Got this extremely interesting article to share:
Benjamin Graham, the father of value investing. Graham’s own books are investment classics. Securities Analysis (first published in 1934) and The Intelligent Investor (first published in 1949) continue to sell steadily. In addition to this legacy, he has permanently influenced many successful investors, including Warren Buffett, the wealthiest man in America; William Ruane, founder of the super-successful Sequoia Fund; and well-known investor Walter Schloss.
Ben was a prophet in a very specialized but important realm of life. He preached commandments that any investor can use as stars when navigating the vast and mysterious seas of the investment world. An individual investor, who is not under pressure to shoot comets across the heavens but would like to earn a smart and substantial return, especially can benefit from Ben’s guidance. In greatly simplified terms, here are the 14 points Graham most consistently delivered in his writing and speaking. Some of the counsel is technical, but much of it is aimed at adopting the right attitude:
1. Be an investor, not a speculator
“Let us define the speculator as one who seeks to profit from market movements, without primary regard to intrinsic values; the prudent stock investor is one who (a) buys only at prices amply supported by underlying value and (b) determinedly reduces his stock holdings when the market enters the speculative phase of a sustained advance.”
Speculation, Ben insisted, had its place in the securities markets, but a speculator must do more research and tracking of investments and be prepared for losses if they come.
2. Know the asking price
Multiply the company’s share price by the number of company total shares (undiluted) outstanding. Ask yourself, if I bought the whole company would it be worth this much money?
3. Rake the market for bargains
Graham is best known for using his “net current asset value” (NCAV) rule to decide if the company was worth its market price.
To get the NCAV of a company, subtract all liabilities, including short-term debt and preferred stock, from current assets. By purchasing stocks below the NCAV, the investor buys a bargain because nothing at all is paid for the fixed assets of the company. The 1988 research of Professor Joseph D. Vu shows that buying stocks immediately after their price drop below the NCAV per share and selling two years afterward provides an excess return of more than 24 percent.
Yet even Ben recognized that NCAV stocks are increasingly difficult to find, and when one is located, this measure is only a starting point in the evaluation. “If the investor has occasion to be fearful of the future of such a company,” he explained, “it is perfectly logical for him to obey his fears and pass on from that enterprise to some other security about which he is not so fearful.”
Modern disciples of Graham look for hidden value in additional ways, but still probe the question, “what is this company actually worth?” Buffett modifies the Graham formula by looking at the quality of the business itself. Other apostles use the amount of cash flow generated by the company, the reliability and quality of dividends and other factors.
4. Buy the formula
Ben devised another simple formula to tell if a stock is underpriced. The concept has been tested in many different markets and still works.
It takes into account the company’s earnings per share (E), its expected earnings growth rate (R) and the current yield on AAA rated corporate bonds (Y).
The intrinsic value of a stock equals:
E(2R + 8.5) x Y/4
The number 8.5, Ben believed, was the appropriate price/to/earnings multiple for a company with static growth. P/E ratios have risen, but a conservative investor still will use a low multiplier. At the time this formula was printed, 4.4 percent was the average bond yield, or the Y factor.
5. Regard corporate figures with suspicion
It is a company’s future earnings that will drive its share price higher, but estimates are based on current numbers, of which an investor must be wary. Even with more stringent rules, current earnings can be manipulated by creative accountancy. An investor is urged to pay special attention to reserves, accounting changes and footnotes when reading company documents. As for estimates of future earnings, anything from false expectations to unexpected world events can repaint the picture. Nevertheless, an investor has to do the best evaluation possible and then go with the results.
6. Don’t stress out
Realize that you are unlikely to hit the precise “intrinsic value” of a stock or a stock market right on the mark. A margin of safety provides peace of mind. “Use an old Graham and Dodd guideline that you can’t be that precise about a simple value,” suggested Professor Roger Murray. "Give yourself a band of 20 percent above or below, and say, “that is the range of fair value.”
7. Don’t sweat the math
Ben, who loved mathematics, said so himself: “In 44 years of Wall Street experience and study, I have never seen dependable calculations made about common stock values, or related investment policies, that went beyond simple arithmetic or the most elementary algebra. Whenever calculus is brought in, or higher algebra, you could take it as a warning signal that the operator was trying to substitute theory for experience, and usually also to give speculation the deceptive guise of investment.”
8. Diversify, rule #1
“My basic rule,” Graham said, “is that the investor should always have a minimum of 25 percent in bonds or bond equivalents, and another minimum of 25 percent in common stocks. He can divide the other 50 percent between the two, according to the varying stock and bond prices.” This is ho-hum advice to anyone in a hurry to get rich, but it helps preserve capital. Remember, earnings cannot compound on money that has evaporated.
Using this rule, an investor would sell stocks when stock prices are high and buy bonds. When the stock market declines, the investor would sell bonds and buy bargain stocks. At all times, however, he or she would hold the minimum 25 percent of the assets either in stocks or bonds — retaining particularly those that offer some contrarian advantage.
As a rule of thumb, an investor should back away from the stock market when the earnings per share on leading indices (such as the Dow Jones Industrial Average or the Standard & Poor’s composite index) is less than the yield on high-quality bonds. When the reverse is true, lean toward bonds.
9. Diversify, rule #2
An investor should have a large number of securities in his or her portfolio, if necessary, with a relatively small number of shares of each stock. While investors such as Buffett may have fewer than a dozen or so carefully chosen companies, Graham usually held 75 or more stocks at any given time. Ben suggested that individual investors try to have at least 30 different holdings, even if it is necessary to buy odd lots. The least expensive way for an individual investor to buy odd lots is through a company’s dividend reinvestment program (DRP).
10. When in doubt, stick to quality
Companies with good earnings, solid dividend histories, low debts and reasonable price/to/earnings ratios serve best. “Investors do not make mistakes, or bad mistakes, in buying good stocks at fair prices,” Ben said. “They make their serious mistakes by buying poor stocks, particularly the ones that are pushed for various reasons. And sometimes — in fact, very frequently — they make mistakes by buying good stocks in the upper reaches of bull markets.”
11. Dividends as a clue
A long record of paying dividends, as long as 20 years, shows that a company has substance and is a limited risk. Chancy growth stocks seldom pay dividends. Furthermore, Ben contended that no dividends or a niggardly dividend policy harms investors in two ways. Not only are shareholders deprived of income from their investment, but when comparable companies are studied, the one with the lower dividend consistently sells for a lower share price. “I believe that Wall Street experience shows clearly that the best treatment for stockholders,” Ben said, “is the payment to them of fair and reasonable dividends in relation to the company’s earnings and in relation to the true value of the security, as measured by any ordinary tests based on earning power or assets.”
12. Defend your shareholder rights
“I want to say a word about disgruntled shareholders,” Ben said. “In my humble opinion, not enough of them are disgruntled. And one of the great troubles with Wall Street is that it cannot distinguish between a mere troublemaker or “strike suitor” in corporate affairs and a stockholder with a legitimate complaint that deserves attention from his management and from his fellow stockholders.” If you object to a dividend policy, executive compensation package or golden parachutes, organize a sharcholder’s offensive.
13. Be Patient
“... every investor should be prepared financially and psychologically for the possibility of poor short-term results. For example, in the 1973-1974 decline the investor would have lost money on paper, but if he’d held on and stuck with the approach, he would have recouped in 1975-1976 and gotten his 15 percent average return for the five-year period.”
14. Think for yourself
Don’t follow the crowd. “There are two requirements for success in Wall Street,” Ben once said. “One, you have to think correctly; and secondly, you have to think independently.”
Finally, continue to search for better ways to ensure safety and maximize growth.
Do not ever stop thinking.
Monday, December 29, 2008
Blogged the other day: More On The Flip-Flops Of Proposed Dividends.
Instead of relying on what's posted on our local news media, Divided over dividend payout, let's look at what was posted on Bursa Malaysia itself.
Here is Tanah Emas on 22nd December 2008: TANAMAS - REASONS FOR THE REJECTION OF THE PAYMENT OF FIRST AND FINAL DIVIDEND
- Further to Listing's Circular No.L/Q : 52128 of 2008, the Board of Directors of TECB had announced that the major shareholders, who are also the Directors of the Company have rejected the recommendation on the payment of First and Final Single Tier Dividend of 5 sen per share for the financial year ended 30 June 2008 to the shareholders.
This is due to:
a) the recent economic downturn and drastic drop in Crude Palm Oil price; and
b) the Company needs to conserve cash for its operations and business expansion opportunities.
As such, the previous announcements dated 27 November 2008 and 1 December 2008 pertaining to the dates of dividend entitlement and book closure are no longer applicable.
This was Tanah Emas announcement on the 27th November: First and Final Dividend
It even had an ex-date announced for the payment of the dividends!!
Yup I kid you not!Did it state anywhere in that announcement that the dividends needs approval from shareholders? Now this would be rather misleading for a less than average investor, yes?
The dividends were proposed on August 28th. PROPOSED FIRST AND FINAL SINGLE TIER DIVIDEND OF RM0.05 PER SHARE FOR THE YEAR ENDED 30 JUNE 2008
This was TanahEmas quarterly earnings announced on the same date. Quarterly rpt on consolidated results for the financial period ended 30/6/2008
This was how much Tanah Emas has in its piggy bank.
16.317 million was all it had in its piggy bank.
A 5 sen per share dividend would amount to RM10.998 million!
Not a whole lot left after paying this dividend yes?
And this is how much Tanah Emas has in its borrowings.
And as stated in the earlier posting, More On The Flip-Flops Of Proposed Dividends.
- Yes, can't they THINK before shooting their mouths off that they are going to reward their shareholders with dividends?
Is it so difficult to THINK?
Was it hard to see back in August that the world is in an economic crisis? Was it hard to see that the dividends SHOULD NEVER HAVE BEEN PROPOSED in the first place?
Here is Chin Well's announcement on Christmas Eve: CHINWEL - REJECTION OF THE PAYMENT OF A FIRST AND FINAL TAX EXEMPT DIVIDEND
Note also that Chin Well too had announced when the dividends would go-ex: First and Final Dividend
And like Tanah Emas, the dividend was mooted and mentioned back in August too: Quarterly rpt on consolidated results for the financial period ended 30/6/2008
And like Tanah Emas, Chin Well's cash balances were rather low and saddled with high debts!A cash balance of only 11.9 million versus total net borrowings of 175.3 million showed clearly that Chin Well's balance sheet wasn't in the best of financial health.
And yes, I am baffled why Chin Well chose to make that dividend announcement back in August 2008!
Let's see a dividend of 6 sen would equate to 8.175 million.
Surely Chin Well should not have proposed such a dividend payout!
And again I repeat what I posted the other day: More On The Flip-Flops Of Proposed Dividends.
- Yes, can't they THINK before shooting their mouths off that they are going to reward their shareholders with dividends?
Is it so difficult to THINK?
Was it hard to see back in August that the world is in an economic crisis? Was it hard to see that the dividends SHOULD NEVER HAVE BEEN PROPOSED in the first place?
The fact that they did announced their dividends and the fact that they are now flip-flopping on its dividends shows exactly how unprofessional they are!
Rather embarrassing event for corporate Malaysia!
Saturday, December 27, 2008
- Saturday December 27, 2008
Divided over dividend payout
By ERROL OH
At AGMs earlier this week, the majority shareholders of oil palm grower Tanah Emas Corp Bhd and nuts and bolts maker Chin Well Holdings Bhd voted against the payment of dividends declared earlier. The shareholders, who are also directors, cited deteriorating industry and economic conditions and the need to hold on to cash. Did they do the right thing? C.S. TAN and ERROL OH look at both sides of the coin.
Change of heart should have been made known earlier
By Errol Oh
THERE are a couple of things about the recent developments at Tanah Emas Corp Bhd (Tanahmas) and Chin Well Holdings Bhd that are undisputable. First, no different from any other shareholder, the majority shareholders have every right to vote for or against the dividend resolutions.
In fact, by saying nay to the dividends, they are denying themselves a fair bit of income.
Second, the reasons given for the majority shareholders’ rejection of the resolutions are solid. We are indeed in the middle of a global economic slowdown and a commodity slump, and RM11mil (in the case of Tanahmas) and RM8.2mil (Chin Well) in cash will certainly come in handy when things get rougher.
However, there are some other aspects that are open to debate. There is the question of timing. At what point did the majority shareholders decide that they it was best for the companies not to distribute the dividends?
The two companies separately declared the dividends in August.
In late November, both companies issued their respective AGM notices, which indicated that the resolutions for the dividend payments will be tabled at the meetings. The notices of book closure, setting out the relevant dates for the distributions, also came out at the same time.
The minority shareholders couldn’t have possibly seen anything out of the ordinary. It was all routine stuff so far.
Then came the AGMs – Dec 22 for Tanahmas and Dec 23 for Chin Well. That was when the majority shareholders showed their hands. It’s absurd to think that they showed up at the meeting still undecided on which way they would vote. The decision to halt the dividends would have been made much earlier.
A probable catalyst was the turbulence in the world economy and the stock market in October. If that’s so, why not communicate to the market the change of heart and the intent to shoot down the dividend resolutions?
Under Bursa Malaysia’s listing requirements, a company can’t alter the dividend entitlement once the dividend has been declared. So, it was not an option to withdraw the resolution.
Still, the majority shareholders could have earned some goodwill by immediately signalling what it had planned to do at the AGMs. People do not like to feel that they might have been misled. Nor do they fancy finding out so abruptly that the dividends they were counting on are not to be.
Bear in mind that the majority shareholders have representatives on the board of directors, including those in an executive capacity.
This is precisely the type of situation that provokes questions about the wisdom of majority shareholders having a big say in a company’s management. When do they act as majority shareholders and when do they act as stewards?
Sure, there’s a fine balance between rewarding shareholders and safeguarding a company’s interests. But there’s also the delicate task of managing shareholder expectations.
The flip-flop has cast unflattering light on the other directors. Did they have prior knowledge of the majority shareholders’ intention to nix the dividend proposals? If they did, aren’t they obliged to announce it? If they didn’t, they knew no more than the minority shareholders, and that’s hardly comforting.
Proposal not castin stone untilapproval at AGM
By C.S. Tan
CHIN Well Holdings Bhd proposed a first and final tax-exempt dividend of 3 sen a share in August.
Two months later, the financial world changed in such a way that even those who do not follow it every day noticed it.
Stock markets plunged everywhere, making the news on front pages.
The markets mirrored the conviction of investors that the global economy would get a lot worse before it could get better.
In October, the Dow Jones Industrial Average fell 14% to below the psychological level of 10,000 while the Kuala Lumpur Composite Index fell 15% in that month. Since then, weak data has come out from companies, industries and economies in all the developed countries.
It explains the series of cancellations of proposals from purchases of commercial properties to takeovers and also to dividends.
Institutional investors and analysts expect companies to maintain their ordinary dividends while special dividends can be discontinued.
That, however, should apply only to “normal conditions.” Investors should expect that companies are likely to cut their dividends at this time.
Blue chip companies hesitate to do so for fear of a sell-off in their shares should they cut their dividends, but between that and ensuring they survive the recession, long-term survival should have priority.
So far, only two lower tiered companies have cancelled their dividend proposals and both did so at their AGMs last week.
Plantation company Tanah Emas Corp Bhd did so on Monday, followed by nuts and bolts manufacturer Chin Well on Wednesday.
The rejection of their proposed dividends came as a surprise to the market in terms of the manner and abruptness in which it was done.
The dividend proposal was valid from August and September, and probably into October as well. If Chin Well had withdrawn its proposal last month, it would still have been seen as an abrupt about-turn.
But it may have taken Chin Well these two months to review its operating and financial position since October, and its board may not have met until just before the AGM. Boards generally meet just four or five times a year, not monthly.
The rejection of the dividend proposal at the AGM may have been timely and the appropriate manner in which to do it. The board’s dividend proposal is not cast in stone, until shareholders approve it at the AGM. It is cast in stone after that. Once it is approved, the company must pay the dividend.
Hence, it was not wrong in the timeliness of the vote of the major shareholders to reject the dividend proposal.
Some of them are also directors who proposed the dividend in the first place, but they know the current business conditions more than the minority shareholders.
As the company put it, global conditions changed for the worse, commodity prices have dropped and there is also a “substantial drop” in the demand for its products. Commodity prices would refer to steel prices which affect the company’s product prices and thus its profit margins.
The company also has quite a lot of bank debt – about RM230mil – and its priority is rightly to ensure it survives this severe cycle. Furthermore, cash retained in the company still belongs to shareholders.
The majority view is that business conditions will be even worse early next year. Investors should expect more “surprises” of cancellations or cuts in dividends in the months ahead.
Companies that have yet to propose dividends would avoid the embarrassment of withdrawing it.
I certainly do not agree with what CS Tan is saying here.
Yes, the reason to withdraw the dividends is probably valid for both companies. Both these stocks are rather not in the best of financial health and given the current business economics worldwide, it's of course prudent that they withdraw their dividends.
However, what has happened is simply appalling.
As a listed entity, it's simply appalling to see the lack of professionalism in both companies. Why can't they THINK before announcing the proposed dividends?
Yes, can't they THINK before shooting their mouths off that they are going to reward their shareholders with dividends?
Is it so difficult to THINK?
Was it hard to see back in August that the world is in an economic crisis? Was it hard to see that the dividends SHOULD NEVER HAVE BEEN PROPOSED in the first place?
To flip-flop in such a manner shows how lacking the management mentality in both listed companies! EXTREMELY UNPROFESSIONAL!
And now that both companies have done such flip-flops on the proposed dividends, which sane investor would dare to invest in their companies?
Friday, December 26, 2008
Here's a wonderful posting by Jesse: A Question Worth Considering for the New Year...
- What is at the heart of the US financial crisis?
Is it that the US has been precipitously cut off from some foreign source of funding? Has there been an oil embargo, a supply shock imposed such as the one that triggered the financial crisis of the 1970's? Are the problems caused by some external change, some actor outside the system?
I think most will say the answer is 'no.'
The problems are internal to the US, to its financial system.
So, how would you fix a system that has broken from an internal flaw in this way?
Try more of the same, business as usual, apply fresh debt to a failed system based on a growing pyramid of debt without making any substantial changes?
The US financial system, the housing, equity and Treasury markets, are all Ponzi schemes, with the need for a constantly increasing source of fresh money to keep going. That funding is new debt, new dollars based on nothing produced, just the trust and confidence of the participants.
Would you fix the Madoff Ponzi scheme by giving Bernie more money, public money, to keep his payments flowing to his 'investors?'
I think most of us would say, no, no more money.
But what is the difference between that and what Paulson and Bernanke are doing today? Is there a graceful exit strategy? Have any serious reforms or changes been made or even proposed? Has there even been a frank disclosure and discussion of exactly what happened, and what is continuing to happen, beyond blaming the victims?
No. The key participants in the Ponzi scheme are continuing to take their gains out, in dividends and bonuses, front running the final collapse and admission that "its all gone, we're bankrupt."
Think about it.
What would you do if it is a Ponzi scheme, teetering on the edge?
I was bemused when I read the following article yesterday on Hai-O: Hai-O sales rise on lower petrol prices
Firstly the company's financial controller Hew Von Kin talks about the current company's prospects.
- PETALING JAYA: Hai-O Enterprise Bhd says consumer sentiment improved in November, thanks to lower petrol prices.
“October was our weakest month in the second quarter but sales showed improvement last month as the Government started to reduce petrol prices and consumers geared up for the festive season,” financial controller Hew Von Kin told StarBiz.
- “We expect the wholesale and retail divisions to weaken after Chinese New Year while the MLM division is likely to stay resilient as people seek part-time jobs to supplement their income,” he said, adding that new MLM memberships would offset the slower spending next year.
Hai-O launched a series of healthcare supplement products last weekend, which have received positive response so far.
“We plan to launch a range of skincare products in the first quarter of next year. We have already secured the approvals and are currently working on the packaging and design,” Hew said.
Then the following passage caught my attention.
- Last week, Hai-O reported a stronger net profit of RM10.9mil for the second quarter ended Oct 31, or almost 20% higher than the previous corresponding period of RM9.1mil.
Revenue jumped to RM87.3mil from RM80.5mil a year ago, thanks to higher contribution from the wholesale and MLM divisions. For the first half year, net profit was RM24.5mil on revenue of RM200.2mil.
On a quarterly basis, second-quarter net profit was lower by 20% from the first quarter’s net earnings of RM13.6mil.
In the filing to Bursa Malaysia, the company said the weaker quarter-on-quarter results were due to smaller contribution from MLM.
However, the retail business achieved better sales in the second quarter from the first, thanks to members’ sales promotions and higher margins from its house brand products.
Hai-O’s internal growth target for the financial year ending April 30, 2009 was to achieve 5% in sales, it said.
As posted in Review of HaiO's Latest Quarterly Earnings
- Which means, if one looks at the very immediate picture, HaiO's earnings are deteriorating at an extremely tremendous pace. The last three quarters, its earnings has went from 18.942 million to 13.602 million to only 10.889 million!
And that 5% growth rate. That statement as a stand alone was grossly inaccurate. Truth is, Hai-O had stated CLEARLY that they are forced to reduce their growth rate from 20% to a mere 5%!
As stated in its own earnings notes.
- Due to the current global financial turmoil and weak market condition, the Company had revised downward its growth rate from 20% to 5% as mentioned above. However, the Company will strive for better performance in this challenging environment and work towards higher growth rate.
For a company who was projecting almost 20% growth and being forced to revise downwards to a mere 5% due to weak market condition, totally differs that saying a company is forecasting a 5% growth. For as a stand alone, it does not tell the whole story!
And the article ends by saying.
- OSK Investment Bank, in a report, said next quarter’s performance would stay strong driven by the retail division, which would benefit from the Chinese New Year celebrations next month.
“Hai-O’s attractive incentives will continue to drive the expansion of its MLM network and help the group to expand into new markets, like Indonesia, which will kick-start in March,” OSK said.
Hai-O is cash-rich with a war chest of almost RM48mil and generates good dividend yield of about 13%.
Again I am bemused.
Yes, Hai-O currently has a war chest about 48 million.
However, let's be more accurate here!
This war chest is getting smaller, yes?!!!!!!
As posted earlier in my posting, Review of HaiO's Latest Quarterly Earnings
Compare the cash/short term investments versus the same period last year. Impressive?
Want to compare to previous quarter, Quarterly rpt on consolidated results for the financial period ended 31/7/2008?
Now that depicts a totally different picture, doesn't it?
Wednesday, December 24, 2008
Published on Star Biz: Chin Well cancels dividend
- Wednesday December 24, 2008
Chin Well cancels dividend
The company says it wants to conserve cash
PETALING JAYA: Bolts and nuts maker Chin Well Holding Bhd yesterday became the second company in as many days to scrap plans to pay dividends to shareholders this year, citing the need to conserve cash amid the worsening global economic situation.
The stock hit a 5½-year low of 65 sen yesterday before bouncing back to end the day up two sen at 73 sen. Turnover was thin, with 61,000 shares changing hands. The stock has fallen 34% year-to-date.
“The shareholders of the company had unanimously approved all resolutions (at the AGM) yesterday except for the resolution on the first and final dividend of 6% (or three sen per share) for year ended June 30, 2008 (FY08),’’ Chin Well told Bursa Malaysia yesterday.
Penang-based Chin Well made a net profit of RM27.25mil, or 10.03 sen per share, in FY08. It had on Nov 28 said it would pay a dividend of three sen per share to shareholders next month.
The book closure announcement was no longer applicable, the company said yesterday.
Chin Well’s main shareholders, who are also executive directors of the company, cited worsening global economic conditions, falling commodity prices and substantial drop in demand for the group’s products, as well as the need to “conserve and save on the group’s cashflow” as reasons to reject the dividend payout proposal.
On Monday, palm oil planter Tanah Emas Corp Bhd’s main shareholders rejected plans to return part of the company’s profit as dividends to shareholders.
I cannot believe what I am reading here.
Doesn't Chin Well knows that cancellation of a proposed dividend is utterly sinful in the minds of investors?
No sane investor would want to invest in your company if your company flip flops on decisions such as dividends!
Are you a trader who has not much success in the stock market?
Have you bought and read tons of books and yet cannot find any success?
Here's a recommended reading article by Dr. Brett. Can I Trade for a Living? The Quest for Trading Success (do read in full and not only the following highlighted passage)
- The missing element? Skill development. Training. A systematic program of learning that emphasizes pattern recognition, an understanding of market movement across time frames, intermarket relationships, sound execution of trade ideas, and risk management.
Mindset is critical in sustaining motivation, interest, and focus during the learning curve, and mindset is crucial in the consistent application of one's skills. The wrong frame of mind and emotional/cognitive/physical state can disrupt the best of skills, but the best of mental outlooks cannot substitute for developed skills. No positive mindframe and "method that suited me" can provide competencies--in any performance field.
Rather embarrassing yet again for AirAsia.
Blogged yesterday: AirAsia Merger With Qantas's Jetstar?
- The talks are still in preliminary stages and it is learnt that AirAsia’s boss Datuk Seri Tony Fernandes and Qantas new chief executive officer Alan Joyce have been mulling over it. They last talked on the issue last week, a source said. ( see AirAsia-Jetstar merger brewing )
Today, Business Times rebroadcasts the following news posted on Bloomberg: Jetstar denies merger plan with AirAsia
- SINGAPORE: Jetstar Asia Airways Pte Ltd, the Singapore-based budget carrier backed by Qantas Airways Ltd, denied a report saying it was in talks with AirAsia Bhd (5099) on a possible combination.
There is "no discussion on any merger", Jetstar chief executive officer Chong Phit Lian said in an e-mail reply to Bloomberg queries. The two are working on commercial arrangements, such as transferring passengers between each others' flights when delays occur, she added.
AirAsia, Southeast Asia's biggest discount airline, and Jetstar may be in exploratory talks on a possible merger, a Malaysian newspaper reported yesterday, citing people it didn't identify.
Sepang, Malaysia-based AirAsia's chief executive officer Datuk Seri Tony Fernandes didn't answer calls to his mobile phone or reply to an e-mail seeking comment.
AirAsia closed half a sen lower at 92.5 sen in Kuala Lumpur trading, after earlier rising as much as 2.2 per cent. The shares have declined 43 per cent this year. Jetstar is closely held, with Qantas owning the largest stake. - Bloomberg
Didn't answer any calls?
Don't you get the feeling that lately AirAsia is trying desperately to talk itself up in the media?
There was the audacious plan to privatise itself but what was more daring, a GO takeover price was boldly announced! ( Is it wrong to speculate that perhaps AirAsia was trying to create a support for its stock price?)
And now a merger with Jetstar?
Now who is that source mentioned by Star Biz in its article AirAsia-Jetstar merger brewing
Did the source simply created this merger story to drive up the stock price?
Don't we want to see the end of this nonsensical 'according to sources' type of reporting here in Malaysia?
Tuesday, December 23, 2008
Yes, why is Maybulk so active in the share market?
Caught the following announcement on Bursa Malaysia: Dealings in quoted securities pursuant to Paragraph 9.21 of the Listing Requirements
- Malaysian Bulk Carriers Berhad ("MBC” or "the Company”) wishes to announce that the MBC Group has, for the period from 31 January 2008 to 22 December 2008, purchased quoted securities from the open market. These purchases have exceeded 5% of MBC's latest audited consolidated net assets ("NA") as at 31 December 2007, details of which are set out below:-
1. The aggregate purchases for the period from 31 January 2008 to 22 December 2008 amount to RM91.38 million. This represents 5.15% of NA;
2. The total cost of all investments in quoted securities as at 22 December 2008 is RM143.80 million;
3. The total book value of all investments in quoted securities as at 22 December 2008 is RM122.12 million;
4. The market value of all investments as at 22 December 2008 is RM122.93 million; and
5. There were sales of quoted securities during the current financial year and the losses on disposal amounted to RM11.23 million.
This announcement is dated 23 December 2008.
Aren't you shocked at what it is doing?
Don't you think that the amount is way too much?
Someone once mentioned that Maybulk's management is highly 'reputable'. Well that the fact that Maybulk chose NOT to disclose what they bought and the fact that they bought more than 5% of its total Net Assets as of its audited accounts as at 31st Dec 2007 places a massive question mark over the management. Won't you agree?
And honestly, what does the management of the company thinks they are? Is Maybulk a securities trading firm?
Does the management reckons that they are super traders or super investors?
Well, the fact that they loss some rm 11.23 million speaks volumes about their stock market skills!
Seriously, don't you reckon that Maybulk should stop this?
Look they aren't good, are they? And if so, why dabble in the share market?
Does Maybulk have so much money to lose in the share market?
And if you are a minority shareholder, do you honestly like what you see?
Aren't you appalled by all this?
Published on Star Biz: AirAsia-Jetstar merger brewing
- PETALING JAYA: Something may be in the air between Qantas Airways Ltd and AirAsia Bhd. If things work out, a merger between AirAsia and the Australian carrier’s units Jetstar and JetstarAsia may be in the offing.
The talks are still in preliminary stages and it is learnt that AirAsia’s boss Datuk Seri Tony Fernandes and Qantas new chief executive officer Alan Joyce have been mulling over it. They last talked on the issue last week, a source said.
I stopped reading after that.
How's this for yet another irresponsible reporting?
Who is that 'a source'?
Am I wrong to question if the source is even real? Am I wrong to question if this is yet another ploy to use the media to support AirAsia share price?
Why I am so sceptical?
Well, can I be blamed after AirAsia's recent buyout fiasco?
See recent postings on the recent GO fiasco: Did Tune Air Said It Was Thinking Of Making a GO for Air Asia? , Air Asia Now Remains TIGHT-LIPPED On It's Privatisation Plan Details! , Huh? AirAsia Buyout Still An Option????? and Tune Air Says Unable To Secure Financing
Over the weekend, New York Times ran the following article: White House Philosophy Stoked Mortgage Bonfire
The following is a passage of what was written..
- Eight years after arriving in Washington vowing to spread the dream of homeownership, Mr. Bush is leaving office, as he himself said recently, “faced with the prospect of a global meltdown” with roots in the housing sector he so ardently championed.
There are plenty of culprits, like lenders who peddled easy credit, consumers who took on mortgages they could not afford and Wall Street chieftains who loaded up on mortgage-backed securities without regard to the risk.
But the story of how we got here is partly one of Mr. Bush’s own making, according to a review of his tenure that included interviews with dozens of current and former administration officials.
From his earliest days in office, Mr. Bush paired his belief that Americans do best when they own their own home with his conviction that markets do best when let alone.
He pushed hard to expand homeownership, especially among minorities, an initiative that dovetailed with his ambition to expand the Republican tent — and with the business interests of some of his biggest donors. But his housing policies and hands-off approach to regulation encouraged lax lending standards.
Mr. Bush did foresee the danger posed by Fannie Mae and Freddie Mac, the government-sponsored mortgage finance giants. The president spent years pushing a recalcitrant Congress to toughen regulation of the companies, but was unwilling to compromise when his former Treasury secretary wanted to cut a deal. And the regulator Mr. Bush chose to oversee them — an old prep school buddy — pronounced the companies sound even as they headed toward insolvency.
As early as 2006, top advisers to Mr. Bush dismissed warnings from people inside and outside the White House that housing prices were inflated and that a foreclosure crisis was looming. And when the economy deteriorated, Mr. Bush and his team misdiagnosed the reasons and scope of the downturn; as recently as February, for example, Mr. Bush was still calling it a “rough patch.”
The result was a series of piecemeal policy prescriptions that lagged behind the escalating crisis.
“There is no question we did not recognize the severity of the problems,” said Al Hubbard, Mr. Bush’s former chief economics adviser, who left the White House in December 2007. “Had we, we would have attacked them.”
Looking back, Keith B. Hennessey, Mr. Bush’s current chief economics adviser, says he and his colleagues did the best they could “with the information we had at the time.” But Mr. Hennessey did say he regretted that the administration did not pay more heed to the dangers of easy lending practices. And both Mr. Paulson and his predecessor, John W. Snow, say the housing push went too far.
“The Bush administration took a lot of pride that homeownership had reached historic highs,” Mr. Snow said in an interview. “But what we forgot in the process was that it has to be done in the context of people being able to afford their house. We now realize there was a high cost.”
For much of the Bush presidency, the White House was preoccupied by terrorism and war; on the economic front, its pressing concerns were cutting taxes and privatizing Social Security. The housing market was a bright spot: ever-rising home values kept the economy humming, as owners drew down on their equity to buy consumer goods and pack their children off to college.
Lawrence B. Lindsey, Mr. Bush’s first chief economics adviser, said there was little impetus to raise alarms about the proliferation of easy credit that was helping Mr. Bush meet housing goals.
“No one wanted to stop that bubble,” Mr. Lindsey said. “It would have conflicted with the president’s own policies.”
Yup, totally unreal.
And here is what George Bush's White House had to say: Statement by the Press Secretary on Irresponsible Reporting by New York Times
- Most people can accept that a news story recounting recent events will be reliant on '20-20 hindsight'. Today's front-page New York Times story relies on hindsight with blinders on and one eye closed.
The Times' 'reporting' in this story amounted to finding selected quotes to support a story the reporters fully intended to write from the onset, while disregarding anything that didn't fit their point of view. To prove the point, when they filed their story, NYT reporters were completely unfamiliar with the President's prime time address to the nation where he laid out in detail all of the causes of the housing and financial crises. For example, the President highlighted a factor that economists agree on: that the most significant factor leading to the housing crisis was cheap money flowing into the U.S. from the rest of the world, so that there was no natural restraint on flush lenders to push loans on Americans in risky ways. This flow of funds into the U.S. was unprecedented. And because it was unprecedented, the conditions it created presented unprecedented questions for policymakers.
In his address the President also explained in detail the failure of financial institutions to perform normal and necessary due diligence in creating, buying and selling new financial products -- a problem that almost no one saw as it was happening.
That the NYT ignored such an important economic speech to the American people and the complex causes of the crises is gross negligence.
The Times story frequently repeats a charge by the Administration's critics: a 'laissez faire' attitude toward regulation. We make no apology for understanding the concept of regulatory balance. That is, regulation should be stringent enough to protect the greater public good and safety but not overly strong so that it unnecessarily inhibits innovation, creativity and productivity gains that are the sole source of increasing Americans' standards of living. But while repeating this charge, the reporters gave glancing attention to the fact that it was this Administration that pushed for strengthened regulation and oversight, greater transparency, and housing reform.
The story also gives kid glove treatment to Congress. While the Administration was pushing for more transparent lending rules and strengthening oversight and supervision of Fannie and Freddie, Congress for years blocked attempts at stronger regulation and blocked reform of the Federal Housing Administration. Democratic leaders brazenly encouraged Fannie and Freddie to loosen lending standards and instead encouraged the housing GSEs to play a larger and larger role in the housing market -- even while explicitly acknowledging the rising risks. And while the story notes the political contributions of some banks to Republicans, it neglects that political contributions from Fannie Mae and Freddie Mac overwhelmingly supported Democratic officials -- in particular the chairmen of the banking committees. In fact, even in the midst of what by then was a housing crisis, it took Congress nearly a full year to pass specific legislation called for by the President in the summer of 2007, especially legislation to reform oversight of Fannie Mae and Freddie Mac.
There are many more reporting failures in this story -- failure to consider the impact of monetary policy; ignoring the regional nature of housing markets; and ignoring the Bush Administration's historic proposal to overhaul the nation's regulatory system, for example. But then a review of these issues would wave complicated the reporters' myopic point of view that only Bush Administration policies could possibly be responsible for the housing and finance crises.
Huh? Am I reading it correctly? Cheap money flowing into the US?
- -- a problem that almost no one saw as it was happening
Yet another ??????????
Goodness me, I seriously cannot believe what I am reading here. Just what are they talking about?
Monday, December 22, 2008
Here is a great article posted on Morningstar.com back in 2005.
- Behavioral finance has become a cottage industry in recent years, spawning an array of academic papers and learned tomes that attempt to explain why people make financial decisions that are contrary to their own interests.
The concept is not new, however. Benjamin Graham used to portray Mr. Market (and who is the market other than you and I?) as a fellow prone to mood swings, from wildly optimistic to irrationally pessimistic. The key for Graham--and for his disciple, Warren Buffett--is patience.
As Buffett said in a 1999 interview with BusinessWeek, "Success in investing doesn't correlate with I.Q. once you're above the level of 25. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing." His partner at Berkshire Hathaway Charlie Munger, never misses an opportunity to recommend Robert Cialdini's book “Influence”, which examines why people give in to pressure from others.
Yet, despite all the warnings, investors continue to exhibit several key behaviors that tend to get them into trouble. Let's go over a few of these counterproductive activities, so that we'll have fodder for the next round of New Year's resolutions.
Checking Portfolios Too Often
Let me be the first to say that I'm guilty here. I look at my stocks [shares] at least a couple of times a day, so I know first-hand what a psychologically painful experience it can be. The problem is that people are generally loss-averse--that is, they experience negative feelings from a $50 loss that are stronger than the positive feelings they get from a $50 gain.
This concept formed the basis for prospect theory, developed by Nobel laureate Daniel Kahneman and Amos Tversky in 1979. Richard Thaler and Shlomo Benartzi went the next step and showed that frequency of evaluation was key to how well an investor could endure losses. Those who do their mental accounting over short time spans, even if they're investing for the long term, earn lower returns.
Again, this is nothing new. Buffett has said that he wouldn't mind if the market shut down for years at a time. For many of us, though, every day becomes another chance to suffer the agony of our investment decisions. Nassim Taleb, who runs a hedge fund (Empirica Capital) that makes its living by enduring short-term pain, points out in his book “Fooled by Randomness” that probability dictates that the market will show a positive return on only a little over half of the days it's open. If losses hurt twice as much as gains, then people who check their portfolios daily will suffer much more than they'll benefit. Thaler and Benartzi calculate that the "psychic cost" of evaluating your portfolio on an annual basis is 5.1% per year, versus 0.6% for a 10-year evaluation period, based on changes in the implied equity-risk premium. Measuring performance on a daily basis seems certain to drive the risk premium even higher, costing investors considerably more than 5.1%.
Do yourself a favor and try to resist the urge to calculate your portfolio value in real time. The quotes may be free, but the total cost can be huge.
Trading Too Often
Frequent evaluation leads, naturally, to frequent trades. Terrance Odean and Brad Barber studied activity in 66,000 accounts at a large discount broker from 1991 to 1996 and came to this conclusion: "Trading is hazardous to your wealth."
They found that individuals who trade frequently (with monthly turnover above 8.8%) earned a net annualized return of 11.4% over that time, while inactive accounts netted 18.5%. Trading costs, in the form of commissions and losses on the bid-ask spread, accounted for most of the difference. Those costs have likely fallen since 1996, as more discount brokers have pressured commission prices and decimalization has reduced spreads, but friction costs remain a drag on overall returns.
But surely investors got some benefit from trading less-desirable stocks for better ones, right? Nope. In fact, Odean and Barber found that, excluding transaction costs, newly acquired stocks actually slightly underperformed the stocks that were sold! That bears repeating: By trading frequently, individuals hurt not only their performance net of fees, but they also hurt their performance before fees.
Why would this be? Odean and Barber believe that it reflects investors' overconfidence in their ability to assess information. It's clear that rapid traders are making unreasonable bets--one would expect that they would trade only when the benefit would offset at least the cost of trading, but that was clearly not the case in this data set. But does high turnover reflect self-assurance, or could it betray the lack of it?
Investors in Odean and Barber's study were much more likely to sell winners. This appears to reflect the desire to "take some profits," while not wanting to accept defeat in the case of the losers. (Philip Fisher writes in his excellent book “Common Stocks and Uncommon Profits” that "more money has probably been lost by investors holding a stock they really did not want until they could 'at least come out even' than from any other single reason.") Such a tendency would be in keeping with myopic loss aversion: People may view losses as more likely in a stock that's up than one that's down. This attitude would also mesh with another common trait, framing evaluations on meaningless benchmarks, such as what price you bought a stock.
Perhaps, then, investors aren't confident in their understanding of their investments and simply worry that they could lose their gains. They may feel more comfortable jumping into an investment that others currently recommend.
Getting Distracted by Shiny Objects
There are thousands and thousands of stocks out there. Investors cannot know them all; in fact, it's a major endeavor to really know even a few of them. But people are bombarded with stock ideas from brokers, television, magazines, Web sites, and other places. Inevitably, some decide that the latest idea they've heard is a better idea than a stock they own (preferably one that's up), and they make a trade. Unfortunately, in many cases the stock has come to the public's attention because of its strong previous performance. When this is followed by a reversion to the mean, new investors get burned.
This is not to say that an investor should necessarily hold whatever investments he or she currently owns. Some stocks should be sold, whether because their underlying businesses have declined or the stocks simply exceed their intrinsic value. But it is clear that many individual (and institutional) investors hurt themselves by making too many buy and sell decisions for too many fallacious reasons. We can all be much better investors when we learn to select stocks carefully and then block out the noise.
Saturday, December 20, 2008
Here is a great weekend reading article which focus on how India avoided the banking crisis. Most importantly, it focus on how Dr. V. Y. Reddy, India's banking governor, helped keep India's banks in order.
- How India Avoided a Crisis
By JOE NOCERA
Published: December 19, 2008
“What has taken a number of us by surprise is the lack of adequate supervision and regulation,” Rana Kapoor was saying the other day. “This was despite the fact that Enron had happened and you passed Sarbanes-Oxley. We don’t understand it. Maybe it’s because we sit in a more controlled economy but ....” He smiled sweetly as his voice trailed off, as if to take the sting off his comments. But they stung nonetheless.
Mr. Kapoor is an Indian banker, a former longtime Bank of America executive with a Rutgers M.B.A. who, along with his business partner and brother-in-law, Ashok Kapur, was granted government permission four years ago to start a private bank, which they called Yes Bank. In the United States, Yes Bank is the kind of name a go-go banker might give to, say, a high-flying mortgage lender in the middle of a bubble. (You can even imagine the slogan: “Yes is part of our name!”) But Yes Bank is not exactly the Washington Mutual of India. One news release it hands out to reporters who come calling is an excerpt from a 2007 survey by The Financial Express: “#1 on Credit Quality amongst 56 Banks in India,” reads the headline.
I arrived in Mumbai three weeks after the terrorist attacks that killed 200 people — including, tragically, Yes Bank’s co-founder Mr. Kapur, who had served as the company’s nonexecutive chairman and was gunned down while having dinner at the Oberoi Hotel. (His wife and two dinner companions miraculously escaped.)
My hope in traveling to Mumbai was to learn about the current state of Indian business in the wake of both the credit crisis and the attacks. But in my first few days in this grand, sprawling, chaotic city, what I mainly heard, especially talking to bankers, was about America, not India. How could we have brought so much trouble on ourselves, and the rest of the world, by acting in such an obviously foolhardy manner? Didn’t we understand that you can’t lend money to people who lack the means to pay it back? The questions were asked with a sense of bewilderment — and an occasional hint of scorn. Like most Americans, I didn’t have any good answers. It was a bubble, I would respond with a sheepish shrug, as if that were an adequate explanation. It isn’t, of course.
“In India, we never had anything close to the subprime loan,” said Chandra Kochhar, the chief financial officer of India’s largest private bank, Icici. (A few days after I spoke to her, Ms. Kochhar was named the bank’s new chief executive, in a move that had long been anticipated.) “All lending to individuals is based on their income. That is a big difference between your banking system and ours.” She continued: “Indian banks are not levered like American banks. Capital ratios are 12 and 13 percent, instead of 7 or 8 percent. All those exotic structures like C.D.O. and securitizations are a very tiny part of our banking system. So a lot of the temptations didn’t exist.”
And when I went to see Deepak Parekh, the chief executive of HDFC, which was founded in 1977 as the country’s first specialized mortgage bank, practically the first words out of his mouth were these: “We don’t do interest-only or subprime loans. When the bubble was going on, we did not change any of our policies. We did not change any of our systems. We did not change our thought process. We never gave more money to a borrower because the value of the house had gone up. Citibank has a few home equity loans, but most banks in India don’t make those kinds of loans. Our nonperforming loans are less than 1 percent.”
Yet two years ago, the Indian real estate market — commercial and residential alike — was every bit as frothy as the American market. High-rises were being slapped up on spec. Housing developments were sprouting up everywhere. And there was plenty of money flowing into India, mainly from private equity and hedge funds, to fuel the commercial real estate bubble in particular. Goldman Sachs, Carlyle, Blackstone, Citibank — they were all here, throwing money at developers. So why did the Indian banks stay on the sidelines and avoid most of the pain that has been suffered by the big American banks?
Part of the reason is cultural. Indians are simply not as comfortable with credit as Americans. “A lot of Indians, when you push them, will say that if you spend more than you earn you will get in trouble,” an Indian consultant told me. “Americans spent more than they earned.”
Mr. Parekh said, “Savings are important. Joint families exist. When one son moves out, the family helps them. So you don’t borrow so much from the bank.” Even mortgage loans tend to have down payments in India that are a third of the purchase price, a far cry from the United States, where 20 percent is the new norm. (Let’s not even think about what they used to be.)
But there was also another factor, perhaps the most important of all. India had a bank regulator who was the anti-Greenspan. His name was Dr. V. Y. Reddy, and he was the governor of the Reserve Bank of India. Seventy percent of the banking system in India is nationalized, so a strong regulator is critical, since any banking scandal amounts to a national political scandal as well. And in the irascible Mr. Reddy, who took office in 2003 and stepped down this past September, it had exactly the right man in the right job at the right time.
“He basically believed that if bankers were given the opportunity to sin, they would sin,” said one banker who asked not to be named because, well, there’s not much percentage in getting on the wrong side of the Reserve Bank of India. For all the bankers’ talk about their higher lending standards, the truth is that Mr. Reddy made them even more stringent during the bubble.
Unlike Alan Greenspan, who didn’t believe it was his job to even point out bubbles, much less try to deflate them, Mr. Reddy saw his job as making sure Indian banks did not get too caught up in the bubble mentality. About two years ago, he started sensing that real estate, in particular, had entered bubble territory. One of the first moves he made was to ban the use of bank loans for the purchase of raw land, which was skyrocketing. Only when the developer was about to commence building could the bank get involved — and then only to make construction loans. (Guess who wound up financing the land purchases? United States private equity and hedge funds, of course!)
Then, as securitizations and derivatives gained increasing prominence in the world’s financial system, the Reserve Bank of India sharply curtailed their use in the country. When Mr. Reddy saw American banks setting up off-balance-sheet vehicles to hide debt, he essentially banned them in India. As a result, banks in India wound up holding onto the loans they made to customers. On the one hand, this meant they made fewer loans than their American counterparts because they couldn’t sell off the loans to Wall Street in securitizations. On the other hand, it meant they still had the incentive — as American banks did not — to see those loans paid back.
Seeing inflation on the horizon, Mr. Reddy pushed interest rates up to more than 20 percent, which of course dampened the housing frenzy. He increased risk weightings on commercial buildings and shopping mall construction, doubling the amount of capital banks were required to hold in reserve in case things went awry. He made banks put aside extra capital for every loan they made. In effect, Mr. Reddy was creating liquidity even before there was a global liquidity crisis.
Did India’s bankers stand up to applaud Mr. Reddy as he was making these moves? Of course not. They were naturally furious, just as American bankers would have been if Mr. Greenspan had been more active. Their regulator was holding them back, constraining their growth! Mr. Parekh told me that while he had been saying for some time that Indian real estate was in bubble territory, he was still unhappy with the rules imposed by Mr. Reddy. “We were critical of the central bank,” he said. “We thought these were harsh measures.”
“For a while we were wondering if we were missing out on something,” said Ms. Kochhar of Icici. Banks in the United States seemed to have come up with some magical new formula for making money: make loans that required no down payment and little in the way of verification — and post instant, short-term, profits.
As Luis Miranda, who runs a private equity firm devoted to developing India’s infrastructure, put it: “We kept wondering if they had figured out something that we were too dense to figure out. It looked like they were smart and we were stupid.” Instead, India was the smart one, and we were the stupid ones.
Ms. Kochhar said that the underlying risks of having “a majority of loans not owned by the people who originated them” was not apparent during the bubble. Now that those risks have been made painfully clear, every banker in India realizes that Mr. Reddy did the right thing by limiting securitizations. “At times like this, you tend to appreciate what he did more than we did at the time,” said Mr. Kapoor. “He saved us,” added Mr. Parekh.
As the credit crisis has spread these past months, no Indian bank has come close to failing the way so many United States and European financial institutions have. None have required the kind of emergency injections of capital that Western banks have needed. None have had the huge write-downs that were par for the course in the West. As the bubble has burst, which lenders have taken the hit? Why, the private equity and hedge fund lenders who had been so eager to finance land development. Us, in others words, rather than them. Why is that not a surprise?
When I asked Mr. Kapoor for his take on what had happened in the United States, he replied: “We recognize it as a problem of plenty. It was perpetuated by greedy bankers, whether investment bankers or commercial bankers. The greed to make money is the impression it has made here. Anytime they wanted a loan, people just dipped into their home A.T.M. It was like money was on call.”
So it was. And our regulators, unlike theirs, just stood by and let it happen. The next time we’re moving into bubble territory, perhaps we can take a page from Mr. Reddy’s book — sometimes it’s better to apply the brakes too early than too late. Or, as was the case with Mr. Greenspan, not at all.
Friday, December 19, 2008
Is this unexpected? Nope!
It's a World CuT!
BOJ Cuts Rates, Pumps Funds to Ease Credit
- The Bank of Japan cut its key policy rate to 0.10 percent on Friday and moved to pump funds into the market to ease a corporate credit crunch as the yen's sharp rise and crumbling demand batter the economy.
A dramatic rate cut by the Federal Reserve on Tuesday, which took U.S. rates below Japan's, and the yen's subsequent rise to a 13-year high against the dollar had ratcheted up government pressure for BOJ action to help an economy already in recession.
Japan's government forecast earlier on Friday that the economy would not grow in the fiscal year from April 1, although a slew of stimulus packages would keep it from contracting.
That contrasted with bleaker private sector predictions that the deepening global malaise will hit the export-driven economy hard. The government acknowledged, though, that Japan's recovery might be delayed if global conditions worsened.
"Looking at employment and companies' financial conditions, in a broad sense the economy is in a very severe state," Finance Minister Shoichi Nakagawa told a news conference.
Here is a posting which is surely worth noting!
Introducing John Hempton: the Plunderer from Down Under
December 17th, 2008 by Judd Bagley
- While an examination of the recently-unsealed products of discovery in the Fairfax Financial (NYSE:FFH) vs. SAC Capital, el al, lawsuit reveals the extensive involvement of most all the usual players — both in the world of hedge funds and business journalism — one name, mostly unknown to those outside Fairfax circles, appears quite prominently: John Hempton of Sydney, Australia.
Hempton, it appears, conceived of and initially orchestrated the entire Fairfax fiasco. At the time, he was a senior analyst at Australia’s Platinum Asset Management hedge fund. Last year he left Platinum to join Global Value Investors, though on May 15 of this year, Hempton started a blog and began calling himself semi-retired; leading me to presume that some time in early May, Hempton and GIV parted ways.
Though possibly mere coincidence, Herb Greenberg abandoned his MarketWatch gig on May 1, 2008 while Bethany McLean announced her departure from Fortune three days later. Greenberg and McLean, as it turns out, both play notable roles in the apparent Hempton-inspired conspiracy.
A reading of Hempton’s early efforts to win converts to his thesis that Fairfax was a ticking time bomb waiting to implode suggests his conclusions were based on what he viewed as sound principles; he really was convinced, and composed multiple, lengthy missives outlining his reasoning. I suspect Hempton’s mistake was then convincing some of the worst people on Wall Street, whose methods fill the pages of this blog, and whose influence probably turned his project from a speculative to a criminal enterprise, dragging Hempton down with it.
That’s not to say that any of this absolves Hempton of blame.
For one, a 2002 email sent to Rocker Partners employee Monty Montgomery makes it clear that Hempton is prominent stock message board poster Brolgaboy (and brolgaboy1 on Yahoo Finance).
I asked Hempton to comment on or clarify this email, but he refused.
That may be because he knows that, thanks to the Yahoo Dissembler Sorting Algorithm bug, it’s possible to know with certainty that in addition to brolgaboy1, Hempton is also Yahoo posters jamiewoodford1, scudzy_short, zipperdydoodah, and (my favorite) mr_byrnes_sith_lord.
Between them, these accounts have many hundreds of posts on Yahoo Finance, to say nothing of the hundreds more posted to several other boards.
Here’s where I really begin to lose patience with John Hempton.
On August 15, 2005, Hempton created and began posting taunting messages under the name mr_byrnes_sith_lord. This was three days after DeepCapture.com contributor and Overstock.com CEO Patrick Byrne announced a lawsuit against Gradient Analytics and Rocker Partners hedge fund for conspiring to get rich by destroying his company. At that time, Byrne further announced that he had evidence of a central figure — whom Byrne metaphorically compared to the shadowy “Sith Lord” of the Star Wars series — coordinating these attacks in ways nobody had previously considered possible.
Also on August 15, 2005, Hempton created the Sith Lord blog, which he further used, over the space of two months, to deride Byrne for claiming that short-selling hedge funds might operate in a coordinated way to destroy public companies.
In case you’ve missed it, the extreme irony here is that at least initially, in the case of the attack on Fairfax Financial, Hempton himself filled a version of the very role he attacked Byrne for daring to claim exists.
More than just irony, this, my friends, is a perfect example hubris as defined by the ancient Greeks: an act of extreme pride and arrogance that humiliates the victim, and ultimately the perpetrator as well.
On top of the page, do you see the following:
- Analysis of the abuse of social media — blogs, Wikipedia, message boards, etc — for the purpose of enabling illegal stock market manipulation.
Quote: for the purpose of enabling illegal stock market manipulation!.
Forget that NOT!!
Do you see this happening around us?
Thursday, December 18, 2008
Here's an interesting interview with Bruce Berkowitz published on WashingtonPost.com.
- A Bargain Hunter Stands Tall
Manuel Schiffres, Executive Editor,
Monday, December 8, 2008; 12:00 AM
As a wretched 2008 draws to a close, Bruce Berkowitz displays mixed emotions. On the one hand, Fairholme fund, which he's run since its late-1999 launch, is again beating the stock market (by eight percentage points in early November). On the other hand, the fund is on track for its worst year ever (down 28%). And yet the swoon in share prices that is responsible for Fairholme's losses also brings a smile to Berkowitz's face. The candy store is wide open, and the bargain-hunting Berkowitz, 50, feels like a kid again.
Despite the 2008 loss, Fairholme's long-term record remains solid. From its inception through November 7, the fund returned 11% annualized. During the same period, Standard & Poor's 500-stock index lost 3% a year. Fairholme, which typically owns only about 25 stocks, has trailed the index in only one calendar year.
What really stands out about Berkowitz's performance, though, is how he escaped the ignominious fate of so many other value managers over the past year. He applied strict value criteria when he assessed stocks, and he adhered to the simple (but wise) rule of not investing in anything he couldn't understand. So Berkowitz was never tempted by the likes of AIG, Bear Stearns or Lehman Brothers, no matter how cheap their stocks had seemingly become.
To learn more about how Berkowitz operates, we visited him in his Miami office, located the length of a football field from Biscayne Bay.
KIPLINGER'S: What were you doing as the markets gyrated so dramatically in the fall?
BERKOWITZ: Although the fall in stock prices hurt our performance, it has been a blessing. We've been buying companies at prices that even when I was in my most pessimistic mood, I didn't think we would see so quickly. These are 1974-type valuations, and what's fascinating is that stocks fell to these levels not because of earnings issues but because of the sheer magnitude of the forced liquidations. So this is still a bargain hunter's dream.
We are selling that which is cheap to buy that which is cheaper, in order to make more money in the future and to help manage taxes for our shareholders. And we're pairing our stock positions with senior subordinated debt.
So you're buying the bonds of companies whose stock you own?
Yes. Some of the stocks we hold are so cheap that we fear the companies will be taken over at too cheap a price. So we're buying discounted bonds that have anti-takeover triggers, meaning the price of the bonds will immediately rise to 100 cents on the dollar on a change of control. And if we like the stock, we don't mind owning bonds that are yielding 15%, 16%, 17%.
A lot of well-known value investors fell on their faces the past year or two. Why did Fairholme hold up as well as it did?
Maybe it's because I don't invest in things I can't understand. Eighteen years ago, after the financial stocks got killed, I was a big buyer of Wells Fargo, Freddie Mac and MBIA. They were simpler businesses then -- and they were cheap and understandable. You could read an annual report or a 10-K and you knew what you were getting.
Or take American International Group. If you looked at an AIG annual report six or seven years ago, you saw one paragraph on derivatives. You look at an AIG annual report today and you see 15 pages on derivatives. I don't think company insiders fully understand what's going on, let alone outsiders. So if I don't understand something, I've learned to walk away.
Do you try to anticipate which sectors will do best?
We tend to react rather than to predict. We look at companies, count the cash, and then try to kill the company.
We spend a lot of time thinking about what could go wrong with a company -- whether it's a recession, stagflation, zooming interest rates or a dirty bomb going off. We try every which way to kill our best ideas. If we can't kill it, maybe we're on to something. If you go with companies that are prepared for difficult times, especially if they're linked to managers who are engineered for difficult times, then you almost want those times because they plant the seeds of greatness.
What's the worst that could happen to Sears, one of your biggest holdings?
It gets slowly liquidated, or Eddie Lampert, its chairman, takes the company private. But I don't think he'd do that to shareholders.
We didn't buy Sears based on the business. There's too much retail in the U.S. If the retail works, then it's a grand slam home run. We invested because of the company's real estate holdings. It has some fabulous locations -- a Kmart in Bridgehampton, N.Y., and a Sears on PGA Boulevard in West Palm Beach, Fla., for instance. The real estate alone is conservatively -- and I mean conservatively -- worth $90 per share [the stock traded at $53 in mid November].
How do you find opportunities?
By ignoring the crowd, we find opportunities in stocks that people are running away from. Earlier this decade, when oil and gas prices were much lower and people were very down on the sector, we found a few companies that we thought did exceptionally well in almost all price environments. We focused on Canadian Natural Resources. It wasn't well known in the U.S., but it was run by a man named Murray Edwards, who is a human computer.
You've cut back on that position, haven't you?
Yes. When the stock approached $100 a share and people started saying oil had to go to $200 a barrel, we dramatically cut that position. But lately we're seeing some energy stocks at levels that assume oil prices of $35 a barrel, and so, in a very short period of time, we've reversed course again on energy stocks.
Are your health-insurance and drug stocks examples of your contrarian bent?
We bought Wellcare Health Plans after the FBI raided the company in October 2007 in an investigation of overbilling practices. The stock quickly went from $120 to the $20s. We took a couple of months to study it and started buying in the $30s. We saw that the company had a good reputation, its customer service was great, insurance brokers were still sending business to the company, and it was still growing.
Wellcare shares tanked November 13 after the company said it was being hurt by higher medical costs and was in default on some debt covenants. WellCare is fine. Nothing has changed. If we are wrong on the company, we do not deserve to be in business. What an opportunity!
And now you also have major positions in UnitedHealth and WellPoint.
UnitedHealth and WellPoint serve one out of every five insured. They are the insurance system of the United States, and they'll continue to be the insurance system. These companies were the darlings of the investment world not long ago. Whether their stocks are down because of forced liquidations or because of fear that the government is going to put caps on what they can charge, I don't understand the rationale for why these stocks are trading where they are. UnitedHealth will earn between $3 and $3.50 per share of free cash in 2008. That's a significant amount.
Do you pay any attention to earnings?
No. I look at free-cash-flow yield.
And free-cash-flow yield is?
The free cash a company generates divided by its market capitalization. If we can get a double-digit free-cash-flow yield, I'm interested, especially if we can't kill the company and especially in a world of 3% or 4% risk-free yields.
Why, of all health companies, did Pfizer become your top holding?
We counted the cash. Pfizer generates $17 billion a year in free cash flow -- an unbelievable amount. At the current price, the stock trades at about seven times free cash flow per share. And that's from a company with a triple-A balance sheet.
Investors are staying away from Pfizer because they think that losing patent protection on drugs like Lipitor will kill the company. They believe it's not going to find another drug like Lipitor and that free cash flow will just fall off a cliff. Most people have no idea how many patents the company has, the size of its new-drug pipeline and the other moves it's making. There's a lot more cost-cutting ahead.
Moreover, I see Pfizer becoming a merchant bank to the pharmaceutical industry. Pfizer is the perfect partner for smaller companies that may have good new drugs but need cash to fully develop those drugs, go through the FDA approval process and distribute them in the market.
Isn't the loss of patent protections a legitimate concern?
The drug companies were really stupid in the past. They essentially gave away the business in their mature products, which some people vulgarly call generics. They're not going to do that anymore. Why shouldn't Pfizer have its own generic version of Lipitor? People don't understand that a generic formula is not exactly the real McCoy. When it comes to chocolate, people don't put an unbranded piece of chocolate in their mouth. But you're okay ingesting a generic drug whose formula may differ from the real thing that you used to use? We think Pfizer can be the world's number-one provider of established-brand products.
Have you met with Pfizer's people?
After I first bought the stock. Given the availability of so much information on the Internet, I'm not so interested in meeting management today. You can get seduced too easily. I'm more interested in finding out how a person has behaved in the past. If I can listen to a few of the CEO's speeches and read the transcripts of earnings calls, that is more important than talking to him. A smart, dishonest person can fool you, especially when he's talking about his own business.
One of your big holdings is Leucadia National, which some have described as a mini Berkshire Hathaway.
Yes, I've been involved with the company and its key people for 15 years. They're very smart, very sensible, honest and decent businesspeople, and Leucadia has a better record than Berkshire. But I don't really want to talk much about them because they've asked me not to.
They just want to live normal lives. They want to be able to go into the local pizzeria just like anybody else and sit down with their friends. And when the CEO, Ian Cumming, and the president, Joseph Steinberg, retire, they'll probably give all the money to their shareholders and call it a day, and I like that.
How soon will that be?
I'd say in another ten years.
You've been trimming your stake in Berkshire.
Yes. I'm doing that because I'm taking Warren Buffett at his word. He says Berkshire has gotten so big that at best it will do two or three percentage points a year better than the S&P 500. Don't get me wrong. Two or three points better than the S&P over a long period of time is pretty good.
One of your other major holdings is St. Joe, the biggest private landowner in Florida. Will the Florida real estate depression kill St. Joe?
It was being killed by a bad CEO, who is no longer there. The new guy, Britt Greene, is good. The company owns more than 600,000 acres of land in northwest Florida. About 50% of it is within 15 miles of the Gulf Coast. It is the largest piece of good, privately owned land left in the U.S. And the first new international airport since Denver is right now being plunked in the middle of St. Joe's land in Bay County, about 41 miles from Tallahassee.
And St. Joe own everything around this airport?
Yes. The weather is great, the beaches are gorgeous, and the ecosystem is comparable to the rainforest. Every real estate guy in the world would love to own this land, but they all depend on borrowed money, and they don't have it now. Granted, the company doesn't have the free cash flow, but it's debt-free and we're buying beach land for swamp values.
We paid, on average, $32 or $33 for our shares, and I know Joe is worth more than what we paid. It has a stock-market capitalization of $2.6 billion. Over the next ten years, the state alone is going to put $2.6 billion of infrastructure into the land. Suppose you owned a plot of land on a beach and the state came up to you and said, "I'd like to build a road to your house. I'd like to give you the water system and electricity. I'd like to plant some trees, make it all nice. By the way, I'm going to plunk down a little airport right next to your house so that you can get in and out easily. And we'll also maintain the land, forever." You could consider that to be free cash flow.
What's been your biggest mistake?
Probably IDT, a telecommunication company. It was a total misjudgment of the character of management. Our biggest mistakes have always involved overestimating management.
Do you still own it?
We still own some. We spend a lot of time on mistakes and asking why we make them. It's great for the investment process. I've met IDT's CEO, Howard Jonas. I thought he did some very creative, smart things, but the investment just turned out to be a value trap .