you may cut loss. But if you focus on the business, assuming good fundamental, you will pump in more funds. If you really follow market sentiment and dump a company's share even when it has wonderful business, I felt sorry for you.

So how does a person behave if he/she is considering a partnership business? Let’s say someone invites you to invest in his business. Perhaps the business needs more fund to expand. I am very sure you will do at least all of the followings (list not exhaustive):

- Visit the company, talk to the employees.
- Observe the crowd and look at company’s customers’ record to identify repeated customers.
- Ascertain the company’s SWOP (strength, weakness, opportunity and threat). E.g. customers’ loyalty, strategic location, brand name, market share, cost structure, market competition etc.
- Obtain a copy of business profile.
- Review the company's P&L for last few years. Of course, if the report is not audited, then you have to take with a pinch of salt.

- Have a discussion with the founder. Get him to reveal SWOP and ascertain his integrity. If you found out that he is trying to avoid or covering up something, you should pack up.

I am never a businessman, but I would do at least all of the above. It's really common sense, although my lecturer used to say that "common sense is the least common human attribute". Anyway, if you just want to “trade the paper”, then this article will be irrelevant to you. Now, Warren Buffett and Peter Lynch are real expert when it comes to evaluating a company’s business and its management team. Even though we may just buy only 0.01% of the company’s shares, it should not stop us from using their approach. If time is what you don’t have, then I have a suggestion - pay me and I’ll do it for you.

A True Testimony – Creative Technology

If I remember correctly, a few years ago, an article appeared in the Fundsupermart.com about a Singapore taxi-driver whose investment turned him into a millionaire. If I can find that article again, I will put it on my blog. What happened was one day, this taxi-driver pick up Mr Sim (COE, Creative Technology). Singaporeans should know this man, a poly-grad who turned a company into one with large global market share and dual listing in Nasdaq (likely to be delisted from Nasdaq this month) and SGX. Both of them had a wonderful conversation during the rides and this tax-driver was deeply impressed with his humble customer. One thing for sure, the tax-driver is not an investment analyst, and most probably not a CFA charterholder. But he based on one simply principle that have been highlighted by Warren Buffett over and over again – you invest in a company that is run by a CEO of a such character that you want to marry your daughter to him. The taxi-driver and Mr. Sim's chit-chat session was not long, and the investment decision may look hasty, but that’s not my point.

For those who have been active in local stock market for last 10 years should know that Creative Technology’s share went up from about US$5 a share to nearly US$70 a share in late 90s. That taxi-driver must have invested more than S$100,000 in Creative Technology based on one man’s character. One more highlight, Creative Technology's share price has dropped to near all time low right now due to continuous disappointed earnings. But again, that's not my point.

How To Evaluate A Business?

Firstly, we must accept that our evaluation will be much simpler as compared to Warren Buffett or fund managers. If you tried to do exactly what they are doing, I am afraid that is not going to be possible. You don’t believe? Ok, try to make an appointment with a listed company’s investment relation manager and tell him that you intended to buy 10 lots but you like to interview him first. There are a few reasons why we (retail investors) just can’t be as complete or receive as much information as we want compare to fund managers. For example:

- Warren Buffett buys a controlling stake in a company. Fund managers may not buy controlling stake but the size would be large. Retailers? Ten lots, may be twenty or more. Therefore, you will receive different treatment from the company’s management.
- Information that a company is willing to reveal is likely to be different between meeting Warren Buffett, a fund manager or investing public.
- You can be sure that warren Buffett and fund managers have sophisticated systems/sources to assist them in their evaluation. Retailers? We can’t even afford wirenews at home.

The good news is that there are other things we can do to compensate our shortcomings:

1) Be vigilant

Keep an open eye when you go shopping. Don’t just get entertained, you may make big bucks just by being observance. Let me share a living example. A few years ago, Jurong Point (JP) was not as big as it is today. When JP officially opened for business, I thought the shopping mall will not be impressive. This is because its customers will make up of mainly factory workers, and may probably damage its image. Subsequently, I witnessed how JP grew and expanded its floor area by enlarging the shopping mall. Today, even with its expanded underground carpark, finding a parking lot requires huge amount of luck. Besides the parking lot, finding a seat at the food court “Kopitiam” also requires luck and patience most of the time. There was never an empty space/shop inside JP. Without talking to the management, what I seen with my own eyes is more than enough for me (and my friends) to call a buy on JP (jointly owned by Lee Kim Tah and Guthrie). And true enough, both Lee Kim Tah and Guthrie reported continued rental growth from JP. We made some profit out of it.

2) Take note of aunties’ and uncles’ gossips.

How many times have you heard friends and colleagues commenting or cursing a product or a company vigorously? So what do you do with it? You join in the fun and then you forget about it? Well I don’t. If a few persons said it, it may not be true. But what if you heard again and again from different mix or locations? Then there could be some truth in it. When Breadtalk was listed in 2003, its share price surged more than 50%. Their business concept was quite innovative and fashionable, and many people like it. And I heard the following gossips frequently:

“wah, Breadtalk employ many young girls….”
“eh, that spicy bah hoo (flosss) bread is really nice…..”

I patronized a few of their outlets. I found that the above two statements were true. The bread is nice to eat, but every outlet is heavily staffed. Labour costs would be big problem in a competitive market where you can find many other popular confectioneries such as Bangawan Solo, Four Leaves, Prima Deli etc. In addition, most outlets are located at pime areas, so rental expense will be scary. And after we monitored and study their progress, we decided that Breadtalk should be avoided. Why were we interested in Breadtalk then? Answer - their franchise business. A franchise business model is a wonderful model which had created empires such as MacDonald and 7-11. I knew this long ago but Breadtalk’s progress was not exciting at all. Thus I was unable to differentiate Breadtalk’s business as compared to the rest. There was no reason at all to invest in Breadtalk then. One of my friend (Mr Philip Comd) said this to me:

“By the time their franchise business become successful, the share price would have gone up”.

I replied that it may, but still the important question is whether that “gone up” price is under or over-valued relative to its growth! Price by itself means nothing. It has to be compared against something else. This means that I will invest if my analysis shows a change in Breadtalk's fundamental, and Mr. Market might missed it. It happens many times. We cannot invest base on hope or luck just like visiting a casino.

In Dec 2006.....

To be continue……...

Financial Planning With SRS

Investment Management & Financial Planning

My objective of creating this blog is to share knowledge on investment management and financial planning. What’s the difference? Investment management covers mainly on investment in shares, bonds, unit trust etc. But financial planning covers even wider areas and longer periods. I think investment management is part of financial planning.

Let’s try this, can you tell me the ultimate objective of buying stocks, bonds or any investment products?

“extra money to spend around….”
“banks give peanuts mah, so no choice invest lor….”
“I need more money for my family…..”

Gentlemen, in my opinion, the above remarks are not “ultimate" enough. The true purpose of investment is to prepare us for a comfortable life after retirement age. Many Singaporeans take this topic lightly. And our Government has been worried about ageing problems (and my first stock analysis will be on Pacific Healthcare, soon).

Among my friends and colleagues, I think about less than 20% are really actively monitor and explore ways to enhance retirement savings. One thing I must really tell my countrymen who are reading my blog - our government has created many avenues to prepare for comfortable retirement life. But many just don’t get it. I am not affiliated to any political organizations directly or indirectly but you think about it, do you find this kind of government everywhere?

Financial planning is a huge topic and is impossible to cover most of the things in one page. Moreover, I am still learning. There are lots of wonderful tips I like to share on financial planning but for a start, I will share on how we can, through tax planning, reduce taxes and create wealth for retirement.

Please read carefully, it’s tax planning, not tax evasion. Do you know what's the two things that nobody on the surface of the earth can escape? Answer - death and tax. In fact, you may still have to pay tax after you die. Anyway, whatever I shared here, it's legitimate and those double-MBA guys sitting in IRAS or CPF are in control. They are the gatekeepers.

Supplementary Retirement Scheme

The Supplementary Retirement Scheme (SRS) was launched in 2001 by the authorities and operated by the big 3 banks. It is quite similar to CPF special account but with different characteristics.

So what is it in short? It is a scheme whereby you transfer your CASH (only) into SRS account with a bank and enjoy tax savings. You can use the savings in the account for investment. The ultimate purpose is for retirement planning, although you can withdraw the money anytime. The benefits of SRS:

- Tax relief. A dollar contributed to SRS will reduce your chargeable income by a dollar.
- Investment returns are accumulated tax-free except for Singapore investment where tax had been deducted from the payer company.
- At retirement, only 50% of withdrawal from SRS is taxable. However, the chargeable income can still be massage by spreading up the withdrawal from SRS account. Most probably, you still won’t be taxed at retirement.

What if you withdraw it before retirement?

- 100% of the sum withdraw will be subject to tax.
- A 5% prematured penalty will be imposed, except in the event of death, TPD or bankruptcy. (So if you die, the amount withdrew is still taxable, see what I mean?).

If you want to read in detail, please check this link. Firstly, let’s get focus, I’m still talking about retirement planning. Opening a SRS account is voluntary but it is a way to force yourself to save more for retirement while enjoying tax savings. Remember the one ultimate objective for investment – comfortable retirement.

So by forecasting your tax payable next year, you can decide how much to put into this account. Perhaps at year end, you happened to dispose a fund and thus with more cash holdings. You wanted to invest it again but there is another better option. Based on your forecast, you are going to pay some money to the IRAS next year. By transferring cash into SRS account, you can reduce your tax payable and continue your investment activities. It may not be significant, but I don’t mind that few hundred bucks of savings from you.

When you reached retirement age, you should withdraw the money over 10 years so that your tax payable is either negligible or none. For this, you need to sit down and work out your needs and how it ties in with your other retirement income. I think such tax planning benefits especially those in middle-income group. Almost all of my friends belong to this income group. Unfortunately, I am still far away from it. Don’t ask me why.

Case Study

I created a spreadsheet to forecast tax payable. Its use is quite limited at this stage but enough for someone with simple tax assessment (Singaporean & tax as residence). Firstly, my spreadsheet has an “idiot-proof” Q&A worksheet. By answering those questions with regards to your income and relief status, the calculation will be done automatically.

So let’s assumed that Mr Anderson’s wife is not working. He has a kid, his mother still kicking but not staying with him and he attended his ICT. Based on the estimates, his tax payable for the basis period should be (around) S$1,367.50. If Mr Anderson transfers S$4,000 into his SRS account before 31 Dec, the tax payable will reduced to S$1,027.50. Tax computation is based on calendar year and so your decision for a transfer can and should be made at the end of the year. Mr Anderson effectively saved S$340 (or 8.5% immediate returns) by transferring cash into SRS account.

Other Options To Reduce Tax Further?

Yes. I had deliberately left “CPF cash top-up” empty in my illustration. Now, we all give monthly allowance to our parents. After all, we are still Asians. Let’s say Mr Anderson’s mum is quite independent with personal savings. Mr Anderson can choose to give his mum a CPF top-up instead of giving her cash to sit in the bank earning pathetic interest. And then, he is entitled a further relief!

Assuming he did a CPF top-up of S$4,000 into his mum’s retirement account, his tax payable will reduce further to S$762.50 (now total savings of S$605). And Mr Anderson’s mum will enjoy 4% returns on her retirement account. So change the way you managed your cash holdings, or give the money to IRAS for being ignorant. You decide.

“Are all these planning stuff legal and welcome by our government?”

Yes of course! By taking care of yourself and your family, they got one less social problem. They should nominate me for NDP award. So deploy our money sensibly till the day we retired. Make sure your money work hard for you. You do it, you will be wealthier compare to another person who do nothing about it, all else remains constant. Remember that our ultimate objective is still retirement planning. The old concept of 养儿防老 (yang er fang lao - invest in children as an annuity) doesn’t work anymore. That doesn’t mean that we leave our parents to rot. But it certainly means that everyone must be FINANCIALLY INDEPENDENT right from the day we stepped into the society.

Lastly, if you like to explore my spreadsheet, give me your email address. Take note that it excludes complex tax issues and only meant for Singaporean taxed as residence. At this stage it’s still F.O.C. because I am still developing it (by adding more complex tax situations). So get yourself “unplugged” like Mr. Anderson.

A Day At The Invest Fair ’07 (25 Aug)

Outside The Hall

I reached the Suntec Convention Hall (level 4) at around 12pm. I dropped my lucky draw coupon at the entrance and received my ‘goodies bag”. I remember attending such exhibition in mid-90s also conducted by SGX (then known as SES) and the goodies was really good. Among other things, I got phone card, name cardholder and an expired share certificate (Jack Chia MPH). I still have the share certificate, should be an antique soon. I am prepared to let go at S$10,000 (negotiable).

Inside The Hall

As usual, it was big and crowded. But at least not like that kind of crowd you see at Chinatown during Chinese New Year eve right after the reunion dinner. In the hall, I decided to start from the left side and I came to Optionetic’s booth. They are giving away free book, if you surrender your particulars. By the name of the company I already know their expertise. So about option trading:

- Can be call or put options. You can make money in an up market and a down market.
- Speculation based on certain catalyst, usually corporate announcement.

- Limited downside but unlimited upside.
- Huge market in US
- Can also use to protect portfolio (protective puts)

Again, since it’s about speculation, I am not going to touch on it. I had never tried option trading but I know what it is from my (CFA) studies. However, I am going to share with you my friend’s experience with options trading.

Option Trading and Training

Option trading is nothing new to traders in US, but relatively new to Singaporeans. If I am not wrong, the idea was brought in and became active after 2000 (dot.com burst). A few trainers emerged to conduct (expensive) courses and companies setting up and offering their trading platforms.

One of my friends attended such training. One day, I went to his place and I picked up one of the training manual to glance through. Something caught my attention. I saw a few pages with pictures of fund managers. They were categorised under two headings: those funds that had gone bust and those who survived to-date. The learning outcome of these pages was not stated. For those who survived, I saw photos of Peter Lynch, Warren Buffett etc. – value investors. Immediately I know what’s going on. I turned to my friend and said:

“bro, I never heard of these (bankrupted) fund managers. But I am willing to bet with you that they are not value investors. Let’s key in their names into Yahoo search……”

Truth enough, they were all hedge fund managers. These are fund managers constantly looking for opportunities in any forms - options, futures, forex, M&A etc. They can be in and out of a market very fast once a catalyst sets in. What’s really amusing is that by putting up these pictures, the trainer is effectively slapping his own face – options equal to speculation!!! And to add to your laughter, many trainees including my friend didn’t realize that!!! He was shocked after that.

"Yo bro, if you are reading my blog now, please tell my readers that I am telling the truth!"

(Subsequently, this friend of mine gave up options and started to learn value investment from me F.O.C. although I could have charged him S$10,000. A year later, he found a job as a Research Executive in a big company, though luck plays a part).

Land Banking

Back to the exhibition hall. Anyway, I got a copy of the free book from Optionetic and surrendered my particulars (please lah, I’m still a Singaporean leh, anything free just grab). I bypassed booths from broking house such as CIMB-GK, a few listed companies such as Petra Food, Bursa Malaysia, SGX, wine investment, GE Life, Adam Khoo’s Learning Technology and then I came to this company Walton International. This is a land banking company. Coincidentally, I heard of this term "land banking" only the night before when a friend told me that he will be signing a contract to “buy land”!!! A lady consultant approached me and I decided to sit down to understand their products. The followings are some of the points I picked up:

- A land banking company buys and holds a piece of undeveloped land mostly in countries such as UK, Canada and US. It takes a few years before the land can be dispose off at a good profit, if there is a demand.
- You invest by buying at least a unit which cost S$10,000. If the land you chose is located in US, then you have to multiply by the exchange rate. And you are locked in. You may exit from the investment early as the company may (not sure if it is guaranteed) buy over your units. But returns will be minimal.
- Thus a whole plot of land is actual owned by many investors. You need to invest with long term view and returns come in at times of disposal. The land will appreciate when the local government release “planning permission” on the land and developer starts to bid for it. Or else….
- Unlike property, land do not depreciate (unless got hit by natural disasters).

What I am interested in is the correlation of land banking with the economy. A few days later, I done a quick check on Yahoo. I got both positive and negative comment on this investment products. Since I have not completed my due diligence, I shall not jump to conclusion. But one thing for sure, the company had created an awareness. I will monitor and when there is a chance, to discuss it with some of my friends who are active in investment and up-to-date.

Value of a Winning Strategy

After I exchange card with the consultant, I quickly proceed to seminar room 4 for the topic that I am interested: “Can I invest for a living?”. Guess what? It was flooded all the way to the door and I can’t see a thing. Disappointed, I left the hall and visited a friend who is doing business in Suntec. At 2pm, I managed to attend another talk on “Learn the power of option trading”. At the end of it, the speaker revealed the course fees to be S$6,000 plus and they are offering a S$1,500 discount for first five who signed up.

Do you know that Warren Buffett never writes a book on his winning investment strategy? If option trading is such a easy winning strategy, why would they want to reveal it and earn from training fees? Or why should they waste their time teaching instead of trading? Or teaching is actually more profitable than trading? I leave it to you to ponder. If I found a guaranteed/chop/signed winning strategy, pay me tens of S$10,000 and I still won'I reveal.

I ended the day with a nice coffee session with a few (new) friends sharing and exchanging investment knowledge. Hey, without scrolling back, can you recall how many times I mentioned "S$10,000" in this article? :-)

US Economy - Where Is It Heading To?

I've been talking about economic fundamental over and over again. The broad economic fundamental I'm talking about is the US economic growth. Every investor knows that many country's growth especially Singapore, largely depend on US consumers' demand. This is because Singapore, a country with no natural resources and small population, our growth, measured by the Gross Domestic Products (GDP) depends heavily on our export. And huge portion of our export is to the US and Europe.

Recent years, especially in 2007, there have been many talks about US economic slow down, if not a recession to strike. There have been wide concerns on US trade, budget, exchange, housing, oil prices etc. Others look at the chart (the chartists) and come out of with some statistical analysis which frankly, too deep for me to understand.

Last year, there was a good article published in Singapore's Business Times. I'm particularly interested in the analyst's comment on US economic fundamental (rather than statistical study on Dow). I have reproduced the article below for your reading pleasure. Full credit goes to Business Times.

Business Times - 18 Aug 2006
Dow theorist says US recession in 2007 may be unavoidable

Panic for gold seen as dollar runs into major trouble

(NEW YORK) Richard Russell is feeling like less of a loner these days.

The founder and scribe of the Dow Theory Letters, which examine stockmarket trends, has been warning in recent years that US economic growth would slow far more than anyone could imagine. Many investors and analysts are now coming around to his view, sounding alarm bells about the growing risk of recession in 2007.

Still, Mr Russell differs - again - with the masses. The US economy can hardly avoid such a slump, he said, as it grapples with elevated energy prices and a housing market slowdown in the face of an already indebted consumer.

'We are in for a major recession,' Mr Russell said in an interview. 'I don't think we will get a soft landing in housing. There is just too much debt as far as the consumer goes -and there have been tons of speculators in the housing market.'

The severity of the US housing downturn is being grossly underestimated, he said, and the numbers are unfolding. On Wednesday, the Commerce Department said home construction fell in July to the lowest level in almost two years. Housing starts dropped 2.5 per cent, more than forecast, and building permits declined 6.5 per cent, the most since September 1999.

What's more, the United States faces huge deficits in its budget and current account, which will put pressure on the dollar. So far this year, the greenback's nominal value against a basket of certain major currencies is down 7 per cent.

'No country can keep running up debts and deficits the way we are doing and still be a strong reserve currency,' said Mr Russell. For that reason, 'we are going to have a panic for gold as the dollar runs into major trouble. This country is not addressing the deficits and debt situation at all.'

He sees gold as a 'long-term holding' and forecasts that the metal will ultimately hit US$1,000 an ounce. In early 2004, he advised clients to hold cash and gold, which he called 'as cheap as dirt' at US$400 an ounce. On Wednesday, spot gold traded at US$630.90/631.70 an ounce. Meanwhile, the Dow Jones Industrial Average is locked into a trading range because the market lacks 'any consistent buying', Mr Russell said. Stock indexes need to trade lower 'to the point where the institutional money sees real values, and they are not seeing that right now'.

This year, the Dow has crossed above or below 11,000 about 18 times.

'The market can't get anywhere - and when that happens, you have to get lower prices, where institutional money is willing to come in,' he said.

The Dow hasn't been a complete slouch, though. For the 12 months ended June 30, it has posted a total return of more than 8.5 per cent. But as Mr Russell sees it, the rally in the past 12 months - and, in fact, the gains in the last three-plus years - amount to nothing more than 'an upward correction in a continuing bear market'. Mr Russell's observations may be grislier than others, but they typically command attention. He has done more than anyone to popularise Dow Theory, the analytic system developed in the late 1890s by Charles Dow, founder of The Wall Street Journal, which is published by Dow Jones & Co. The company also owns and maintains the blue-chip Dow average.

Dow Theory aims to identify the primary trends in stock markets, lasting from one to several years, and stipulates that the Dow Jones Transportation Average must 'confirm' a high or low in the Dow industrials for a trend to last.

Even after a rebound in the transports - but not before six weeks of significant declines - Mr Russell said investors aren't falling over stocks for the sheer fact that they now have competition with bonds yielding around 5 per cent. For instance, the S&P 500 is trading at more than 17 times earnings and sporting a dividend yield of less than 2 per cent.

'That is more of a characteristic of a bull market top than a bear market bottom,' Mr Russell said.

US Treasury bills and notes offer twice the yield provided by the S&P 500. That's why many companies are trying to increase their dividends to become more attractive relative to other asset classes, he added.

'The fact is, in 7-1/2 years, the S&P has gone nowhere,' he said. 'When you get a situation like that, people want to get paid for sitting - and they are not getting paid.'

Mr Russell himself is not going to keep still. He advises clients to sit on cash and short-term Treasuries with huge exposure to - surprise - gold. – Reuters

Shareholders' Rights And Stock Entitlement

Shareholders’ Rights

What is your relationship with a company when you own its shares? What are your entitlements? Firstly, you may have noticed that for equity, sometine we use the term "shares" and other time "stocks", what's the difference? Well, it's just UK and US English. In UK, they call in shares while US call it stocks. In my previous article, I had highlighted that by buying a share, and usually it is an Ordinary Shares unless otherwise stated, you are one of the owners. There are tens of thousands of owners and you are just of them. You are therefore an ordinary shareholders. The power of these owners lies in their voting rights. So whoever has the greatest voting rights, i.e. having greatest number of shares, he or she will call the shot. Of course, shares is not just owned by individual but also other corporate body. A company can buy another company's share in its own name.

Although you are one of the owners, a team of expert known as the Board of Directors runs the company. You have no say over daily operations as you are a separate entity. However, you have the power to decide which director stays during the Annual General Meeting through your voting power. So please do not walk into a departmental store and grab a bottle of coke to drink without paying for it although you are a shareholder. You will be then under police custody.

As an ordinary shareholder, you are entitled:

- To sit in the Annual General Meeting (AGM).
- To vote during the AGM such as election of Board of Directors and any proposals such as dividends put up. Generally, one share equals to one vote. Take note that if you invest through your CPFIS-OA, you do not have direct voting rights. You have to give instructions to your Agent Bank, who will vote on your behalf. However, you can sit in as an observer, if you have registered with your Agent Bank.
- To receive company’s annual report.

As far as voting rights is concerned, there is another area to consider when investing in a foreign company. The following is an excerpt from Business Times (Aug 2007):

"Companies incorporated outside Singapore - including Thailand, Bermuda, and Cayman Islands - recognise only Singapore's Central Depository (CDP) as the sole shareholder of the shares. Because CDP holds all the shares on behalf of Singaporean shareholders, it would appear in the register of that company as the sole shareholder. As such, shareholders based in Singapore may not be able to speak or vote at annual general meetings (AGMs), since they are considered proxies of CDP, and may only be able to sit in as observers. Currently, foreign-incorporated companies have gotten round this problem by allowing CDP to appoint the individual investors as CDP's proxies. Individuals can attend and vote at the AGMs without the need to lodge any proxy. Shareholders who cannot attend a meeting personally may also enable their nominees to attend as CDP's proxies."

Dividends

As an ordinary shareholder, you only entitled the final (year end) dividend if so recommended by Board and passed during the AGM. Besides final dividend, the Board may also declare interim dividend. This is dividend given out after first half report and the Board is able to declare it without shareholders’ approval. Dividend issued to shareholders will be tax-deducted.

If you bought a company’s shares with CPFIS-OA, then the dividend paid out shall be credited to your CPF. You cannot cash it out. In fact, you CANNOT cash out your CPF money regardless of how much money you have made from the stock market. However, there is an indirect manner to get dividend from your CPF. This involved the tax regulations. Firstly, as highlighted, dividend is issue after-tax unless the company is tax-exempted. But if you do not have chargeable income during the basis period perhapst due to low income, the taxed portion of your dividend will be refunded to you. The catch here is that the IRAS do not segregate between dividends from cash or CPF investment. Full amount will be credited into your bank account.

Other Entitlements

1) Rights issue. A company may issue Right Shares to existing shareholders at certain ratio, at an attractive exercise price. Generally, the exercise price would be lower than the company’s current market price. The company concerned will send a letter to individual shareholder indicating the number of rights share and other details. As a shareholders, you may reject it, sell your rights in the market, or exercise it. To reject it, just do nothing about it and your rights will be forfeited. To sell it, you can do it during a window period. You will find the company's name appeared as another row with an "R" after it. That is where investors buy and sell the rights. If you want to exercise it and get the shares, you should make payment by filling up the form and attach a cashier's order. Alternatively, in Singapore context, you can also make payment through the bank's ATM. If the company is deemed to be a good investment, you may also asked for excess rights besides your entitlement, subjected to the company’s allotment.

2) Bonus issue. A bonus share is a free share of stock given to existing shareholders at certain ratio. Generally, this is to reward existing shareholders for their support and loyalty. If you are an existing shareholder, the bonus shares will be automatically credited into your account.

3) Stock split. Stock split refers to a corporate action that increases the number of shares in a public company. E.g. 2-for-1 stock split. If you have one share, after the split, it will becomes three shares. For this purpose, you don't have to do anything and will find your quantity of shares adjusted automatically.

4) Stock consolidation. It is a reverse of stock split. In this case, the company is consolidating, or merging its shares thus reducing the number of shares. For example, in Sep 2003, Beyonics Technology, one of my favourite company, announced a consolidation of five ordinary shares into two. If you owned five lots before consolidation, it will become two lots after the consolidation. Similarly, you don't have to do anything.

For any of the above corporate actions, you can see “CE” (cum entitlement) beside the stock quote on the SGX. During this time, if you buy the company’s shares, you will enjoy the entitlement. When you see “XE” (ex entitlement), the share price will be adjusted accordingly. Thereafter, if you buy the company’s shares, you do not enjoy any entitlement. This is a fair game so that nobody enjoys an arbitrage opportunity. An arbitrage opportunity happens when you earn a risk-free profit without any investment.

How To Buy Shares?

Opening Accounts

To trade stocks in Singapore Exchange (SGX), you needs to open two accounts, a securities account and a trading account. The securities account is to be opened with the Central Depository (CDP). The CDP is the custodian of members’ shares of the locally-listed companies. Decades ago, buying and selling shares involved the transfer of a physical paper called the share certificate. It is massive and inconvenient. But today, all are electronically recorded with the CDP. The securities account records the movement of shares in and out of your account. After opening a securities account, a trading account is needed to buy and sell shares. A trading account can be opened with any broking house (member of SGX) and a Trade Representative (TR) or commonly known as a broker or remisier, will be introduced to you. The TR is a licensed broker who will execute transactions according to a client’s order. When applying for a trading account, you have the following options:

- To apply for GIRO so that all your payments and receipts are done automatically. Otherwise, you have to either write cheques or visit an ATM to make "Electronic Payment for Shares".
- To apply for internet trading account. With internet trading account, you can key in your orders anytime even after trading hours. If you key in your orders after trading hours, your orders will only be send to the SGX’s trading platform when stock market opens the next day. Another advantage of internet trading is that the brokerage fee is slightly cheaper than placing order through your TR.

Once these two accounts are linked, the fun begins.

Investment with CPF Savings

If you wish to use your Central Provident Fund (CPF) Ordinary Account to buy shares, you need to open an Investment Account with an agent bank (DBS, OCBC or UOB). The agent bank will be authorized to withdraw CPF savings from member’s Ordinary Account for investment, and keep track of member’s investment holdings and transactions. The amount that can be used for investment depends on the types of investment products. Without going into the detail computation:

- Full amount can be use to buy unit trust, Government Bonds, ETF, fixed deposit etc. These are products with lower risk.
- 35% can be used to buy stocks.
- 10% can be used to buy gold.

Important note:

1) You cannot contra your purchases through CPF money on the same trading day.
2) Also if your transaction value is greater than the balance investible amount in your Ordinary Account, you can either contra off or pay the difference in cash.
3) Investment with CPF savings involved higher opportunity cost compare to savings in the bank. This is because as of today and in fact for many years, CPF savings offer an interest rate which is much higher than the bank’s saving deposit. As such, there is a strategy in using CPF savings especially when the Ordinary Account is needed for housing purpose and retirement saving. It is about overall personal financial planning. I will cover this area some other time.

Opening all of the above accounts are F.O.C. But there will be various service charges from all these agents whenever you conduct a trade (buying or selling). Check with your TR for details.

Buying And Selling

Share prices are determined by market forces of supply and demand. The stock market will display the “bid” (or buy) and “offer” (or sell) price of a counter (i.e. a company’s share). You can enter your buy or sell order based on the six bid rules. Example, for a counter below S$1.00, say S$0.80 is the last traded price, you can execute your order to buy or sell at any price but up to a maximum of S$0.77 or S$0.83 respectively. In this case, one bid equals to half a cent. Generally, shares are traded in board lots of 1,000 shares. Thus 1,000 shares is also known as "one lot". Check with your TR for detail.

Take note that not all counters can be invested through CPF savings. A listed company must fulfil a few criteria before it can be approved under the CPFIS. Example, the company must be incorporated in Singapore and traded in sing dollars. Check with your TR before you place your orders.

There are strategies in buying or selling a counter. I am not talking about analysing a company, I am talking about purely the buying or selling activity. What if the counter you wanted very much has poor liquidity such that bid and offer price are far apart? What if you intends to buy 10,000 shares (or ten lots) but someone sold to you 1,000 shares by the time market closed? I will cover these areas next time.

The settlement period for any transaction is T+3 (trading) days. If you buy a stock on Monday, then you must make payment by Thursday. What is “contra” and what is “sell short”? Contra is when you bought some shares but have no intention to pay for it. So you will sell it off within the settlement period. To short means that you execute a sell order without owning the company’s shares in the first place. Now, since I strongly against speculation (or gambling) I will not dwell further on these areas.

Lastly, to apply for an IPO, you should get a copy of the prospectus. After reading through and you wish to apply for it, you can do so through an ATM. Alternatively, you can get a copy of the application form from the company's registrar, and send it together with your cashier's order. You will have to pay full amount based on the quantity of shares you applied for. However, you may or may not receive the full quantity you applied for, depending on the balloting results. There is a little strategy in applying for IPO which I will cover next time. If you are not alloted fully, then the balance amount will be credited back to you.

So just visit a broking house and the friendly customer service officer will guide you along.

What Do We Mean By Listing A Company?

A company may be formed as a Sole Proprietor, Partnership or a Limited Company. To know more about starting a business or company in Singapore, please log on to ACRA. A limited company is a company limited by liability, i.e. the shareholders’ liability are limited to the capital invested. Personal assets cannot be seized to settle the company debt obligation in time of insolvency. There are two types of limited company, a private limited company and a public company.

A private company cannot have more than 50 shareholders. When a company becomes “public”, it has the opportunity or choice to be listed on a regulated (stock) exchange. You will noticed that all listed companies do not have the abbreviation “Pte Ltd” after the company’s name. The benefits of listing a company:

- Shareholders can easily buy or sell the company’s share he or she owns.
- Enhance market’s awareness of a company and its product/services.
- Give company opportunity to raise more funds through secondary issues or other securities.
- Offers investors an opportunity to invest in the company.

There are also drawbacks of going public such as adhering to more rules and regulations set by governing bodies and potential hostile takeover.

A company is listed through a process known as an Initial Public Offering (IPO) where it offers ordinary shares (most of the times) to the general public. There are two types of shares a company can issue - ordinary shares and preference shares.

1) Ordinary Shares are the more common type of shares issued. They carry no rights to a fixed dividend but are entitled to all profits left after payment of any preference dividend. However, usually only a part of such remaining profits is distributed, the rest being kept as reserve. Ordinary shares carry voting rights and ordinary shareholders are effectively, the owners of the company.

2) Preference Shares gives the shareholders the rights to a dividend that is a fixed percentage of the shares nominal value. The preference shareholders also (as the name implies) have a priority over the ordinary shareholders when it comes to receiving dividends. A preference share may be cumulative, participative, convertible and redeemable.

- Cumulative preference share. If the company does not have distributable profit for a year, then the preference dividend for that year shall be carried forward. It will then be paid together with next year preference dividend.

- Participative preference share. A participative preference share gives a preference shareholder an opportunity to enjoy additional dividend over and above the fixed entitlement.

- Convertible preference share. A convertible preference share gives a preference shareholder the option to convert preference shares into the ordinary at a specific date and price.

- Redeemable preference share. The company issuing the preference shares has the option to redeem the shares back from the preference shareholders at a specific date and price.

In Singapore context, a company may choose to be listed either on the SGX Mainboard or SESDAQ. Both platforms will have different listing requirements and obligations. The SESDAQ has a more lenient requirements. The IPO process starts off with a company appointing an underwriter (bank or financial institution) to do all the necessary. The underwriter will submit the application and prospectus to the SGX for review and then lodge the prospectus with the MAS. Assuming everything goes on smoothly, the company will then invite the public to subscribe for its shares.

US Subprime Woes - What To Do Now?

A few friends asked for my opinion when market corrected deeply due to US subprime woes. I shared my views as follow:

“This is the American’s problem, some US financial institutions are willing to earn on high risk. It has nothing to do with us. Our banks and property development are strong supported with genuine demand although price is climbing. Large portion of local bank’s housing loan are to real homeowners. The banks’ exposure to US subprime is limited to their investment arms. Most of our companies are reporting good profit which many exceeded analysts’ forecast.

Instead, we should focus and monitor on US’s economy as a whole. This is because is US enters into a recession due to all their housing problems, then global market especially that of Singapore shall follow. Demand for Singapore export will suffer and then followed by rise in unemployment rate etc.”

Lately there are more reports in Business Times on analysts sharing the same views.

- UG Investment Advisers Richard Fan said that Asian stocks' robust fundamentals were based on strong earnings growth and cheaper valuations relative to their global peers

- Standard Chartered economist opined that Asia's economy is much more robust than in 1997. The fear for Asian stocks is that foreign investment funds will have to keep offloading shares to cover losses in the US sub-prime mortgage market.

- Dong Tao, the chief economist at Credit Suisse said that “this is a US (mortgage market) problem and Asian fundamentals remain strong.” However, Mr Dong cautioned that the Asian economies depend on exports to the US, the world's biggest economy. 'The entire world is too exposed to the US, less on the financial side, more on the export side,' Mr Dong said.

- CIMB-GK analyst Kenneth Ng said that the current market sell-down runs contrary to the state of corporate earnings. Business Times reported that out of 472 companies that had released financial results for the six months ended June 07, 412 of them (87.3%) posting profits. Among them, 261 firms reported higher profits than a year ago.

- In his National Day Rally speech, PM Lee revealed that the Government projected Singapore’s growth at 4% – 6% for next five – 10 years, much conservative then private analysts. PM Lee said that the US situation may affect Asia over the next few months but fundamentals in Asia remain strong and so too for Singapore.

So what to do now?

In my opinion, we should monitor and focus on the fundamental, i.e. US economic growth instead of following the stock market sentiments. I do not discount the possibility that US housing problem could escalates into a wide scale economic problem. Our investment decision will be impacted if US economy slows down or, in worse case, enters into a recession. Last year, George Soros predicted a recession in 2007. We still have a few more months to go.

Investment Principles - overcoming greed & fear

When I first learn of Warren Buffett's approach and mindset towards investment, I came to realise the reason for years of poor investment result - greed and fear. How many times have I heard people, professional analysts, retailers, brokers etc saying this:

- "This stock can go up further, it is still cheap...."
- "Market corrected badly, you better sell everything before you're left with nothing...."
- "I suffer huge losses in this stock, I can't sell it now, I'll wait....."
- "My broker told me that syndicates are going to speculate this stocks, we better grabbed now...."

The kind of remarks such as those listed above, I can sum up with a few words: sentiment, emotion, feeling, speculation etc. To-date, all my friends who invested based on sentiment had failed and left the market totally. For those who still hang around, including myself, we fully understand in one truth – to survive and earn from equity investment, we must first overcome greed and fear. This means that investment decision should be based on a company’s fundamental, not on (market) sentiment.

Let me illustrate. In 2002, right after the infamous 911 (and start of global recession), Raffles Medical Group (RMG) reported first ever losses and its stock slides further. After studying RMG’s history background, performance and businesses, I concluded that we should jump into this company while others are dumping. We should be logical and not emotional. Only a colleague in the Army believed in me and bought into RMG at a price below S$0.30. We hold RMG as its turn profitable the year after and continued its growth. We enjoy high dividend yield while sitting on unrealised gain.

And this the kind of thing I love about stock investment. You get rid of your greed and fear, find a gem that has been overlooked by the market, invest in it while people are dumping. And subsequently the company you invested continues to grow such that you enjoy both high yield and unrealised gain. Every year, your dividend yield from the company way exceeded bank's rate. The worst thing that can happen to you is when the share price fall back to your purchase price and your unrealised gain forfeited. But so what? Throughout my years of experience in investment, if you found a growth company before anyone else, and bought it cheaply, even in times of market correction, it is quite difficult for the price to fall back to your purchase price, assuming that the company's fundamental remains.

Unfortunately, sometimes I tend to forget what I’ve learned. I’m still human. After the exposure of US subprime woes in Jul 2007, DJIA and Asian markets tumbled. Initially I choose to stay and turned a blind eye to the issue. Until 17 Aug, after various market update of sharp fall in the STI (breaking the psychological support line), I gave in to the threat and join the queue of panic selling. Guess what? STI rebounded strongly before it closed for the day and on 20 Aug, STI surged another 191.67 points (6.1%) to end at 3,322.38. It recovered its ground but I had sold a few companies resulted in small realised losses. To add salt on my wound, I had sold off one of my favourite company – Aqua Terra, at BREAKEVEN!!!. That is the consequence of following the market’s FEAR. I learned my lesson, again.

Ratio Analysis

Introduction

Ratios are basic tools of interpretation of financial statements as the objective is to compare figures between companies or for the same company over several years.
- Compare performance from year to year.
- Compare performance of different companies in the same industry.
- Collect data on a systematic basis which allows trends to merge and thus allows predictions to be made.

This is an important step in evaluating a company’s fundamental.

1) Liquidity Ratios

Liquidity ratio measures a company's financial position, i.e. the balance sheet. It gives indication of the short-term financial strength or solvency of the film. We want to know whether a company is able to meet its debt obligation when it falls due. Ww can use this ratios to assesse whether a company's going-concern.

1.1) Current/working capital ratio

This ratio is a test of solvency, i.e. it measures the firm's ability to meet its current obligations on time and to have funds readily available for current operations. It compares assets that will be due for payment in the same period. Conventionally, ideal current ratio is 2:1. Certain business will naturally have higher/lower current ratio. A jewellery shop usually has very high current ratio whilst a fruit seller generally has very low ratio.

current assets/current liabilities

1.2) Acid test/quick/liquid ratio

From the current ratio, we want to focus only on assets that are cash or can be converted into cash very quickly. Inventory is excluded because they are usually not convertible into cash to pay debts on short notice. Receivables can be used to obtain factoring or invoice discounting to meet company's cash needs. An ideal quick ratio is 1:1. A firm may have an acceptable current ratio but if acid test ratio falls below 1, it indicates that most of its current assets is in the form of inventory.

(cash + marketable securities + receivables)/current liabilities

1.3) Cash ratio

This is the most conservative liquidity measure, a more precise indicator of a firm's ability to meet current debts. It shows the amount of cash available for meeting immediate payments.

(cash + marketable securities)/current liabilities

1.4) Inventory turnover ratio

The ratio indicates the number of times the inventory is sold and replaced during the year. Firm will try to get as higher inventory turnover as possible. Different businesses will have different inventory turnover. Those in food industries will have a higher inventory turnover then those in the automobile.

(ave. inventory/cost of sales) x 365

1.5) Receivable turnover ratio

Shows the number of times the debts are collected during the year. It indicates the promptness with which debtors meet their obligations and also measures the efficiency of the firm in collecting its debts and the credit policy of the firm. The higher the turnover, the better it is as debtors are effectively borrowing from the company.

(receivables/credit sales) x 365

1.6) Payable turnover ratio

Shows the rate at which suppliers are being paid for goods purchased. Might be good in that it means that all available credit has being taken.

(ave. payables/cost of sales) x 365

1.7) Cash conversion cycle

The length of time it takes to turn the firm’s investment into cash.

ave. receivables collection period + ave. inventory processing period - payable amount period

2) Profitability Ratios

These ratios measure the firm’s financial performance, i.e. its profits and losses. The ratios show the profitability of the products/services of the firm and the efficiency of using the firm's resources (capital employed) in earning profits.

2.1) Gross profit margin

This ratio indicates the efficiency of operations as well as how products are priced.

(gross profit/sales) x 100%

2.2) Operating/net profit margin

Indicates how well a company is controlling its costs. Net profit is the pre-tax operation (before interest and any non-trading income) as a percentage of sales. Operating profit refers to profit before financial expenses.

Operating Profit Margin = (PBIT/sales) x 100%

Net Profit Margin = (net profit/sales) x 100%

2.3) Return on capital employed

This ratio measure how much profit has been generated with the money (capital) from the investors. An increase in ROCE is good for shareholders, since more profit is generated by the capital in the business. This will result in more distribution of dividends or more investment in making the business more profitable.

Return on total equity = (net profit/average shareholders' funds) x 100%

3) Financial risk / gearing

Leverage means that a company obtain financing for its investments from sources other than owners, i.e. borrowed money. Unlike equity financing, debt financing requires a fixed payment of interest, regardless of the profit level.

3.1) Gearing ratio

Gearing refers to the relationship between long-term borrowing and shareholders' funds. A highly geared firm is one where large proportion of its funds is obtained through borrowing rather than the issuing of shares. As gearing increases, company's ability to pay dividends comes into question as interest payment is compulsory. If a company default on its debt obligation, then the debtors will bring the company to the court. There is no absolute rule on safe gearing ratio, but as a general guide, 50% or less can be regarded as safe debt. Similarly, there are a few definition of gearing ratio.

Debt-equity ratio = (long-term debt/total equity) x 100%

Long-term debt/total capital = (long-term debt/total capital) x 100%

3.2) Interest coverage ratio

Concerns with the fixed compulsory interest charges resulting from firm's debts. High level of interest coverage is good as shareholders are confident that profit is sufficiency to pay interest and their dividends.

NP before int & tax/int payment

4) Investment ratios

These ratios are constantly used by investors and shareholders to calculate the return on their investment or as a guidance on investment decisions.

4.1) Earning per share

The importance of EPS is because it formed part of the calculation of PE ratio. And PE is a very important ratio to investors and analysts. EPS represents the number of dollars earned on each of the ordinary share.

NP after int & tax before extraordinary items/no. of ordinary shares

4.2) Price earning ratio

Regarded as the most important investment ratio. It is a measure of relationship between market value of a company's shares and earning from those shares. It reflects market's appraisal of the share's future prospects. Company with higher PE ratio than others is because investors either expect its earning to increase faster then others' or consider that it is a less risky company. Remember during dot.com booms, most internet or related companies had PE of a few hundreds time, or even higher. Since the beginning of 2007, with the recovery of construction industry in Singapore, many construction companies are price at hundred times PE.

If prospect of company is good, share price will rise and PE will rise. Whether PE is better to be high or low differs. From company and existing shareholders' point of view, high PE is good, indicating strong market expectation on the company future prospect. It also means rising share prices. From potential investors' point of view, high PE may not be good as it indicates a high share value, if not over-value.

market price per share/EPS

4.3) Dividend yield

Certainly, investors are not putting their money on a company for free. Dividend yield tells ordinary shareholders how much return they have received from the investment in the company's shares. Company with sustainable higher yield is always a good investment especially in time of turbulence.

(dividend per share/market price per share) x 100%

4.4) Price-to-book ratio

This ratio compares a company's book value (or net assets) to its current market price. Book value is a company's total assets less its total liabilities. As with most ratios, be aware this varies a fair amount by industry. Industries that require higher assets investment tends to trade at P/B much lower than a service company. Investment in company with low P/B ratio is always a winning strategy in the long-run.

current market price/Net assets per share

or,

market capitalization/net assets

5) Growth analysis

Everyone knows that before Warren Buffett put his money into a company, he will first evaluates and ascertain the target company’s growth prospect. Investing in a growth (and under-valued) company is always a guaranteed winning strategy. You may have heard people saying that long-term investment in Coca Cola produces millionaires?

Retention rate = 1 - (dividend declared/operating income after tax)

Sustainable growth = retention rate x ROE

Conclusion

Ratio analysis on its own is insufficient for evaluating a company’s accounts and fundamental. There are other factors to consider. For example, a company’s order book, branding, market share, general industry development etc. In addition, the ratios must be use with great care. For example, a fruit-seller will have different requirements for liquidity ratio then a car seller. There is also other information which should be looked at:

- Age and nature of company's assets.

- External auditor's report
- Current and future developments in the company's markets, at home and overseas.
- Recent acquisitions or disposals of a subsidiary by the company.
- Nature and levels of financial obligations.
- Cash flow statement.

Quotes from successful Fund Managers/Analysts

“Being wrong is acceptable, but staying wrong is totally unacceptable….... the key is managing the downside. Good traders managers the downside; they won’t worry about the upside.”

Mark Minervini
Stock Market Wizards

“Previous hands mean nothing. The current hand determines the probabilities. You have to make correct decision based on that information. Whether you lost or won in previous hands is totally irrelevant.”

Mark Minervini
Stock Market Wizards

“Ninety percent of my success is due to not doing things that are stupid. I don’t sell winners; I don’t hold losers; I don’t get emotionally involved.”

Steve Lescarbeau
Stock Market Wizard

“Therefore, this type of market is likely to either trend higher or break sharply…….. I implemented an option strategy that would make a lot of money if market went down big, make a little bit if market went up small and lose a small amount if the market went down small and stayed there.”

John Bender
Stock Market Wizard

“There are many different types of statistical arbitrage…… pair strategy has the advantage of reportedly being one of the prime strategies used by Morgan Stanley trading group. Pair trading involves a two-step process. First, past data are used to define pairs of stocks that tend to move together. Second, each of these pairs is monitored for performance divergence. Whenever there is a statistically meaningful performance divergence between two stocks in a defined pair, the stronger of the pair is sold and the weaker is bought. The basic assumption is that the performance of these stocks will tend to converge. …… a pair trading approach will provide an edge and profitability over the long run, even though there is a substantial chance that any individual trade will lose money.”

David Shaw
Stock Market Wizard

“One must at least recognise Peter Lynch’s advice to just cross off your list all companies that are losing money….. So one can turn an occasional blind eye on Lynch’s dictum, but should always do so knowingly, well aware that speculation more frequently leads to losses, and often greater losses.”

The Motley Fool’s

“But we don’t skip doing the valuing, especially after a stock we’ve bought continues to go up, way up, afterward. We don’t “buy and hold”, we “buy to hold”, hoping we’ll get to hold for a long time. But we’d be richer Fools today if we had sold some past mega-winners at a high multiple of where those shares eventually fell a few years later.”

The Motley Fool’s
What To Do With Your Money Now

Investors throughout our entire budget, asking ourselves, “Am I getting more than what I’m paying for?…..…. Making a habit of answering it when you open your wallet is the first step toward permanent financial independence and security.

The Motley Fool’s
What To Do With Your Money Now

“Predictions may make good headline copy for journalists, but that’s about all they’re good for. You rarely ever see these journalists follow up a year later to show the actual performance of their brilliant experts”

The Motley Fool’s
What To Do With Your Money Now

"If you are a value investor, you are always happy whether the market move up or down. Whichever the market direction, Mr market simply offers you more chances to make money. Therefore, money aside, compare to punters, at least you sleep better at night."

James
Retail investor and a follower of Warren Buffett

Greed and Fear

This morning at around 10am, a good friend of mine send me an SMS reporting another plunge on the STI. Although this is a bad news, but I'm not at all surprised. We have been like this since the report on US sub-prime problem which resulted in huge correction in Asia market. As a follower of Warren Buffett, I continue to choose to focus on company's fundamental.

Then, separately, my good friend send more SMS reporting even further plunge in STI. Now, greed and fear finally found a place in me. I had been warning people "if you want to invest, you must first overcome greed and fear. Otherwise put your money in the bank". Well, shit happens.

I gave in and joined the queue of panic selling. My broker added more salt on my wound by telling me "there is no buyer at all for your xxxx counter".

I sold remaining counters which still sit on (peanuts) profit. This leave my portfolio with all losses. At around 4pm, STI rebounced strongly and managed to recover its ground. My good friend was sorry about it but I had no complaint. Afterall, I do believe that market uncertainty and volatility will continue for sometime. US sub-prime problem is not likely to resolve very soon. It's not a bad idea to hold more cash now. In any case, I had already met my investment target for 2007.

Invest Fair 2007

Invest Fair '07 is the largest investment exhibition organised by ShareInvestor. The event is supported by the Singapore Exchange and Bursa Malaysia.
The fair will be held from 25th - 26th August 2007 at the SUNTEC Singapore International Convention and Exhibition Centre, Level 4, Exhibition Hall 404, from 10am to 6pm.
It is an event for investors to learn and be educated on the latest financial products and services, identify investment trends, understand the market outlook and hear from the experts as to how, where, when and what to invest in.
With over 50 seminars, a lucky draw with attractive prizes, an investment game as well as panel discussions moderated by Channel NewsAsia presenter Melvin Yong, the fair is expected to draw a crowd of over 15,000 visitors. So be sure to mark it on your calendars and stop by!

For more info, please log in to:

http://www.investfair.com.sg/event_overview.html

STI movement - Jul 07

US sub-prime problem

I've been asking this, "what has the US's domestic problem got to do with us"? Unless US economy is heading to a new recession (last year, George Soros predicted this year to be a "recession year"), really what has US sub-prime loan problem got to do with us? For one thing, Berkshire Hathaway has just reported 33% profit jump.

1) Our bank's exposure is not in term of loan to homeowners but their investment arms. However, it is the unit trust holders that may get the pain, not the bank. Good bank never gamble, they just sit back and collect commissions (in many forms). That itself is enough to make them rich.
2) Asia, especially Singapore market, particularly the oil & gas sector, marine, construction & property, steel etc are doing good.
3) As expected by many analysts, including myself, many companies are submitting good interim/final report this month. Particularly the construction, steel & marine sector.
4) Jurong island continued to be as busy as little bees.

If the concern is only about market sentiment, then for those who doesn't time the market, there is really no worry. I choose not to run away. If the market continue to head south, then it's time for shopping spree. I have the following questions and would welcome your kind input:

1) This US sub-prime mortgage issue, we are not talking about mortgage-backed securities issued by Ginnie Mae or Fannie Mae, am I right?
2) If yes, then there is no much a worry locally. Because If I'm Wee Choo Yaw, I would want high weightage on MBS issue by the government agencies then any others. I will fire any fund manager who has heavy weight on junk bonds.
3) If I'm wrong on 1) above, then you are saying that US Government is going to default commitment to investors?