By Reinie Booysen
Aug. 25 (Bloomberg) -- China's stocks slumped, led by commodities suppliers and banks, after Premier Wen Jiabao said authorities can't be "blindly" optimistic about the
economy.
The Shanghai Composite Index, which tracks the bigger of China's stock exchanges, fell 155.34, or 5.2 percent, to 2,838.09 as of 2:01 p.m. local time. It has dropped 17 percent this month, the world's worst performer, on speculation economic growth will falter and the government will curb new lending that rose to a record in the first half of the year.
Tuesday, August 25, 2009
Friday, August 21, 2009
Warren Buffett on Sex
Warran Buffett is a master at distilling complex concepts into humorous one-liners that we can understand.
What does all this investing have to do with sex, you may ask? Our mind is very complex, so much so that we relate one thing to another even the two seems totally unrelated. It is with this ability of our mind it gives rise to creativity and best of all humour. And with humour, we learn and remember those things we learn, better.
Here it goes:-
Buffett's advice seems to be to start early ... and we ain't talkin' retirement planning:
What does all this investing have to do with sex, you may ask? Our mind is very complex, so much so that we relate one thing to another even the two seems totally unrelated. It is with this ability of our mind it gives rise to creativity and best of all humour. And with humour, we learn and remember those things we learn, better.
Here it goes:-
Buffett's advice seems to be to start early ... and we ain't talkin' retirement planning:
On being active: "It's nice to have a lot of money, but you know, you don't want to keep it around forever. I prefer buying things. Otherwise, it's a little like saving sex for your old age."
On career advice: "A few months ago I was talking to another MBA student, a very talented man, about 30 years old from a great school with a great resume. I asked him what he wanted to do for his career, and he replied that he wanted to go into a particular field, but thought he should work for McKinsey for a few years first to add to his resume. To me that's like saving sex for your old age. It makes no sense."
On loving your job: "You want to have a passion for what you are doing. You don't want to wait until 80 to have sex."
All this bedroom talk may have you wondering if Buffett is straying too far outside his primary circle of competence. Not to worry:
On ninja-like focus: "You know, if I'm playing bridge and a naked woman walks by, I don't ever see her."
On due diligence: "Other guys read Playboy, I read annual reports."
On over-diversification: "If you have a harem of 40 women, you never get to know any of them very well."
Of course, maybe we're underestimating how large his circle is:
On internal yardsticks: "Would you prefer to be the greatest lover in the world and known as the worst, or would you prefer to be the worst lover and known as the greatest?"
Sometimes opportunity knocks -- gather ye rosebuds while ye may:
On investing in 1973: "I feel like an oversexed guy on a desert island. I can't find anything to buy."
On investing in 1974: "I feel like an oversexed man in a harem. This is the time to start investing."
An indecent proposal:
On selling your business to Berkshire vs. private equity: "You can sell it to Berkshire, and we'll put it in the Metropolitan Museum; it'll have a wing all by itself; it'll be there forever. Or you can sell it to some porn shop operator, and he'll take the painting and he'll make the boobs a little bigger and he'll stick it up in the window, and some other guy will come along in a raincoat, and he'll buy it.''
Buy and hold ain't dead:
On becoming a true investor: "We believe that according the name 'investors' to institutions that trade actively is like calling someone who repeatedly engages in one-night stands a 'romantic.'"
Some insights into the current economic situation that make us wonder which of these he's tried:
On the first stimulus package: "[It was like] half a tablet of Viagra and then having also a bunch of candy mixed in -- it doesn't have really quite the wallop."
Solicited to buy Bear Stearns, and asked if he wanted more information (from the book Street Fighters): "It was sort of like having a woman standing in front of you who had taken half her clothes off and then asked whether she should continue, [Buffett] thought. Just as he'd want the woman to finish the job, he was certainly curious to hear what was happening that weekend with the embattled Bear."
On the speed of economic recovery: "You can't produce a baby in one month by getting nine women pregnant. It just doesn't work that way."
Buffett knew a girl who knew a guy who knew a credit default swap:
On financially transmitted diseases: "Derivatives are like sex. It's not who we're sleeping with, it's who they're sleeping with that's the problem."
Monday, August 17, 2009
China Stocks May Drop Further 10% on Loans, Xie Says
Aug. 18 (Bloomberg) -- China's benchmark stock index, the world's worst performer this month, may fall another 10 percent as bank lending slows, said Andy Xie, a former Morgan Stanley
chief Asian economist.
"The current correction is reflecting the tightening in lending," said Xie, who correctly predicted in April 2007 that China's equities would tumble. "We've seen the peak of this market cycle, though there's likely to be a bounce as the government seeks to stabilize the market."
The benchmark Shanghai Composite Index plunged 5.8 percent yesterday, the most since Nov. 18, extending its decline from this year's high on Aug. 4 to 17 percent. The gauge, the worst
performer among 89 benchmark indexes tracked by Bloomberg worldwide, sank as foreign direct investment plunged and Yunnan Copper Industry Co. posted a loss, saying there are "no clear signs" of a recovery. The Bank of New York Mellon China ADR Index, which tracks American depositary receipts, slumped 5 percent, the most since March 2. Prime Minister Wen Jiabao's 4 trillion yuan ($585 billion) stimulus package, coupled with record bank lending in the first six months, helped the Shanghai index more than double this year from the low on Nov. 4. An estimated 1.16 trillion yuan of loans were invested in the stock market in the first five months, China Business News reported on June 29, citing Wei Jianing, a deputy director at the Development and Research Center under the State Council, China's Cabinet.
The equities rally faltered as new loans in July fell to less than a quarter of June's level and the securities regulator allowed initial public offerings after a nine-month moratorium.
Government Support
The government may order the national social security fund to support the market before Oct. 1, when the Communist Partycelebrates the 60th anniversary of taking power, according to
Xie. Other measures that may be taken include halting the approval of IPOs and share placements, he said. "This is not the bursting of the bubble," Xie, who is now an independent economist, said by telephone. "The government will be under pressure to take action because a lot of people have lost money."
Van Eck Associates' David Semple, whose emerging-markets fund is beating 99 percent of its peers this year, said China's yuan-denominated A shares, which trade in Shanghai and Shenzhen,
may rebound on the prospect of government support. "A-share valuations look fully priced but I don't think it's a bubble like we saw with Internet stocks," said Semple, who helps manage about $13 billion in commodities and equities including Hong Kong-listed H-shares at New York-based Van Eck, said in a phone interview. "I wouldn't be surprised if we start
to hear positive comments from the government."
Foreign Investment
Ping An, the nation's second-biggest insurance company, fell 3.9 percent yesterday after first-half net income dropped 45 percent. Yunnan Copper sank the 10 percent daily limit after
posting a first-half loss and the metal dropped by the maximum in Shanghai. In New York, the American depositary receipts of Aluminum Corp. of China, the nation's largest producer of the
metal, fell 7.3 percent to $27.94. China Life Insurance Co., the biggest insurer, declined 4.6 percent to $61.10.
Foreign direct investment fell 35.7 percent in July, retreating for a 10th straight month, as companies stalled expansion plans amid the global financial crisis, the commerce
ministry said in Beijing yesterday. Prime Minister Wen Jiabao said Aug. 9 the government will
maintain its current macroeconomic policy stance aimed at bolstering domestic spending as the nation continues to experience fallout from the global recession. Billionaire Li Ka-shing, who predicted China's stock-market bubble would burst in 2007, said last week the global economy
won't recover this year and told investors to be "cautious" about buying shares, especially with borrowed money.
chief Asian economist.
"The current correction is reflecting the tightening in lending," said Xie, who correctly predicted in April 2007 that China's equities would tumble. "We've seen the peak of this market cycle, though there's likely to be a bounce as the government seeks to stabilize the market."
The benchmark Shanghai Composite Index plunged 5.8 percent yesterday, the most since Nov. 18, extending its decline from this year's high on Aug. 4 to 17 percent. The gauge, the worst
performer among 89 benchmark indexes tracked by Bloomberg worldwide, sank as foreign direct investment plunged and Yunnan Copper Industry Co. posted a loss, saying there are "no clear signs" of a recovery. The Bank of New York Mellon China ADR Index, which tracks American depositary receipts, slumped 5 percent, the most since March 2. Prime Minister Wen Jiabao's 4 trillion yuan ($585 billion) stimulus package, coupled with record bank lending in the first six months, helped the Shanghai index more than double this year from the low on Nov. 4. An estimated 1.16 trillion yuan of loans were invested in the stock market in the first five months, China Business News reported on June 29, citing Wei Jianing, a deputy director at the Development and Research Center under the State Council, China's Cabinet.
The equities rally faltered as new loans in July fell to less than a quarter of June's level and the securities regulator allowed initial public offerings after a nine-month moratorium.
Government Support
The government may order the national social security fund to support the market before Oct. 1, when the Communist Partycelebrates the 60th anniversary of taking power, according to
Xie. Other measures that may be taken include halting the approval of IPOs and share placements, he said. "This is not the bursting of the bubble," Xie, who is now an independent economist, said by telephone. "The government will be under pressure to take action because a lot of people have lost money."
Van Eck Associates' David Semple, whose emerging-markets fund is beating 99 percent of its peers this year, said China's yuan-denominated A shares, which trade in Shanghai and Shenzhen,
may rebound on the prospect of government support. "A-share valuations look fully priced but I don't think it's a bubble like we saw with Internet stocks," said Semple, who helps manage about $13 billion in commodities and equities including Hong Kong-listed H-shares at New York-based Van Eck, said in a phone interview. "I wouldn't be surprised if we start
to hear positive comments from the government."
Foreign Investment
Ping An, the nation's second-biggest insurance company, fell 3.9 percent yesterday after first-half net income dropped 45 percent. Yunnan Copper sank the 10 percent daily limit after
posting a first-half loss and the metal dropped by the maximum in Shanghai. In New York, the American depositary receipts of Aluminum Corp. of China, the nation's largest producer of the
metal, fell 7.3 percent to $27.94. China Life Insurance Co., the biggest insurer, declined 4.6 percent to $61.10.
Foreign direct investment fell 35.7 percent in July, retreating for a 10th straight month, as companies stalled expansion plans amid the global financial crisis, the commerce
ministry said in Beijing yesterday. Prime Minister Wen Jiabao said Aug. 9 the government will
maintain its current macroeconomic policy stance aimed at bolstering domestic spending as the nation continues to experience fallout from the global recession. Billionaire Li Ka-shing, who predicted China's stock-market bubble would burst in 2007, said last week the global economy
won't recover this year and told investors to be "cautious" about buying shares, especially with borrowed money.
Thursday, August 13, 2009
FBM KLCI seen hitting 1,500 in 2 years
THE FTSE Bursa Malaysia Kuala Lumpur (FBM KLCI) is expected to increase between five and 10 per cent from the current level by year end, said icapital.biz Bhd (icapital), managing director, Tan Teng Boo.
The FBM KLCI closed at 1,186.19 today, up 5.65 points from yesterday.
Tan is also projecting the FBM KLCI to reach 1,500 points within two years depending on the economic development in the country as well as globally.
"As long as Malaysia does not face major political calamities, the longer-term outlook for Bursa Malaysia remains positive," he told reporters after the company's annual general meeting today.
On the global economic outlook, Tan believed the global economy led by China has begun a V-shaped recovery and the current rally the beginning of a new bull market.
"The global economy is facing a secular boom with cyclical inflation."
He also believed the global economic contraction in the last three quarters was not due to the US sub prime or mortgage problems.
"Analysis showed that global economic activities contracted only after the collapse of Lehman Brothers on September 15, 2009.
"In the last twelve months, the global economy impacted by the US-led financial crisis, went through a very turbulent period, leaving investors totally confused," he said.
Meanwhile, Malaysia's only listed close-end fund, icapital.biz recorded a revenue of RM11.4 million for the period ended May 31, 2009, a fall of RM34.3 million or 75 per cent compared to the same period last year.
As of July this year, the company has invested in 17 listed companies including Parkson Holdings, Astro, KL-Kepong Bhd, F&N Holdings Bhd and Petronas Dagangan Bhd, topping the list in terms of the size of unrealised profits.
Its investments totalled RM156.99 million while total unrealised gain was M60.8 million.
The conservative fund now has cash holdings of below RM40 million, which Tan said was the lowest in the fund's history and a reflection of the many bargains available on Bursa Malaysia. -- Bernama
The FBM KLCI closed at 1,186.19 today, up 5.65 points from yesterday.
Tan is also projecting the FBM KLCI to reach 1,500 points within two years depending on the economic development in the country as well as globally.
"As long as Malaysia does not face major political calamities, the longer-term outlook for Bursa Malaysia remains positive," he told reporters after the company's annual general meeting today.
On the global economic outlook, Tan believed the global economy led by China has begun a V-shaped recovery and the current rally the beginning of a new bull market.
"The global economy is facing a secular boom with cyclical inflation."
He also believed the global economic contraction in the last three quarters was not due to the US sub prime or mortgage problems.
"Analysis showed that global economic activities contracted only after the collapse of Lehman Brothers on September 15, 2009.
"In the last twelve months, the global economy impacted by the US-led financial crisis, went through a very turbulent period, leaving investors totally confused," he said.
Meanwhile, Malaysia's only listed close-end fund, icapital.biz recorded a revenue of RM11.4 million for the period ended May 31, 2009, a fall of RM34.3 million or 75 per cent compared to the same period last year.
As of July this year, the company has invested in 17 listed companies including Parkson Holdings, Astro, KL-Kepong Bhd, F&N Holdings Bhd and Petronas Dagangan Bhd, topping the list in terms of the size of unrealised profits.
Its investments totalled RM156.99 million while total unrealised gain was M60.8 million.
The conservative fund now has cash holdings of below RM40 million, which Tan said was the lowest in the fund's history and a reflection of the many bargains available on Bursa Malaysia. -- Bernama
V-shaped recovery has begun: Fund manager...By Chong Pooi Koon
Global stocks are at the start of a bull market, says Malaysia's only listed closed-end fund icapital.biz
ICAPITAL.BIZ Bhd (5108), Malaysia's only listed closed-end fund with RM267 million of assets, believes the global economy has begun a V-shaped recovery and global stocks are at the start of a bull market.
Its managing director and fund manager Tan Teng Boo, who has been bullish on the economic recovery since February, continues to advocate that the transformation of China from a developing to an industrial nation will keep the world in a long boom that lasts decades.
"China and India economies are no doubt smaller than the US, but what the established economists have missed is the rate of change," Tan told a media briefing in Kuala Lumpur yesterday.
"When China grows, it benefits Australia, India, Canada, Brazil and Southeast Asia - the huge growth that it is generating can more than offset the decline in the US economy," he pointed out.
Such bullishness is still a minority view among economists and the investment community, even as more signs are emerging that the global economy is bottoming out.
This week, Nobel prize-winning economist Dr Paul Krugman told a symposium in KL that the world will likely see slow expansion for a decade with the lack of clear growth driver, especially in the US.
Even Dr Raghuram Rajan, an economic adviser to the Indian prime minister and a believer in China and India's rising economic influence, said the two economies are still too small to pull the world out of this recession.
With Tan's confidence in the global recovery, he said the performance of Malaysian shares hinges solely on local politics and the political will of the current administration to carry through the reforms agenda.
"The country's economy is more resilient than many Malaysians would recognise. If the government can convince investors that they can unleash the potential of the economy, the benchmark FBM KLCI will do very well," Tan said.
It is "realistic" to expect a 5 to 10 per cent rise in the index from its current level, he said, possibly reaching 1,250 within this year, although there will be corrections along the way. The gauge is bound to test the previous high of 1,516.22 in the next one to two years, he added.
icapital.biz, which is conservative in its investment, is down to below RM40 million in cash - the lowest in its four-year history and reflects the many bargains available on Bursa Malaysia. The fund, which invests only in Malaysian shares, bought RM156 million stocks that are now worth RM206 million, giving it an unrealised gain of RM50 million.
Its top five holdings are Parkson Holdings, Astro, Kuala Lumpur Kepong, F&N Holdings and Petronas Dagangan. The fund has sold all its shares in Axiata Group Bhd, VADS Bhd and AirAsia Bhd in the last financial year.
Its managing director and fund manager Tan Teng Boo, who has been bullish on the economic recovery since February, continues to advocate that the transformation of China from a developing to an industrial nation will keep the world in a long boom that lasts decades.
"China and India economies are no doubt smaller than the US, but what the established economists have missed is the rate of change," Tan told a media briefing in Kuala Lumpur yesterday.
"When China grows, it benefits Australia, India, Canada, Brazil and Southeast Asia - the huge growth that it is generating can more than offset the decline in the US economy," he pointed out.
Such bullishness is still a minority view among economists and the investment community, even as more signs are emerging that the global economy is bottoming out.
This week, Nobel prize-winning economist Dr Paul Krugman told a symposium in KL that the world will likely see slow expansion for a decade with the lack of clear growth driver, especially in the US.
Even Dr Raghuram Rajan, an economic adviser to the Indian prime minister and a believer in China and India's rising economic influence, said the two economies are still too small to pull the world out of this recession.
With Tan's confidence in the global recovery, he said the performance of Malaysian shares hinges solely on local politics and the political will of the current administration to carry through the reforms agenda.
"The country's economy is more resilient than many Malaysians would recognise. If the government can convince investors that they can unleash the potential of the economy, the benchmark FBM KLCI will do very well," Tan said.
It is "realistic" to expect a 5 to 10 per cent rise in the index from its current level, he said, possibly reaching 1,250 within this year, although there will be corrections along the way. The gauge is bound to test the previous high of 1,516.22 in the next one to two years, he added.
icapital.biz, which is conservative in its investment, is down to below RM40 million in cash - the lowest in its four-year history and reflects the many bargains available on Bursa Malaysia. The fund, which invests only in Malaysian shares, bought RM156 million stocks that are now worth RM206 million, giving it an unrealised gain of RM50 million.
Its top five holdings are Parkson Holdings, Astro, Kuala Lumpur Kepong, F&N Holdings and Petronas Dagangan. The fund has sold all its shares in Axiata Group Bhd, VADS Bhd and AirAsia Bhd in the last financial year.
Genting - Results preview: A lacklustre 2009; look to 2010 and beyond
Ggaming analyst ..... Lim Soo Hek
Genting (GENT MK) Buy
Price/Tgt: RM6.05/7.60 Mkt Cap: US$6.34b Daily: Vol 6.25m 1-Yr Hi/Lo: RM6.80/3.08
Results preview: A lacklustre 2009; look to 2010 and beyond
We expect 2Q09 results to be dragged down by the leisure and plantation unit due to lower CPO production and prices. Going forward, 2010 and 2011 earnings are likely to be boosted by RWS. BUY. Target price: RM7.60.
Results Preview
We expect Genting's 2Q09 results, due by end-Aug 09, to be flat qoq but substantially lower yoy, mainly dragged down by its leisure and plantation divisions. We expect the leisure division's core earnings to decline 10-15% yoy but to remain flat qoq, mainly due to lower visitor arrivals amid the H1N1 pandemic, while plantation earnings should fall 67% yoy but
be marginally higher qoq (+2%) due to lower CPO production and prices. The power division will improve as regional economies recover gradually. The maiden cash flow contribution from the Tangguh liquefied natural gas (LNG) plant in Indonesia will be delayed further to 1Q10 and Resorts World Sentosa's (RWS) pre-opening expenses are expected to accelerate in 2H09.
Stock Impact
A lacklustre 2009? We do not foresee any excitement for 2009, mainly due to RWS' pre-opening expenses, adverse operating conditions in the UK, and the effect of the economic crisis on visitor arrivals and spending, which was further compounded by the H1N1 pandemic. We estimate RWS will incur S$200m in pre-opening expenses, mostly to be recognised in 2H09 mainly on recruitment (10,000 staff), training, sales and marketing programmes prior
to RWS' opening in 1Q10.
? so look to 2010 and beyond. We expect Genting's earnings growth to gain momentum in 2010 and 2011, boosted by RWS' contributions. We forecast Genting's 2010 and 2011 EBIT growth at 80% and 17% yoy, mainly as RWS' contribution to group EBIT rises to 32.9% and 37.5% respectively (reversing losses in 2009).
Earnings Revision
We have raised our 2010 and 2011 earnings forecasts by 18% and 19% respectively, as RWS will enable 54.4%-owned Genting Singapore (GENS) to book net earnings of S$295m and S$444m in 2010-11. However, we have lowered our 2009 earnings estimate for Genting by 10.3%, taking into account lower average selling prices (ASP) and production at its plantation unit, as well as an increase in RWS' pre-opening costs to S$200m.
Valuation/Recommendation
Raising target price to upcycle valuations. We have raised our target price to RM7.60, after imputing GENS' target price of S$0.95 (based on cost of equity of 9.2% and zero terminal growth after RWS' concession period) into Genting's RNAV valuation while lowering its holding company discount to 10% from 20% previously.
At RM7.60, it would trade at 16.0x and 5.6x 2010 PE and EV/EBITDA respectively, vs global peers' average of 40.2x and 12.7x. Key re-rating catalysts for this stock: issuance of casino licence by the Singapore government, an earlier-than-expected opening of RWS (instead of in 1Q10), a further delay in Marina Bay Sands' opening, and a better regional economic outlook, which would drive Singapore's tourist arrivals.
Prefer Genting to GENM. We prefer Genting over Genting Malaysia (GENM/Target: RM3.26) for the former's exposure to RWS' earning growth potential, as well as other potential catalysts such as disposal of its power plant. We recommend buying into share price weakness as Genting will be the cheaper entry point to RWS' future earning growth potential.
Genting (GENT MK) Buy
Price/Tgt: RM6.05/7.60 Mkt Cap: US$6.34b Daily: Vol 6.25m 1-Yr Hi/Lo: RM6.80/3.08
Results preview: A lacklustre 2009; look to 2010 and beyond
We expect 2Q09 results to be dragged down by the leisure and plantation unit due to lower CPO production and prices. Going forward, 2010 and 2011 earnings are likely to be boosted by RWS. BUY. Target price: RM7.60.
Results Preview
We expect Genting's 2Q09 results, due by end-Aug 09, to be flat qoq but substantially lower yoy, mainly dragged down by its leisure and plantation divisions. We expect the leisure division's core earnings to decline 10-15% yoy but to remain flat qoq, mainly due to lower visitor arrivals amid the H1N1 pandemic, while plantation earnings should fall 67% yoy but
be marginally higher qoq (+2%) due to lower CPO production and prices. The power division will improve as regional economies recover gradually. The maiden cash flow contribution from the Tangguh liquefied natural gas (LNG) plant in Indonesia will be delayed further to 1Q10 and Resorts World Sentosa's (RWS) pre-opening expenses are expected to accelerate in 2H09.
Stock Impact
A lacklustre 2009? We do not foresee any excitement for 2009, mainly due to RWS' pre-opening expenses, adverse operating conditions in the UK, and the effect of the economic crisis on visitor arrivals and spending, which was further compounded by the H1N1 pandemic. We estimate RWS will incur S$200m in pre-opening expenses, mostly to be recognised in 2H09 mainly on recruitment (10,000 staff), training, sales and marketing programmes prior
to RWS' opening in 1Q10.
? so look to 2010 and beyond. We expect Genting's earnings growth to gain momentum in 2010 and 2011, boosted by RWS' contributions. We forecast Genting's 2010 and 2011 EBIT growth at 80% and 17% yoy, mainly as RWS' contribution to group EBIT rises to 32.9% and 37.5% respectively (reversing losses in 2009).
Earnings Revision
We have raised our 2010 and 2011 earnings forecasts by 18% and 19% respectively, as RWS will enable 54.4%-owned Genting Singapore (GENS) to book net earnings of S$295m and S$444m in 2010-11. However, we have lowered our 2009 earnings estimate for Genting by 10.3%, taking into account lower average selling prices (ASP) and production at its plantation unit, as well as an increase in RWS' pre-opening costs to S$200m.
Valuation/Recommendation
Raising target price to upcycle valuations. We have raised our target price to RM7.60, after imputing GENS' target price of S$0.95 (based on cost of equity of 9.2% and zero terminal growth after RWS' concession period) into Genting's RNAV valuation while lowering its holding company discount to 10% from 20% previously.
At RM7.60, it would trade at 16.0x and 5.6x 2010 PE and EV/EBITDA respectively, vs global peers' average of 40.2x and 12.7x. Key re-rating catalysts for this stock: issuance of casino licence by the Singapore government, an earlier-than-expected opening of RWS (instead of in 1Q10), a further delay in Marina Bay Sands' opening, and a better regional economic outlook, which would drive Singapore's tourist arrivals.
Prefer Genting to GENM. We prefer Genting over Genting Malaysia (GENM/Target: RM3.26) for the former's exposure to RWS' earning growth potential, as well as other potential catalysts such as disposal of its power plant. We recommend buying into share price weakness as Genting will be the cheaper entry point to RWS' future earning growth potential.
Tuesday, August 11, 2009
Recent Proof that Dollar-Cost Averaging Still Works by Nilus Mattive
The idea with dollar-cost averaging is relatively simple: You buy equal dollar amounts of the same investment on a predetermined schedule.
Please note the italics in that last sentence. Dollar-cost averaging IS NOT buying a fixed number of shares on a regular basis. In fact, it is quite the opposite. Here's why ...
Let's say you've decided to invest $10,000 in XYZ Corp. Rather than deploying the entire amount at one time, you might instead opt to purchase $1,000 of XYZ stock on the first day of each of the next 10 months.
What's the logic behind this approach? Well, you can expect just about any stock's price to vary substantially over a ten-month period. So, when the price is higher, your $1,000 will buy fewer shares; when the price dips, your $1,000 will buy more shares.
In other words, buying equal dollar amounts over time allows you to reduce your risk to a stock's short-term price movements, automatically encouraging you to buy more when prices are lower and less when prices are higher.
It also removes much of the emotion from the investing process. You've already committed to buying the stock at regular intervals, regardless of market conditions.
And because you're doing this automatically, it doesn't require more than a few minutes of your time (if any at all!).
Okay, But Surely Dollar-Cost Averaging
Wouldn't Have Worked in the Last Year, Right?
When I wrote that original Money and Markets piece on dollar-cost averaging back on June 17, 2008 ... the S&P 500 was sitting at 1,400. Now, it's more like 1,000. And I don't have to tell you just how low it went in between.
So clearly someone who started dollar-cost averaging on the day of my column lost out, right?
WRONG.
In fact, as you'll soon see, an investor who began using dollar-cost averaging in June 2008 has actually come out better than someone who regularly put their funds into a money market account over the same time period!
Let me give you the math behind that bold claim ...
Frankly, it really doesn't make much of a difference whether we pick a daily, weekly, or monthly approach. But for simplicity's sake, let's stick with monthly.
We will assume that our hypothetical investor chose to buy a very common index exchange-traded fund such as the S&P 500 SPDR (SPY). As you probably know, that popular ETF attempts to match the broad performance of its namesake U.S. stock index.
And while I could certainly assume that our investor bought on the 17th of every month (the day my original column was published) I'm going to just use the first trading day of each month.
Lest you think I'm trying to avoid including June 2008, I simply pretended that the day of my column counted as the buy date for that month.
I figured our investor would put in $1,000 every time.
So, here's what the purchases looked like ...
| A Recent Dollar-Cost Averaging Case Study ... | |||
| Date | SPY Price | Shares Purchased | $ Invested |
| | 124.62 | 8.02439 | $1,000 |
| | 123.5 | 8.09717 | $1,000 |
| | 125.41 | 7.97385 | $1,000 |
| | 113.6 | 8.80282 | $1,000 |
| | 94.83 | 10.54519 | $1,000 |
| | 88.23 | 11.33401 | $1,000 |
| | 89.1 | 11.22334 | $1,000 |
| | 81.78 | 12.22793 | $1,000 |
| | 72.99 | 13.70051 | $1,000 |
| | 79.07 | 12.64702 | $1,000 |
| | 86.93 | 11.50351 | $1,000 |
| | 92.01 | 10.86838 | $1,000 |
| | 91.95 | 10.87548 | $1,000 |
| | 98.81 | 10.12043 | $1,000 |
| | 101.2 | 9.88142 | $1,000 |
| TOTALS = | | 157.82545 | $15,000 |
| Today's Value | 101.2 | X 157.82545 | $15,971.94 |
| Profit = | | | $971.94 |
As you can see, our hypothetical investor's $1,000 bought far more shares of the SPY during the market's decline and far fewer shares when prices were higher.
The end result of all that buying is that our investor is sitting on 157.82545 shares of SPY today. And based on a recent price of 101.2, that means the total holdings are worth $15,971.94.
Remember, we're talking about a 15-month period. So that means a total of $15,000 was invested.
End result: Our hypothetical investor is up $971.94, a return of 6.48 percent on the original $15,000 investment.
Yet over the same timeframe, the underlying investment — the S&P 500 index — is DOWN about 28 percent!
Amazing, isn't it?
Meanwhile, had our investor played it "safe" and just put $1,000 into a money market fund every month ... the overall return would have probably been less than 1 percent given current rates.
As you can see, dollar-cost averaging is truly a powerful way to "cut through the market chop" and steer your portfolio through major storms.
But, I want to point a couple things out ...
Final Words on Dollar-Cost Averaging,
And Investment Strategies in General ...
First, dollar-cost averaging is clearly not right for every investor. It requires a steady stream of investment money and could entail regular brokerage commissions. That makes it ideal for a regular company retirement account such as a 401(k) plan.
But please note that it is the same principle at work when you reinvest dividends. And I'd also say it's a great way for an investor to gradually invest a large lump sum, such as an inheritance.
Of course, the more important thing to note is that dollar-cost averaging takes guts. How many people — having invested thousands of dollars when the S&P 500 was at 1,300 and 1,400 — would have still been able to put more money in at 700?
In most cases, that is precisely the point at which the majority of investors would switch their investment allocation to something else!
My point? Human nature is perhaps the biggest threat to your wealth.
I don't care if it's dollar-cost averaging into an index fund ... trading commodities ... or buying and selling real estate. As long as you do your homework and pursue a time-tested investment strategy — consistently and without fail — I believe you will come out ahead in the long run.
Best wishes,
Nilus
Sunday, August 9, 2009
AMMB Holdings (Outperform) - Closing the gap
| |
| AMM MK | Outperform |
| Stock price as of 07 Aug 09 | RM | 4.15 |
| 12-month target | RM | 4.89 |
| Upside/downside | % | +17.8 |
| Valuation | RM | 4.89-5.33 |
| - Gordon growth model | ||
| | ||
| GICS sector | diversified financials | |
| Market cap | RMm | 11,300 |
| 30-day avg turnover | RMm | 34.2 |
| Market cap | US$m | 3,231 |
| Number shares on issue | m | 2,723 |
Investment fundamentals
| Year end 31 Mar | | 2009A | 2010E | 2011E | 2012E |
| | |||||
| Net interest inc | m | 1,776.3 | 1,819.3 | 1,981.0 | 2,227.8 |
| Non interest inc | m | 1,494.7 | 1,772.8 | 1,966.2 | 2,118.2 |
| Underlying profit | m | 1,658.8 | 1,915.1 | 2,134.5 | 2,385.2 |
| PBT | m | 1,217.6 | 1,221.1 | 1,477.5 | 1,682.2 |
| PBT Growth | % | 1.9 | 0.3 | 21.0 | 13.9 |
| Reported profit | m | 860.8 | 887.3 | 1,088.0 | 1,232.0 |
| Adjusted profit | m | 860.8 | 887.3 | 1,088.0 | 1,232.0 |
| | |||||
| EPS rep | sen | 31.6 | 29.4 | 36.1 | 40.9 |
| EPS rep growth | % | 14.6 | -6.9 | 22.6 | 13.2 |
| EPS adj | sen | 31.6 | 29.4 | 36.1 | 40.9 |
| EPS adj growth | % | 14.2 | -6.9 | 22.6 | 13.2 |
| PE rep | x | 13.1 | 14.1 | 11.5 | 10.2 |
| PE adj | x | 13.1 | 14.1 | 11.5 | 10.2 |
| | |||||
| Total DPS | sen | 8.0 | 10.0 | 12.0 | 14.0 |
| Total div yield | % | 1.9 | | | |
Saturday, August 8, 2009
What the Australian Dollar Is Telling Me ... by Bryan Rich
According to the financial markets, the world has become a very calm and comfortable place again. But has it?
Just a year ago markets were crashing all around us ...
The U.S. housing market had started the snowball rolling far earlier. Then the U.S. stock market finally turned over. Later, other markets, like commodities and currencies, woke up to the realization that a crisis in the U.S. economy had tentacles reaching around the world! And the music stopped ...
Investors went running for the exits, markets collapsed and U.S. Treasuries and the U.S. dollar soared as capital around the world fled to safety. The theory of global diversification crumbled. And the risk gauge for financial markets skyrocketed.
A good pulse of the market's assessment of risk shows up in "implied volatility." Here's a brief explanation of what I'm talking about:
Actual volatility is the dispersion of prices around the mean — simply a market's price volatility. On the other hand, implied volatility is determined by market participants. It's the perception of how volatile the markets will be and how certain (or uncertain) the outcomes will be.
This makes implied volatility a good risk barometer. And that's why it's a key component in pricing options, where market participants typically go for protection when the perception of risk in the financial markets rises.
So what was the market saying about risk this time last year? Here's a look at a chart on implied volatility in the Australian dollar and the S&P 500 ...
Source: Bloomberg
As you can see, the massive surge beginning last September was nearly a five-fold jump in the fear gauge — a clear panic in financial markets.
And the trigger was ...
First, a huge third-quarter loss from Lehman Brothers and a downgraded estimate for Merrill Lynch.
Then, a weekend takeover of Merrill Lynch by Bank of America.
And finally, the announcement of Lehman Brothers' bankruptcy.
But here's the thing ...
Wall Street Has Proven to Be
Lousy At Estimating Risk ...
Just prior to the September 2008 spike in volatility, Wall Street's mood was pretty rosy, despite the trail of disaster that had already been delivered:
- Morgan Stanley lowered expectations for global growth from 5 percent to between "3.5 percent and 4 percent." Global growth went negative.
- Lehman Brothers said they expected stocks to "climb at least 17 percent by December 31." Eight days later Lehman Brothers was bankrupt.
- Citibank said they expected 2008 to mark the biggest year-end rally in stocks in a decade.
- And JP Morgan was looking for an 11 percent rally into the year end.
Stocks never made a tick higher and finished the year down another 29 percent.
This is a good example of how complacency and unwarranted optimism can end abruptly. And I think that's what we're going to see ... again.
Since the middle of last year, financial markets have traded distinctly in one of two camps: Either risky or safe. When volatility was soaring, global investors fled all things risky for a safe place to park their capital. The dollar benefited and so did U.S. Treasury prices.
But since March of this year, triggered by the Fed Chairman's finding of "green shoots" in the economy, this risk aversion trade has reversed. Capital has steadily and aggressively moved out of safety and into riskier, higher-return investments.
Will we see another spike in fear when a negative surprise hits the markets? I think we will. And I think the setback for the global economy will be considerable ...
Investor and consumer confidence, when burned again, will be very difficult to regain. And that creates a scenario for prolonged weakness in economies and prolonged weakness in financial markets.
Market Position Signals
Risk Appetite Is Vulnerable ...
The Australian dollar has been the high-beta trade among major currencies in this run-up in risky assets. In other words, the Australian dollar has gained nearly 2 percent for every 1 percent in the euro or the British pound.
And as you can see in the chart below, it has gained more in percentage terms than it lost at the height of fear in the global economy. Even the optimists have to agree, things aren't that good today!
Source: Bloomberg
Technically speaking, the currency is also running up against an important retracement level.
And more investors have gone "long" the Australian dollar than at any time since July of last year — which by no coincidence was the same time the currency reached its highs and turned sharply lower.
So be very cautious of this run-up in risk appetite. Based on the action in the Australian dollar, and considering the market's vulnerability to another dose of fear, the dollar and the risk aversion trade look more likely to return.
Monday, August 3, 2009
Greed and Fear at play
Stock markets have kept rising every month since March without any significant downward adjustment. At first, the market opinions were still debating whether it was the arrival of the bull market or rebound of the bear market. Of late however, some sceptics who took a negative view have changed their view and become positive, although there are some who do not wish to be seen to have openly changed their view have also soften their tone. Thus, what we hear in the market is the bull has arrived.
The question is: There should be adjustments in a bull market, afterall people like to enter the market during adjustment and buy stocks for less, rather than to chase stocks at high price level only to encounter major or minor market adjustments.
True, there were monthly adjustments for the past months. But how much an adjustment is enough? When a 10% adjustment happens, people hope it was15%, but by then the market would become panicky, and people would expect market to adjust by 20% to 30% or even more.
My impression from what I have gathered from small investors for the past 20 over years is: only few would enter the market at the initial stage of an adjustment; most would not dare to enter the market, thinking the adjustment would go further. In a bull market, rises are often
rapid and declines slow, and in no time a certain turnaround stock prices already back to the
level before adjustment, or even higher. As a result, small investors miss the opportunities to
enter market. Even now, many people I know are without any stock on hand, or still hold on
to stocks bought in 2007 peak.
There are other small investors who might have entered the market at various stages, but still hopeful of a bigger adjustment to come. They only invest a small part of their investible fund, most of it is still on hold. These investors in fact have missed out the many adjustments of the past months. They only invest a small part of their capital because they chased and bought stocks at high prices after adjustments, and hence lack the confidence to invest more.
Stock prices rise step by step in a bull market; small investors cautiously invest their capital sparingly intitally only to invest more at the later stage. When the bull market ends and stock prices fall, small investors then find out that their average cost of their holdings is not low as they had invested to little at the beginging of the bull market. If you believe now is the bull market, why not go for it. If your available fund is for business operations, do not use it for buying stocks. If however your availabe fund is sitting in a bank earning a meagre interest income, then you may consider investing more daringly if you are young. Even if you are unfortunate enough to enter the market at a wrong time in a bull market that adjust 20% or 30%, you need not be too worry as long as it is still a bull market, prices will hit new high after adjustments.
The difference between investing in stock market and horse betting is: if you bet on a wrong horse, your money is gone; if you buy stocks at a wrong time, you still can hold them until the prices of the stocks recover
The question is: There should be adjustments in a bull market, afterall people like to enter the market during adjustment and buy stocks for less, rather than to chase stocks at high price level only to encounter major or minor market adjustments.
True, there were monthly adjustments for the past months. But how much an adjustment is enough? When a 10% adjustment happens, people hope it was15%, but by then the market would become panicky, and people would expect market to adjust by 20% to 30% or even more.
My impression from what I have gathered from small investors for the past 20 over years is: only few would enter the market at the initial stage of an adjustment; most would not dare to enter the market, thinking the adjustment would go further. In a bull market, rises are often
rapid and declines slow, and in no time a certain turnaround stock prices already back to the
level before adjustment, or even higher. As a result, small investors miss the opportunities to
enter market. Even now, many people I know are without any stock on hand, or still hold on
to stocks bought in 2007 peak.
There are other small investors who might have entered the market at various stages, but still hopeful of a bigger adjustment to come. They only invest a small part of their investible fund, most of it is still on hold. These investors in fact have missed out the many adjustments of the past months. They only invest a small part of their capital because they chased and bought stocks at high prices after adjustments, and hence lack the confidence to invest more.
Stock prices rise step by step in a bull market; small investors cautiously invest their capital sparingly intitally only to invest more at the later stage. When the bull market ends and stock prices fall, small investors then find out that their average cost of their holdings is not low as they had invested to little at the beginging of the bull market. If you believe now is the bull market, why not go for it. If your available fund is for business operations, do not use it for buying stocks. If however your availabe fund is sitting in a bank earning a meagre interest income, then you may consider investing more daringly if you are young. Even if you are unfortunate enough to enter the market at a wrong time in a bull market that adjust 20% or 30%, you need not be too worry as long as it is still a bull market, prices will hit new high after adjustments.
The difference between investing in stock market and horse betting is: if you bet on a wrong horse, your money is gone; if you buy stocks at a wrong time, you still can hold them until the prices of the stocks recover
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