Mistakes

Blast from the past.

Here is a past compilation of Warren Buffett's sayings done by Bud Labitan called "The Warren Buffett Business Factors" but unfortunately the link I had recorded is broken.

The Study of Mistakes

My pal Charlie has always emphasized the study of mistakes rather than successes, both in business and other aspects of life. He does so in the spirit of the man who said: “All I want to know is where I’m going to die so I’ll never go there.” You’ll immediately see why we make a good team: Charlie likes to study errors and I have generated ample material for him, particularly in our textile and insurance businesses. Irrespective of titles, Charlie and I work as partners in managing all controlled companies. We enjoy our work as managing partners. And we enjoy having you as our financial partners.

And one of the most quoted Buffett's saying:

To Win, first thing to do is not to lose. - Warren E. Buffett

Is the Study of Mistakes any different for traders? Take these famous quotes:

There is nothing like losing all you have in the world for teaching you what not to do. And when you know what not to do in order not to lose money, you begin to learn what to do in order to win. Did you get that? You begin to learn!

If a man didn't make mistakes he'd own the world in a month. But if he didn't profit by his mistakes he wouldn't own a blessed thing.

If i learned all this so slowly it was because i learned by my mistakes, and some time always elapses betweeen making a mistake and realizing it, and more time between realizing it and exactly determining it.

I was wrong; and the only thing to do when a man is wrong is to be right by ceasing to be wrong.

Losing money is the least of my troubles. A loss never bothes me after i take it. I forget it overnight. But being wrong - not taking the loss - that is what does the damage to the pocketbook and to the soul.

The recognition of our own mistakes should not benefit us any more than the study of our successes. But there is a natural tendency in all men to avoid punishment. When you associate certain mistakes with a liking, you do not hanker for a second dose, and, of course, all stock market mistakes wound you in two tender spots - your pocketbook and your vanity. But i will tell you something curious: A stock speculator sometimes make mistakes and knows that he is making them. And after he makes them; and after thinking over it cold bloodedly a long time after the pain of punishment is over he may learn how he make them, and when, and at what particular point of his trade; but not why. And he simply calls himself names and let it go at that.

Of course, if a man is both wise and lucky, he will not make the mistake twice. But he will make any of the ten thousand brothers or cousins of the original. The Mistake familiy is so large that there is always one of them around when you want to see what you can do in the fool-play line

-- Edwin Lefevre - Reminiscenes of a Stock Operator.

Or perhaps O'Neil's famous 19! (see Canslim: 19 )

I think this is the biggest thing for one to learn: Many people don’t admit even when they made a mistake(s).

When one does not admit that they have made the mistake in their stock selections, be it in investing or trading, then the mistake will just compound on itself, doesn't it?

The stubborn trader will most likely end up making the same mistake, over and over again, right?

And for the stubborn investor? Not admitting their mistake in their stock selection will turn their investment into a buy and hope.

Imagine one growing an mango tree. Once the mango bear nuthin' but sour mangoes, does it make sense to do nothing and hope the tree would one day bear sweet and juicy mangoes? Doesn't it make more sense to admit one's mistake? Perhaps it was in one's planting, care & maintenance of the tree. But what if fault simply lies in the initial mango seed?

And the classical investment teaching teaches us that investment takes time to bear fruit. But if the initial seed used was to plant our investment was poor, doesn't it make sense for us to admit the mistake? Be the man. Be the woman. Admit our mistake. And move on.

Else.... well simple. Say one is stubborn. Twenty years past. Couple of bull markets came and gone. And our end result? A miserable below average returns for a twenty year investment. How? Wait for another bull market?

So remember, one could easily make a mistake in one's stock selection. Recognising, admitting and then correcting the mistake is the only right thing to do!

Do remember this one famous teaching:

It takes a man a long time to learn all the lessons of all his mistakes!

Mems Asks For Support!!

Published on BTimes, MEMS Tech asks for investors' support

• The board of directors has explained all the circumstances of the accounting woes to the shareholders, says MEMS executive director
  
  MEMS Technology Bhd, a microelectronics maker marred by accounting issues and a patent infringement complaint, has asked for investors' support as it faces a bumpy period ahead.
  
  In a shareholder meeting in Petaling Jaya yesterday that lasted almost three hours, directors and management dealt with a vocal crowd as minority shareholders demanded explanations on the cause of the accounting woes that have come to light late last year.
  
  The episode has tainted its public image as the Securities Commission said it started investigation on the firm's possible financial irregularities, resulting in the stock losing almost 70 per cent of its value since late November last year. MEMS Tech last traded at 12 sen yesterday.
  
  Executive director Tan Yeow Teck said its board of directors has explained all the circumstances of the accounting issues to the shareholders present at the meeting.
  
  "On hindsight, we believe this whole thing may not have happened if we've talked to the auditors up front," Tan said, referring to its external auditor KPMG, which raised concerns about certain transactions relating to the firm's revenue, property, plant and equipment last year.
  
  MEMS Tech's accounts had to go through a special audit due to the irregularities.
  
  KPMG did not seek re-appointment at the company's annual general meeting yesterday.
  
  Tan also said that it has written to Bursa Malaysia, requesting for the uplift of the GN3 status on MEMS Tech.
  
  "GN3 usually classifies those companies that are financially-distressed. Our circumstances are different," he said.
  
  As it was embroiled in the accounting issues, a competitor has filed a patent infringement complaint against MEMS Tech with the International Trade Commission. MEMS Tech is defending its position and the case may drag on until next year.
  
  "We hope to put this behind and move on. I believe the shareholders are supportive," chief executive officer Kathirgamasundaram Sooriakumar said.
  
  "The management has been stretched and stressed by events of the past few months but remains committed and motivated to entrench this exciting micro-electro-mechanical systems technology in Malaysia," the company said in a press release yesterday.

Comments:

Support is such a massive word in the investing world.

Yes, it's great to see that the board is finally admitting that they could have done much better to avoid this shambolic event.

However, for the minority shareholder to pledge their support, there are couple of issues worth considering.

1. Support means total trust from the minority shareholder. There was one glaring issue that needs to be considered which was mentioned in a posting back in Feb 2008, What now for Mems Technology?

• Previously blogged on Feb 2008, The said article on Mems
  
  For the first time since accounting problems emerged at MEMS Technology Bhd, new information has surfaced indicating that the company may soon get out of the quagmire it is in.
  
  The much-awaited special audit report, which was commisioned by MEMS and done by Atarek Kamil Ibrahim & Co, has been completed and presented to MEMS' external auditors KPMG.
  
  According to MEMS' chairman and controlling shareholder Datuk Ahmad Kabeer Nagoor, the (external) auditors have some queries on the report. He says these are being discussed by MEMS' independent committee. Ahmad Kabeer declined to elaborate, saying that more details will be revealed soon.

Now what was most glaring was how Mems traded that week.

Article was published on the Edge on Feb 11th. See how the stock surged 42%?

Now consider this, the said much-awaited report and clarification on what happened in Mems accounts wasn't revealed soon as mentioned.

And by the 25th Feb morning, the stock crashed early morning by as much as 18.7% to 13 sen.

Now the biggest issue for me is this one: Changes in Sub. S-hldr's Int. (29B) - AKN EQUITY VENTURES SDN. BHD.

See the hige disposal by AKN Equity Ventures on the following dates.

Disposed 11/02/2008 1,200,000
Disposed 11/02/2008 1,700,000
Disposed 12/02/2008 1,050,000
Disposed 12/02/2008 2,000,000
Disposed 13/02/2008 100,000

Big news article on the Edge and the stock surges and in the same time, big shareholder dumps their share!

How? Is this issue not a concern?

2. How is Mems doing now? I took a look at Mems finally released quarterly earnings early this month, A Look At Mems Technology Again

• Now that Mems had finally reported its earnings and resumed its trading, I thought I take a look at Mems again.
  
  Quarterly rpt on consolidated results for the financial period ended 31/1/2008
  
  Net earnings was only 1.434 million from sales revenue of 16.464 million. Only 1.434 million. This is utterly smallish eh?
  
  Let's look at the Balance Sheet.
  
  

  
  Trade receivables now totals at 34.998 million. Reported period is at 31st January 2008. Compare to the column on left, receivables were only 22.824 million. Which means receivables increased a whopping 12.174 million. Which is extremely massive when the company's net earnings is only 1.434 million for this reported period.

  Cash and bank balances as at January 2008 shrank to 9.874 when compared to July 2007's balance of 18.995 million.

  And the below table highlights Mems' liabilities:

  
  Total loans as at 31st Jan 2008 is at 43.355 million compared to a loan total of 34.267 million in July 2007. An increase of 9.088 million in loans.
  
  How?
  
  As it is what do you see?
  
  I see its net earnings as rather extremely small with low profit margins with a rather below average set of balance sheet. Receivables and debts are increasing while cash is shrinking!

How?

Considering these two issues, would you give your support to Mems?

More On the Grand Saga

Here's an update to the The Grand Saga Issue posting.

Fellow blogger Dali, had published a great update: Grand Saga / Greed where another blogger, ST had highlighted again why the access road should not be blocked as published on http://insidesglong.blogspot.com/

This simple picture says it all.

Bull!

In the book, Bull by Maggie Mahar, she gave a brief commentary (in blue italics) on John Kenneth Galbraith's , A Short History of Financial Euphoria

pg.12.

"For practical purposes," Galbraith wrote, "the financial memory should be assumed to last, at maximum, no more than twenty years. This is normally the time it takes for the recollection of one disaster to be erased and for some variant on previous dementia to come forward to capture the financial mind. It is also the time generally required for a new generation to come on the scene, impressed, as had been its predecessors, with its own innovative genius." (pg 87 of Galbraith's book)

During the period of delirious forgetfulness, no one wishes to think that his good fortune is fortuitous or undeserved. Everyone prefers to be believe that it is the result of its own superior insight into the market.

No wonder, then, that during such periods, doubters are silenced.

Very interesting comment isn't it? When the market is good, everyone thinks they are good!

By 1999, Byron Wien, Morgan Stanley chief domestic strategist, recalled one scene when an analyst stood in his office recommending a stock that was selling at over 100 times earnings.

"How do you arrive at your valuation?" Wien asked. "Show me the parameters you'r using." The young analyst just stared at the 64-year-old market strategist.

"When you're an older person, and you'r cautious, while the market is still going up, you're perceived as out of touch," Wien later recalled. "You just think that a stock is worth $20; you say that, at $30, it's overbought; then it goes to $40. You can begin to doubt yourself."

But Wien had a corner office with its skyscraper views of Manhattan. The young man standing in the middle of the carpet did not. More important, he did not have the thick skin that comes with trying to outguess the market while working your way up to such an office at Morgan Stanley. If Wien doubted himself, he did not show it. He waited for the answer. "The stock is worth what someone will pay for it," said the analyst, stating what seemed, to him, obvious.

The moment crystallized what Wien already suspected: They're letting the tape tell them what a company is worth. No wonder, when a stock took a dive, the analysts who followed it were just as surprised as everyone else.

They're letting the tape tell them what a company is worth!!

Do you let the market price tell you what a stock is worth?
Do you let the market price tell you what is and what isn't a good stock?

As can seen by this simple story from Byron Wien, and of course as mentioned precisely by John Galbraith in his book, A Short History of Financial Euphoria , at the peaks of the markets, whether it is a bull or a bear, folks have this self-belief that they are right, in regardless of what the actual situation might be.

Think of Jan 1975, in which Richard Russell in his newsletter made his finest call, in which the crash of 1973-74 had send the market rock bottom. The Dow was now cheaper than it would be at any time for the rest of the century. Eagerly, Russell trumpeted the good news. It was time to buy stocks, he told his subscribers. (pg 7).

But what was he greeted with? Nothing but hate mail!. "I don't want to hear about stocks!". "How dare you tell us that this is the begining of a bull market".

Or how about as in Wien's example? 1999. Analysts were rating a stock more simply because they knew others were willing to pay more for it!

And as Galbraith puts it: No wonder, then, that during such periods, doubters are silenced.

Ahh... very intresting comments from Wien again, isn't it? Analysts were rating a stock more simply because they knew others were willing to pay more for it!

"Markets go down because they went up," James Grant reminded his readers in the late nineties. "Where the free enterprise system shines is in its treatment of failure," he added.

"Individuals as individuals, are always error-prone... [they] also make collective mistakes. They overinvest, then underinvest. The underinvestment portion of the cycle is dealt with constructively, with new business formations, bull markets, and initial public offerings. The overinvestment problem is dealt with the emphasis on demolition: with bankruptcies, bear markets, consolidations, and liquidations... Without miscalculation there would be no price action, no capital gains, no losses and no commissions. "

Cycles, then, drive markets: three steps forward, two back. Without the alternating rhythms of expansion and contraction, rising prices and falling prices, there would be no movement. In Grant's terms, "A boom is just capitalism's way of setting up the next bust" (James Grant, The Trouble With Prosperity , pg 250)

... The great virtue of laissez-faire capitalism, say its staunchest admirers, is that it allows a boom to run its course, and then lets the bubble collapse. With the hissing sound comes a correction: investment mistakes are repriced and unprofitable companies go bankrupt. "The errors of the up cycle must be sorted out, reorganized or auctioned off," Grant observed.

"Cyclical white elephants must be rounded up and led away." Only then can a capitalist economy resume its progress. The correction clears the way for another cycle.

Should An Investor Cut Loss?

Here's something from the past again:

As an investor, I reckon that it just does not make sense to me at all not to accept this cut loss theory.

Why should one cut loss?

Face the reality, on the average (let me stress the word 'average'), most companies in this region does not really have a true sustainable competitive advantage that allows the company to grow at a healthy pace for a long period (let me stress the term 'long period').

Hence, what we will have is companies having shorter period of fantastic wealth (ah.. how do i define shorter? 3 years? 5 years?). Sometimes this is the cyclical nature of the business or sometimes there is changes made either in the economics of that specfic industry or perhaps there is dramatic changes made in the companies management that might cause an end to a companies competitive advantage.

Simply put, we are more likely to see scenerios where good companies turning bad and also on occassion bad companies having a temporary bout of 'good' fortune.

Back to investing...

Now if and when an investor purchased shares in a listed stock, the possibility exists that the so-called persumed good business could turn bad.

Hence a simple commonsense question:

So if the company turns bad.. does it make commonsense for the investor to hang on to the share and hope the company have a change of fortune again?

Ahh.. it is always possible for that to happen but in the meantime just imagine what would happen to the share price while one is waiting for the companies fortunes to change?

Take a semi-conductor stock Malaysian Pacific Industry. (ah.. now it is much acceptable fact that chipmakers business is very much cyclical) During its peak, it earned some rm200 million (fy 2001) and a peak price of around rm57.00 in 2000. Back then, everyone was simply going goo-goo-ga-ga over chip stocks and hailing the bright investing prospects in the industry.

Now? 5 years later, current earnings is only some rm43 million. The stock price is only some rm10.00+-.

So if one had bought and HELD tigh-tight as per the Myth of Long Term Investing, then the end-result has simply been devastating. As some would call it as perhaps Value Destruction?

Hence, does it make sense to cut-loss once the companies earnings started to go bad?

And the second most important point is we are but normal buggers who are more likely to make investment mistakes.

Yes, I say it again... simple poor stock selection mistakes can be made by any of us.

And what does one do when one make a mistake?

Don't we want to rectify it?

And isn't the best way to rectify it is by stop being wrong.

And in investing, admit the mistake and accepting the mistakes made, sell and move on.

Holding on and hoping that a market bull will help us correct our investment mistakes isn't investing anymore, isn't it? Make sense or not?

So do you think that ze Cut-loss a big No-No for investors?

Obersvations On the US Consumers

Blogged previously: Will the Markets Continue to Advance?

I paid attention to Tim Wood's observations on how the normal Americans are doing.

• Another item that is contributing to the toxic American economy is rising commodity prices and the stagnate business environment that rising commodity prices have caused. Let me give you a few examples. This past week I went to my local lube and car wash. The manager and I were talking while I was waiting on my vehicle to be washed. He told me that a year ago they would do anywhere between 80 and 100 oil changes in a typical day. But with the rising fuel prices, business has dropped to an average of somewhere between 50 and 60. As for car washes, he said that they were doing upwards of 400 a day. At present, business has dropped to between 60 and 100 per day.
  
  Another friend of mine is a boat dealer and sells bay boats and pontoon boats. This time last year if you went by his store, you could hardly talk to him because he was so busy. I remember needing something and literally not being able to get to him. He told me this week that June is his peak month and it was absolutely dead at his store. He said that he counts on the summer sales to help carry him through the winter season. He is now worried about making it through the summer. There was also another local business owner present and he too is also now feeling the exact same pain.
  
  In yet another example, I needed a trailer ball so I stopped in at a truck accessory store. It was also dead there and I quizzed the owner. He too was telling me how slow it had gotten. He said that recently he had 13 employees between all of his sales and installation people. He is now down to one sale person, a secretary, one installer and himself. He said that it is now costing him to keep the doors open. He had a beautiful black 4-door F-250. He said that it cost $170 to fill it up and he had it parked in the shop and is no longer driving it.
  
  Here’s another one. I went to the local mall with my wife this week. She knows the lady that runs one of the shops in the mall. This lady is looking for a job because sales are so bad that the company is not going to renew its lease this summer and will be closing the doors.
  
  In yet another example, I was talking to a lady at the local gym. Yes, I talk with everyone trying to get a feel for things. Anyway, she was telling me that they are now seeing gym memberships declining.
  
  I also know people at one of the local giant home improvement stores. Sales are down and I am being told that they are not refilling positions in an effort to cut overhead. This slow down is not just affecting the small business owner. It is hitting everyone.

Today, I noted that CNN carried one interesting article, Making a good living, but still feeling strapped

• NEW YORK (CNNMoney.com) -- Only a few years ago, Americans who considered themselves middle class were scrimping to pay for their kids' college education.
  
  Now, many of them are struggling to cover far more basic needs - gas and groceries.
  
  Take Stacy and Chuck Burris. The Pittsburgh, Pa., couple view themselves as solidly middle class. In recent months, however, they've felt anything but.
  
  Burdened by high cost of food and fuel, they are having trouble balancing their budget even though Chuck Burris earns a "comfortable salary" as a software engineer. The parents of five children, three of whom are grown, have essentially stopped eating out and entertaining and are considering canceling the annual family vacation to Maine. They keep to a Spartan shopping list and have planted a larger garden. Instead of buying their 12-year-old daughter summer clothes, they are turning her pants into shorts by cutting off the legs and getting hand-me-downs from family.
  
  Never before in previous recessions have they had to cut back like this.
  
  "We are struggling to stay in the same place," said Stacy Burris, 47. "You don't mind pinching pennies to send your kids to college. You do mind pinching pennies when it's simply to buy some eggs."
  
  Many others nationwide are feeling similarly strapped. Recent consumer sentiment studies and polls show that Americans feel worse about their financial situations and the economy than they have in decades, even as economists debate just where things stands. And people don't expect things to improve anytime soon.
  
  "Consumers are very financially stressed, more than what's indicated by the job and income statistics," said Scott Hoyt, senior director of consumer economics at Moody's Economy.com.
  
  Personal finances worsening
  
  High fuel and food costs, coupled with miniscule raises and shrinking home values, led more people to report that their personal finances have worsened than at any time since 1982, according to a recent consumer survey by Reuters and the University of Michigan.
  
  The future looks grim to them, too. Just one in five households surveyed expect their finances to improve during the next year, the least favorable in half a century. Three-quarters of those surveyed said they expected the nation's economic troubles to continue over the next year, the highest level since 1980. They predict the unemployment rate will jump by one percentage point to 6.0% by year end.
  
  A survey from the Conference Board released Tuesday found that only 13.4% of respondents said they expect their incomes to rise in the next six months, the lowest level since the study began 41 years ago. Their inflation expectation has hit an all-time high.
  
  Consumers' perceptions matter. Their dour view is prompting many to rein in spending and avoid incurring additional debt, with the fewest people planning to buy furniture, appliances and home electronics since the early 1980s, the Michigan survey found. The percent planning to take a vacation in the next six months also hit a record low, according to another recent Conference Board report.
  
  "Consumers are the ones in trouble here," said Paul Ashworth, senior U.S. economist with consulting firm Capital Economics.
  
  Looking at government statistics, however, things don't look that dire, which is one reason why economists are dickering over whether the country is in a recession. Unemployment is at a relatively low 5% and inflation is running at a modest 3.9%. The economy expanded at an estimated 0.6% in the first quarter, weak but still in growth territory.
  
  Most experts are predicting more bad times ahead, but there's still no consensus on whether the economy is facing recession. Federal Reserve officials lowered their expectations for growth, but still kept it in positive territory, according to minutes released last week from a recent board meeting. Moreover, many economists say that if there is a recession, it will be mild and short.
  
  Consumers, on the other hand, don't feel that way. Many are being pummeled by plummeting home values, a weak stock market and soaring grocery and gas costs.
  
  Feeling the pain at all income levels
  
  Hoyt of Economy.com argues that every income strata is feeling it. The wealthy are hurting from the roiling stock market, the middle class from falling home prices and working folks from rising prices.
  
  Food prices, for instance, climbed 5.1% over the past 12 months and April's 0.9% rise was the largest in 18 years, according to the Consumer Price Index. Gas, meanwhile, hit its highest recorded price of $3.937 on Monday, up nearly 21% from a year ago and 9.7% over the past month, according to AAA.
  
  Meanwhile, Americans aren't feeling flush. Home values have plummeted more than 14% in the past year, according to the S&P Case/Shiller Home Price Index, which tracks 20 of the largest markets. That's the sharpest rate in two decades. And wages are basically stagnant, rising only 0.6% between the first quarter of 2000 and the same period this year on an inflation-adjusted basis. Wages have actually fallen behind inflation for the past seven months, according to Jared Bernstein, senior economist at the Economic Policy Institute, a liberal leaning think tank.
  
  "Folks are having considerable difficulty making their personal family budgets given their pay and prices," said Bernstein, who recently wrote Crunch: Why Do I Feel So Squeezed? "The prices they face most commonly in day-to-day life are rising faster than both inflation and their paychecks."
  
  Their investment portfolios aren't doing well, either. The Standard & Poor's 500 index is down nearly 9% over the past year. And the value of Americans' stock and mutual fund holdings fell by $186 billion in the first quarter, the first drop since 2003's bear market.
  
  All this financial stress comes at a time when most Americans have the thinnest savings cushion to fall back on. They have been loading up on debt in recent years, drawing on the equity in their homes, in particular. The percentage of their disposable income that goes toward debt payments is at 14.3%, near the all-time high.
  
  "Consumers need to get their financial house in order," Hoyt said.
  
  Uncertainty hard to deal with
  
  Weighing even more heavily on consumers is uncertainty about where the economy is headed, said Ken Goldstein, economist with The Conference Board. It's unusual to have such slow growth for so many months and Americans don't know how to respond.
  
  "What's really pushing consumers into a funk is the fear of what's coming next," Goldstein said. "You can't be sure you know exactly where we are or where we're going. Consumers are afraid that the light at the end of the tunnel is an oncoming train."
  
  That's exactly how Chris Ackerman feels. He said that he and his wife, who live just outside Seattle, find that their paychecks no longer cover their rent, student loans and daily living expenses. That is forcing the young couple to turn to their credit cards to make ends meet.
  
  They've already cut out much of their entertainment and trips to visit her family and friends 30 miles away. If gas and grocery prices continue to rise, Ackerman, who works for an importer, said he'll have to stop contributing to his 401(k) plan. He doesn't see many other options.
  
  "The worst part is looking to the future," said Ackerman, 25. "What if everything keeps getting worse. That's the scariest part. Is my grocery bill going to double again? What will we do?

Blast From The Past: Accepting Mistakes!

Got plenty of interesting comments on the posting, Is Paper Loss Not A Loss?

I thought i dig up an old posting of mine.

Enjoy!

~~~~~~~~

Anyone like William O'Neil's book, How To Make Money In Stocks ?

I am sure you will be puzzled how come an 'investor' like me would want to read such a book.

Well, a book is a book is a book. And there are some interesting stuff an investor can pick-up and learn from the book. (die lah... do i sound like a book salesman oredia???.. :P)

Anyway... here is a snippet from Chapter 9.

Bernard Baruch's Secret Market Method of making Millions

If a speculator is correct half of the time, he is hitting a good average. Even being right 3 or 4 times out of 10 should yield a person if he has the sense to cut his losses quickly on the ventures he has being wrong.

As you can see, even the most successful investors make mistakes. These poor decisions will lead to losses, some of which can become quite awful if you're not disciplined and careful. No matter how smart you are, how high your IQ, or education, how good your information, or how sound your analysis, you're simply just not going to be right all the time....

You positively must understand and accept the rule number one for the highly successful individual investor is.... always cut short and limit every loss.

To do this takes discipline and courage.

The whole secret to winning big in the stock market is not to be right all time but lose the least amount possible when you're wrong. You've got to recognize when you may be wrong and sell without hesitation to cut short every one of your losses.

How can you tell when you may be wrong? That's easy. The price of the stock will drop below the price you paid for it! each point your favourite brainchild falls below your cost increases both the chance you're wrong as well as the price your're gonna pay for being wrong.

Ahhh.... I like the second and third paragph (highlighted in red) ..

Some investors can NOT accept the fact that perhaps they could have made a poor investment decision in the first place.

And when the investment turns bad and the financial datas giving us the clear and distinct signs that we are ABSOLUTELY WRONG in our reasoning...

What is the right thing for one to do?

Dont' we want to stop from being wrong?

Or do we want to continue to be wrong and hope that the market will one day correct us from being wrong? (Isn't this simply playing the loser game?)

So what is the right thing to do?

Acknowledge and recognize our mistake by ze CUT-LOSS.

Accept the fact that perhaps it wasn't investing or the buy & hold thingy that went wrong BUT it was our poor initial judgement that was wrong!

Our stock selection was simply flawed.

And we achieve this by SELLING the stock immediately!!

Do not wait for the market to help us correct our mistake.

When we are wrong, we have to accept this fact.

Acknowledge it and deal with it.

Do not turn the buy & hold into a buy & hope.

On the other hand, this other part...

how can you tell when you may be wrong? That's easy. The price of the stock will drop below the price you paid for it! each point your favourite brainchild falls below your cost increases both the chance you're wrong as well as the price your're gonna pay for being wrong.

Ahhh.... i do reckon that this is the most complex part of investing.

Sometimes the stock market simply does not agree with our investment decision!!

What do we do?

Are we right or is the market right?

This is where winners and losers are made in investing. Those who are precisely sure that their reasoning is correct, should not be afraid that the market does not agree with them. Instead, they should view this as an opportunity. An opportunity to invest more of the good quality stuff at the cheaper price. Same quality item but only cheaper.

But... butt.... buttt......

Where and what and how could such investor go wrong?

Well... determining whether if they are right or if they are wrong!

If right then the investor will surely reap their success!

But... if they are wrong.... such strategy is extremely dangerous for what they have only DOUBLED DOWN on their mistake.

Does this make commonsense? or issit simply silly billy to do such stuff?

Again...... i have to mention again..... this is Ze hardest part of investing.... cos when stock prices go down... sometimes.... investors start thinking with their heart and not their brains.... and when they fail to recognise their fault in their stock selection process, they are only DIGGING a deeper hole for themselves.

Tiok boh?


*
ps...
my buddy Liam or some call him LMF... recommended Chapter 8 wor... err... me too!... good stuff lah! ... but... i dun think it is too nice if i reproduce wholesale of what's written in that book.

More Typical Poor Financial Reporting Again!

Published on the 26th May 2008: Kencana close to getting RM500m contract

• 26-05-2008: Kencana close to getting RM500m contract
  by Jose Barrock
  
  KUALA LUMPUR: Kencana Petroleum Bhd is said to be close to sealing a RM500 million contract for the fabrication of multiple well-head platforms from Shell Oil and Gas (Malaysia) LLC and Sarawak Shell Bhd, industry sources said.
  
  The platforms are to be used for the F-28 and Cili Padi petroleum and gas field developments, offshore Bintulu in Sarawak.
  
  Exploration of the Cili Padi field is being conducted by Shell Oil and Gas (Malaysia), a joint venture between Shell, state-controlled oil major Petroliam Nasional Bhd (Petronas) and Nippon Oil Corp. It is located about 153km off the shore of Bintulu.
  
  The F-28 field, operated by a joint venture between Sarawak Shell Bhd and Petronas’ unit Petronas Carigali Sdn Bhd, is located about 180km northwest of Bintulu.
  
  It is believed that a letter of intent (LOI) was given to Kencana in relation to this project last month. CIMB Investment Bank had, in a research report late last month, stated that the LOI had been given for the project.
  
  Assuming the LOI for the well-head platforms contract is converted into a Letter of Award, Kencana’s fabrication order book could be nudged up to the RM1.6 billion mark.

The classic nonsense of it is believed and according to sources yet again!

Come on, who are these sources man????

And given the history of poor reporting from this very same reporter, it was NOT a surprise for me to read that Kencana denies winning Shell contract this morning.

• KENCANA Petroleum Bhd, a Malaysian oil and gas services provider, denied a report in a local newspaper it won a RM500 million(US$154 million) contract from Shell Oil & Gas Malaysia LLC and Sarawak Shell Bhd.“Neither the company nor any of its subsidiaries has received any letter of intent,” Kencana said in a statement to the stock exchange yesterday. - Bloomberg

Now I just wonder why no action is taken against this reporter for all his continued 'according to sources' articles?

And doesn't it really renders our financial news useless when companies, such as Kencana here, denies what's written by the said reporter?

Sigh!

Tong Herr's Earnings

Tong Herr reported its earnings last nite.

It wasn't impressive at all.

Net earnings of 4.444 million versus 18.942 million ago is rather very, very poor.

And this is what the company said.

• The Group recorded revenue of RM99.64 million and profit before income tax of RM6.22 million in this reporting quarter compared to RM97.70 million and RM8.1 million respectively, as recorded in the preceding quarter.
  
  The higher revenue and lower profit before income tax for this quarter are due to higher demand for the product and higher cost of raw materials purchased in the preceding quarters.

Now BusinessTimes posted an article on Tong Herr, Tong Herr to invest RM70m on production

• TONG Herr Resources Bhd will spend RM70 million this year to boost its capacity in Malaysia and Thailand on strong demand for steel fasteners.
  
  The Penang-based company will triple the production of nuts, bolts, screws and other threaded items at its Perai Free Trade Zone facility on mainland Penang by September, its chairman Tsai Ching-Tung said yesterday.
  
  "We have earmarked RM45 million for machinery and the construction of a facility adjoining our existing one," he told reporters after the company's annual shareholders' meeting.
  
  Tsai said Tong Herr will also invest RM25 million to expand its 7,000 sq ft Thai factory located at the Amata Nakorn Industrial Estate in Chonburi, adding that rising steel prices had very little impact on Tong Herr's bottom lines.
  
  For its 2007 financial year ending December 31, Tong Herr recorded its highest ever revenue of RM487.67 million while net profit jumped 31 per cent to RM73.22 million.

Two issues for me.

Firstly, the decision to want to invest rm25 million in expanding their Thailand factory.

Look at the following screen shot of Tong Herr's notes on its segmental reporting.

Its Thailand operations only contributed a net profit of 636 thousand for the current quarter. And the boss wants to spend another 25 million???????

Last year, it was reported that this Thailand plant had already cost 20 million.

And Tong Herr wants to add another 25 million??????

That's 45 million!!!!!!!!!!!!!!!!

For a plant that only contributes 636 thousand in net earnings!

Holy cow!!!!!!!!!!!!!

What kind of Return Of Investment are we talking about here?????????

Blows my mind away man!

And then we have the statement from Mr.Tsai that "adding that rising steel prices had very little impact on Tong Herr's bottom lines."

I am so utterly confused here.

Now steel is the main raw material for Tong Herr, right?

And you have the company stating the following:

• The higher revenue and lower profit before income tax for this quarter are due to higher demand for the product and higher cost of raw materials purchased in the preceding quarters.

The higher cost of raw materials has resulted in the company net earnings plunging to 4.444 million compared to 18.942 million the same period a year ago.

However, Mr.Tsai says "rising steel prices had very little impact on Tong Herr's bottom lines".

Huh????????????????????????????

Do Not Cheat Yourself!

Here's an old posting which I had made a couple of years ago.


...... if i bring up this delightful investment piece from the book, Sun Tzu on Investing.

There’s an old Chinese story about an Emperor and his pet dog.

The Emperor awoke one day when he heard a loud noise. From his bedroom window he could see a large ox-drawn cart had run into a wooden flagpole used to raise the Emperor’s family crest high above the castle. The flagpole was ever so slightly tilted, but the damage appeared minimal and no repair work was initiated. Later that day, the Emperor was walking his dog past the flagpole and the dog stopped to, well, to do what dog’s do to flagpoles. Suddenly, with a loud snap the pole crashed down onto the poor dog before he could even lower his raised hind leg, killing him instantly.

What the Emperor and his attendants couldn’t see was damage hidden below the surface. The flagpole had leaned ever so slightly, but it was enough to cause a critical break in the structure just below ground level. Obviously, the dog got the raw end of this whole deal. But let us pose a simple question: If you were trying to assess blame for unnecessary risks in this situation, where would you place it?

You could blame the workers employed by the Emperor to erect a flagpole for choosing a pole with a weak spot and concealing it below the ground. Or you could blame the Emperor, although it may cost you your life, for his vanity in demanding such a tall flagpole to fly his family crest above the castle. Maybe the fault was with the deliveryman who carelessly backed his ox cart into the pole causing the imminent damage. We could also blame the dog for marking too wide a territory! The story illustrates how difficult it can be to assess where risk originates. To the dog it mattered not how or why it happened, or even to who the blame should be assessed--just the fact that it happened.

When it comes to equity investing, you are the dog. If there are risks being taken by companies you hold, you are the one who will suffer the most direct damage. That’s the cold, hard truth. The thing is, those who are taking the risks may not recognize them as such, or may be purposefully concealing them from you. All the more reason for you to be extremely careful in selecting the companies you choose to invest in, and the integrity of the managers.

Enron Corp, a leading Houston, Texas-based global energy giant employing over 6,000 people was dramatically exposed during 2002 as its executives and its professional consultants had been going to great lengths to hide some of the risks that the company was assuming from its shareholders. But even without their efforts to cover their trail of secret off-balance-sheet high-risk investments, one would guess that 99% of the people who bought Enron stock never attempted to sort through Enron’s financial footnotes searching for risks. Had they done so, they would probably not have identified the key risks, as even some of the smartest accounting minds in the world have disclosed that Enron had been a black box--i.e. a complete mystery to them. But the point is that millions of intelligent shareholders (including a good number of global professional fund managers) accepted the blue-chip status of this massive business without performing any due diligence tests, they accepted broker advice and analyst buy recommendations, when the sad reality was (despite audited financial reports to the contrary) that the company was literally on the verge of financial collapse.

We are never going to have all of the information necessary to assess all the risks inherent in equity investments. Despite moves to improve corporate transparency, companies are under no obligation to reveal their internal operations to outside investors. To do so would require making some sensitive information public when good business acumen dictates keeping it as a secret to preserve competitive advantages. However, we are each obligated to at least consider potential risks and ask the right questions. If not, like the Emperor’s dog, we are sure to eventually be crushed under the weight of our own ignorance.

Investing is all about risk. The more risk you take, the higher your potential returns. And this is all correct, except for the fact that it is exactly wrong. Investing is all about perceived risk. Where you as an investor have an advantage is only in situations where you can correctly assess that the market has overestimated (or underestimated) future risks or returns. That requires foreknowledge. Remember Sun Tzu’s words, Foreknowledge cannot be gotten from ghosts and spirits, cannot be had by analogy, cannot be found out by calculation. It must be obtained from people, people who know the conditions of the enemy.

Foreknowledge only comes from asking the right questions of the right people. Occasionally, we all miss a key piece of information and suffer an unexpected loss on an investment. These situations can be minimized by investors who refuse to accept broker and analyst opinions at face value, insist on asking their own questions of management, analyze a company’s financial footnotes on their own, and purposefully list every possible downside risk involved in a business--even a business they have already invested in and consider a favorite holding. The most difficult risk to assess is the risk of a negative unexpected event affecting one of your favorite stocks, the very stock you have been buying and recommending to all your friends.

A truly excellent piece.

What is most interesting about the write-up is the very last statement.

The most difficult risk to assess is the risk of a negative unexpected event affecting one of your favorite stocks, the very stock you have been buying and recommending to all your friends.

How?

Your Favorite stock, the very one that you have been banking on, the one that you recommend to all your friends, has a serious flaw stemming from a negative unexpected event.

How?

What are you going do about it?

Are you going to accept that your investment is very likely to go bad, accept the defeat and move on?

Or are you going to continue digging in the hole that you found yourself in?

Or maybe you might tell me that a Paper Loss Is Not A Loss?

Or are you telling me that you are going to adopt a Buy And Old strategy?

Never heard of this strategy before?

This is where you buy a stock which only you think it's good (but apparently the market doesn't think so) and you hold on to the stock till you get older and older waiting for any sort of positive return of investment!

Why is holding long term bad?

In a much older posting, I posted Is Ze Market for Suckers? Think of the following scenario.

• You can have as long a term horizon as you want, but like most other long term plans we have, most peoples lives dont match up to their “horizons”... And boy oh boy, if life hits you hard when the market is down, you make a withdrawl and you wont ever catch up.

Is that scenario not possible?

You can hold on to your investment for as long you want and deny that the paper loss is not a loss and you can hope that one day you might recover your paper losses but as they say, life is never fair and one might day, you might just need to sell. And when that happens, is the paper loss real or not?

So let me ask, are you cutting your loss or are you cutting your profit?

More On Warren Buffett's Views on Recession

The question was rather straightforward.

Asked by Germany's weekly magazine, Der Spiegel, if US could still avoid a recession:

• "I believe that we are already in a recession. Perhaps not in the sense as defined by economists. But people are already feeling the effects of a recession. It will be deeper and longer than what many think."

And this is creating massive headlines.

US already in recession, says world's richest man Buffett

• Buffett, the 77-year-old chief of the Berkshire Hathaway holding company, blamed financial institutions for introducing instruments "they can no longer control" and said the "genie can no longer be put back in the bottle."

Some headlines are even more drastic, Buffett Calls For Colossal Recession

And the following article was posted on CNBC, Banks Are to Blame For Subprime Debt Crisis

• The banks exposed themselves too much, they took on too much risk .... It's their fault. There's no need to blame anyone else," he said.
  
  Buffett, dubbed the world's richest person by Forbes magazine, said he believed the situation in financial markets would not deteriorate further.
  
  "I don't think the situation will get worse in financial markets. General conditions in the business world will get worse, but it will only last a while," he said, adding he had no idea when an upturn would come.
  
  Buffett gave the interview on a recent visit to Madrid, as part of a European tour including Switzerland, Germany, Italy and Spain on the look out for new investments.
  
  He said the idea of the trip was to increase awareness amongst European businesses of his holding company Berkshire Hathaway , which holds stakes in businesses ranging from American Express American Express to Coca-Cola.
  He said he wanted business owners to think of him when they were looking to sell.
  
  "We want to buy big companies that earn at least 50 million euros ($78.6 million) before taxes, and there's more of those in Europe than in other parts of the world," he said.
  
  He would not be drawn on what companies in particular he was looking at, other than saying he was not interested in distressed businesses.
  
  The day before, Buffett was quoted in the German magazine Der Spiegel as saying the US is already in a recession and that it will be longer as well as deeper than many people expect.
  
  He said the United States was "already in recession" and added: "Perhaps not in the sense that economists would define it" with two consecutive quarters of negative growth.
  
  "But the people are already feeling the effects," said Buffett, the world's richest man. "It will be deeper and last longer than many think."
  
  But he said that won't stop him from investing in selected companies and said he remained interested in well-managed German family-owned companies.
  
  "If the world were falling apart I'd still invest in companies," he said.
  
  Buffett also renewed his criticism of derivatives trading.
  
  "It's not right that hundreds of thousands of jobs are being eliminated, that entire industrial sectors in the real economy are being wiped out by financial bets even though the sectors are actually in good health."
  
  Buffett complained about the lack of effective controls.
  
  "That's the problem," he said. "You can't steer it, you can't regulate it anymore. You can't get the genie back in the bottle."

Well, this isn't hardly any breaking news for Buffett had already stated his recessionary reasonings. ( See Is iCapital Views Consistent? Is Warren Buffett a Lousy Ecomist? )

In this year's Berkshire Annual Meeting, Warren Buffett had already fielded questions on this issue. ( see previous posting here! )

• Q3: Sam from Fort Lee. Recession, stock market up in April. What next?
  
  WB: I could expand on that question, but I couldn’t answer it. Charlie and I haven’t the faintest idea where it goes next week, next month or next year. We are not in that business. It isn’t our game. We see 1,000s of companies priced every day. We ignore 99% of what we see. Every now and then, we find an attractive price for a business. When we buy it, we would be happy if market was closed for a few years. Wouldn’t get a price quote daily on a farm. We look at expected yield, cost of taxes. If you buy a farm, you would look at cost of fertilizers, what a farm produces relative to purchase price, price per acre, production per acre, etc.. We make judgments.

And the following article was published in early May, Buffett Says US in Recession, Banks to Face Pain

Oil & Commoditities: Speculation or Case of Supply/Demand?

Blogger Seng posted the following comments on the following posting: More Update on Timber Sector

• Actually, it's interesting to compare timber with oil, as prompted by raymond above.
  
  1. It's true timber takes 20-30 years to grow new and replace. But what about oil? 2 billion years to grow and replace? :-) I would say oil is a lot harder to replace than timber, once consumed.
  
  2. Yes, higher timber prices benefit direct producers more since their profit margins are geared. But I wouldn't write off the Oil & Gas players off so quickly, particularly those that are involved in E&P. Since one is comparing long term, imagine a world when more and more oil is consumed. Already, global consumption outstrips supply ("peak oil"). If exploration activities stops, how long will existing stocks & reserves lasts? What will happen to this world when globally, there is insufficient oil? I shudder to think of it, because it is almost certain we will see ridiculously higher levels that will make $120 looks very cheap in comparison. If there is a global shortage, countries will certainly go to war to control oil for their own consumption. The world then may look more like Mad Max than what we know today. So, it's clear that Exploration activities can never stop. The world cannot afford such a scenario to eventuate. It must pursue alternative energy sources as well, but that has its own political problems. I think Raymond may be underestimating the potential impact of global oil shortage on the Oil and Gas industry.
  
  3. On the other hand, if there is timber shortage, somehow, I don't think countries will bother going to war for it. Alternative building materials already exist in abundance.
  
  Of course, this is extremely long term view, and I personally don't invest based on such super-long term considerations. (Some might disagree with me and argue that this might happen sooner and within my lifetime).

Following this, Seng highlighted the link to Michael Masters's testimony on the the driving factor behind the surge in commodity prices before US Senate Committee on Homeland Security, http://hsgac.senate.gov/public/_files/052008Masters.pdf

Now this article has generated lots of comments. One was written by one of SeekingAlpha contributing writer, Philip Davies, Commodities Prices: Speculation Exposed

• The most exciting thing that happened Tuesday was the testimony of Michael Masters to the Senate Committee on Homeland Security (who have sweeping powers) as he spilled the beans and gave the Senate a very detailed inside view of exactly how speculators are the primary cause of high commodity prices.
  
  Don't look for any commentary on this in the WSJ or most media outlets, you would think this entire investigation isn't going on as you watch CNBC wearing their Oil $130 party hats this evening!
  
  What we are experiencing is a demand shock coming from a new category of participant in the commodities futures markets: Institutional Investors. Specifically, these are Corporate and Government Pension Funds, Sovereign Wealth Funds, University Endowments and other Institutional Investors. Collectively, these investors now account on average for a larger share of outstanding commodities futures contracts than any other market participant.
  
  With very bold categories in his presentation like "Index Speculator Demand is Driving Prices Higher" Masters lays out a simple and compelling case that illustrates how over $250Bn of speculative money has poured into the commodities markets since 2003, driving the average cost of commodities indexed up 183% WITHOUT ANY SIGNIFICANT INCREASE IN ACTUAL DEMAND.
  
  It's not just oil, there is a chart on page 4 of his presentation that shows how on Jan 1st 2003 sugar futures stockpiled totaled 2.3Bn pounds. On March 12th of this year, speculators had stockpiled 48Bn pounds of sugar. Soybean oil went from 163M pounds to 4.5Bn pounds, corn from 242M bushels to 2.4Bn bushels, coffee from 195M pounds to 2.4Bn pounds. wheat from 166M bushels to 1.1Bn bushels. Even cattle and hogs have had 10-fold increases in speculation. This is your "demand," 10 month supplies of commodities removed from the markets over 5 years and held by speculators who point to the "demand" as evidence of a tight supply - A TOTAL CROCK!
  
  Speculators "consumed" as much additional oil as China in the past 5 years (848M barrels) while gasoline stockpiles have risen from 1.1Bn gallons to 3.5Bn gallons and natural gas stored by speculators has gone up from 331M BTUs to an insane 2.3 Billion BTUs. Aluminum - 10x, Nickel - 5x, Zinc - 10x, Copper - 7x, Gold - 10x, Silver - 15x — Madness!

And of course, my favourite newsletter from John Mauldin has written a piece too, Whither the Price of Oil? (subscription required.)

• Those Nasty Index Speculators
  
  Are institutional investors in the form of large commodity index funds the reason behind the current rise not just in oil prices but in the prices of seemingly all commodities? Michael Masters, a long-short hedge fund manager, in testimony before the Congressional Committee on Homeland Security and Governmental Affairs, said:
  
  "You have asked the question 'Are Institutional Investors contributing to food and energy price inflation?' And my unequivocal answer is 'YES.' In this testimony I will explain that Institutional Investors are one of, if not the primary, factors affecting commodities prices today. Clearly, there are many factors that contribute to price determination in the commodities markets; I am here to expose a fast-growing yet virtually unnoticed factor, and one that presents a problem that can be expediently corrected through legislative policy action."
  
  You can read the entire testimony at http://www.mcadforums.com/forums/files/michael_masters_written_testimony.pdf, but let's hear the basics of his argument:
  
  "What we are experiencing is a demand shock coming from a new category of participant in the commodities futures markets: Institutional Investors. Specifically, these are Corporate and Government Pension Funds, Sovereign Wealth Funds, University Endowments and other Institutional Investors. Collectively, these investors now account on average for a larger share of outstanding commodities futures contracts than any other market participant.
  
  "These parties, who I call Index Speculators, allocate a portion of their portfolios to "investments" in the commodities futures market, and behave very differently from the traditional speculators that have always existed in this marketplace. I refer to them as "Index" Speculators because of their investing strategy: they distribute their allocation of dollars across the 25 key commodities futures according to the popular indices - the Standard & Poors - Goldman Sachs Commodity Index and the Dow Jones - AIG Commodity Index."
  
  These index funds are composed of a number of commodities. While oil is the biggest component of the various funds, they also have exposure to grains, base metals, precious metals, and livestock. When you buy one of these funds you are buying a basket of commodities.
  
  Why would an investor want exposure to a long-only index of commodities? Perhaps for portfolio diversification, as commodities are uncorrelated with the rest of the portfolio, or as a way to play the growing demand for commodities of all sorts from emerging markets, as a hedge against inflation, and so on. Mainline investment consultants began to suggest a few years ago to their clients that they get into the commodity market on a buy and hold basis, just like they do with stocks and bonds.
  
  And they have done so in a very large way. As the chart below shows, at the end of 2003 there was $13 billion in commodity index funds. By March of this year, that amount had grown 20 times, to $260 billion. Masters also shows that this corresponds with the stratospheric rise in commodity prices. In many commodity futures markets, index speculators are now the single largest participant.
  
  
  
  Is Correlation Causation?
  
  There is no doubt that the rise in the investment in commodity indexes and the rise in prices correlate significantly. But does correlation necessarily mean that there is a direct cause and effect? Masters says it does. (Later we will look at arguments against this view.)
  
  As an illustration, he shows that the rise in demand for oil from China in the past five years has been 920 million barrels of oil per year. But index demand (the word Masters uses) for oil has risen by 848 million barrels, almost as much as another China.
  
  And Masters gives us facts that are interesting. There is enough wheat in the index speculator "stockpiles" in the US to feed every many, woman, and child all the bread, pasta, and baked goods they can eat for the next two years - about 1.3 billion bushels. Yet wheat has soared in price.
  
  As the prices of the indexes have risen, the demand for the indexes has grown. And these indexes are not price sensitive. If a billion dollars is invested in a given week, the index funds simply buy whatever allocation of futures contracts is needed to make up their index, at whatever price is offered.
  
  For the first 52 trading days of the year, demand for commodity index funds grew by more than $55 billion, or more than $1 billion a day. And as Masters points out, "There is a crucial distinction between Traditional Speculators and Index Speculators: Traditional Speculators provide liquidity by both buying and selling futures. Index Speculators buy futures and then roll their positions by buying calendar spreads. They never sell. Therefore, they consume liquidity and provide zero benefit to the futures markets.
  
  "Index Speculators' trading strategies amount to virtual hoarding via the commodities futures markets. Institutional Investors are buying up essential items that exist in limited quantities for the sole purpose of reaping speculative profits."
  
  And now we get inflammatory:
  
  "Think about it this way: If Wall Street concocted a scheme whereby investors bought large amounts of pharmaceutical drugs and medical devices in order to profit from the resulting increase in prices, making these essential items unaffordable to sick and dying people, society would be justly outraged."
  
  What about position limits? Aren't there real limits to the amount of a physical commodity that a fund or speculator can accumulate? Masters points out that there is, but the CFTC has given investment banks a loophole, in that they can sell unlimited size positions in the OTC swap markets if they hedge the positions.
  
  So, a hedge fund could buy $500 million worth of wheat, which would be way beyond the actual market position limit, through a swap with a Wall Street bank, without having to worry about position limits. And there is no doubt that large purchases of any commodity will drive up prices, at least in the short term.
  
  What does Masters think Congress should do? Prohibit pension funds from commodity index buying, close the swaps loophole on speculative positions, and make the CFTC (Commodity Futures Trading Commission) provide more transparency as to who is buying commodities. That would stop those nasty index speculators from driving up food and energy prices. Prices would come back down and we could all go back to driving our SUVs without having to worry about the cost.
  
  Well, then, maybe not. It is not that simple. While there is no doubt that excess demand in the form of index buying can have a very real effect -on prices, it is not the whole story.
  
  What an index funds does is buy a futures contract for a given commodity when money is first invested. Say that contract is six months out. When the contract is one month from expiration or delivery, the index fund sells that contract and buys another contract six months out. They sell before the contract could have an effect on the cash price of the physical commodity. The cash price is determined by supply and demand.
  
  Let's look at supply. Masters mentioned wheat. Yes, the index speculators have built up a large futures position. But that is not the same as a large physical position. With demand soaring abroad and droughts crimping supply, the world's wheat stockpiles have fallen to their lowest level in 30 years, and stocks in the United States have dropped to levels unseen since 1948. That could go a long way to explaining rising wheat prices.
  
  Corn? The USDA is expected to report corn stocks for the year ending Aug. 31, 2009, to fall to 685 million bushels, according to analysts surveyed by Thomson Reuters, down 47% from 1.283 billion bushels in 2008. The corn crop season ends on Aug. 31. (They expect wheat and soybean stocks to rise, for which we can be thankful.)
  
  Bob Greer, executive vice president at PIMCO, rebuts Masters arguments in a very cogent paper recently sent to me. He argues that index funds do not affect the price but may contribute to volatility.
  
  "Some market observers have tried to tie the level of inventories to index investment, most notably in crude oil. Their arguments take one of two forms:
  
  "1) The indexer's act of selling the nearby and buying the distant contract forces the futures curve to be upward sloping (future price is higher than nearby price). This creates an incentive to own inventories and earn the "return to storage" represented by the slope of the futures curve. The act of increasing inventory keeps the commodity off the market, thus decreasing supply.
  
  "2) A variation of the above argument is that the short seller, who takes the other side of the indexer's purchase, needs to protect their position by buying and holding the physical commodity.
  
  "It would be nice if either of these arguments were true, in which case, the developed world would not be hostage to the Organization of the Petroleum Exporting Countries (OPEC). Any time we needed to increase crude inventories, we need merely to bring in more indexers, and the inventory would appear. In fact, the explanation for inventory levels of any commodity is much simpler. If, in the cash markets, production exceeds demand, inventories will rise. Otherwise they will fall. That is why, in six of the last eight years, global wheat inventories fell, regardless of index investment (USDA). That is why from 2006 to 2008, crude oil inventories declined and the crude oil curve went from upward sloping to downward sloping, in spite of increasing index investment (EIA). Furthermore, the second argument above breaks down when applied to non-storable commodities such as live cattle."
  
  Further, Greer shows a chart from Deutsche Bank which highlights the fact that many commodities which are not in the index fund portfolios have risen higher than exchange-traded commodities (rice, for instance). Look at the chart below:
  
  
  
  Greer concludes with these important paragraphs:
  
  "Regarding intrinsic value, commodity futures prices converge to cash prices, and cash prices are set by the level of demand to consume physical goods such as steak, gasoline, and Wheaties. The price setting mechanism is not based on possibly erroneous assessment of a financial statement, nor on irrational exuberance. In commodities there is an outside measure of intrinsic value--the cash market--that is not dominant in equity, real estate, or tulip bulb markets. As actual commodity prices go higher or lower, they reflect consumption requirements for actual products, many of which are not very storable.
  
  "This is a sharp contrast from internet stocks or vacation condos, which are subject to speculative bubbles. Unfortunately, our conventional wisdom regarding factors that create bubbles is rooted in asset classes like stocks and real estate, asset classes that have fundamentally different characteristics than physical and futures markets.
  
  "Coincidence is not the same thing as causality. It is a coincidence that commodity index investment has increased in the last few years just as commodity prices have increased. If there is any causality, it is the other way around. Rising commodity prices have caused an increased interest in commodity investment. And it is certainly causality that fundamental supply, demand and inventory factors have driven commodity prices in many markets higher, whether or not those are markets in which index investors participate. This is the same causality that has driven commodity prices both higher and lower for many decades."
  
  Where Will Oil Prices Go?
  
  So, let's look at the fundamentals for oil. While a large part of this week's rise in oil was short covering (you can tell that from open positions), the supply of oil was down 7% from last year, even with demand beginning to fall. But there is an interesting footnote to that statistic, which we will visit later. Look at the chart below from http://www.economy.com/:
  
  
  
  Notice that supplies turned down sharply this last month, while the momentum of falling supply had been dropping since January. That is to say, the change in crude oil stocks was a negative 10% in January and was a little over -4% a month ago, falling to -7% today. But this is in the face of demand slowing. Today we learned that gasoline usage was down 4.2%, as prices are finally changing American driving behavior.
  
  Jakab Spencer noted in his always interesting Dow Jones column that there is a disconnect between the New York Stock Exchange and the New York Mercantile Exchange, just one mile apart. The NYSE is pricing in $75 oil in oil stocks, while the futures market is surging over $135, and there are calls for near-term $150-a-barrel oil. The stock market is telling us that oil, at least in futures terms, is in a bubble.
  
  And frankly, if you listened to their testimony, and more importantly pay attention to their actions, oil company executives simply do not believe that the price of oil is going to be $135 a barrel for the next few years. If they did, they would be punching more holes in the ground in places where it might be expensive to get the oil to market - but at $135 a barrel it would be profitable.
  
  And then there is an odd circumstance in the oil picture that I think may suggest that we could see a break, and perhaps a violent one, in the near term for the price of oil.
  
  Where Are All the Tankers?
  
  For a few weeks now, observers have noticed that Iran is leasing tankers and storing oil in them. At about $140,000 a week or so, that is expensive storage. At first, conspiracy theorists were wondering if they were preparing for some kind of war or attack. But more conventionally, it may be they are having problems selling their oil. Their oil is not very high-quality, and there are only a few places that can take it and refine it. India, China, and the US are among the countries with refineries that can take Iranian oil. (And yes, George Friedman of Stratfor tells me some of it does end up in the US from time to time.)
  
  India's refiners are telling Iran they no longer want their oil, preferring the higher-quality oil that is readily available in the area. So Iran has to decide whether to send it to China or "repackage" it so that it can end up in the US, while they try to get refiners in India to change their minds. Thus, they are leasing tankers to store the oil they are pumping.
  
  I called George about six this evening and asked him about the Iranian situation, as that is a lot of oil that could come on the market at some point, as well as a possible reason that oil supplies are down. George has analysts on top of this situation.
  
  He told me, "John, it's more interesting than that. It is not just Iran. Today we started checking on how many tankers Iran had, and soon discovered that there is a serious tanker shortage. Lease prices have soared in the past few weeks. It is clear there are a lot of speculators betting that oil is going to rise to $150 or so and are willing to pay very high prices for keeping the oil on the seas waiting for higher prices. It is a speculative boom."
  
  He then told me about flying into New York in the early '80s. Outside the harbor were 30 or so tankers just sitting, waiting for prices to continue to increase as they had been doing for some time. When they did not, they all tried to get into the harbor at the same time, and of course they couldn't. It was the top of the market. Prices dropped, and the owners of the oil had to go to the futures market to hedge what they could. I had heard that story, but George saw it with his own eyes.
  
  Almost everyone (except the stock market) is convinced oil is going higher in the near term. As I noted above, this week's rally was partially due to short covering by large institutions and companies which had sold production far into the future at much lower prices. They finally threw in the towel and took off their hedges.
  
  Is it 1980 All Over Again?
  
  We may be getting ready to stage a very interesting economic experiment. Is Masters right that prices are driven by speculation, or is it supply and demand? Follow me on this one. I am not saying that this will happen, but it is an interesting scenario.
  
  Many developing countries subsidize the price of oil to their citizens, so they do not feel the pain of higher oil prices. But the headline of today's Financial Times is that Asia is finally getting ready to cut their subsidies as oil rises to $135. The awareness that they need to allow market conditions to prevail is finally being acknowledged, as they cannot afford the subsidies. This is going to help drive down demand for oil over time.
  
  As demand starts to fall, let's remember that the storage facilities for oil waiting to be refined are a finite item. If all those tankers end up needing to find a home at the same time, even as demand for oil is going down, you could see the price of oil go down rather quickly in the short term.
  
  If you are leasing tankers to deliver oil that is already hedged in price, you want to get it to port as soon as possible so that your lease payments stop as soon as possible. You only hold it on the high seas if you think the price is going up by more than your carrying costs (the cost of money and leasing the tanker). If you start to lose money, you sell your oil on the futures market and get it to port as fast as you can.
  
  Now, here is where it could get interesting. Oil is the biggest component of the commodity index funds. If oil drops and looks likely to go lower, then the massive buying of these funds we have seen in the past few months could dry up. As Dennis Gartman says, it takes a lot of buying to make the price of something to go up, but it only takes a lack of buying to make it go down. And if there is net selling?
  
  If we see money start to flow out of the index funds (and ETFs) because of momentum selling, that means the funds are not only selling their oil components, but also the grain and metal and meat. If the index funds are the key component in the rise of prices, we should see the price of all commodities go down in tandem and in sympathy. If oil is the only thing going down as index funds go down, then it is a supply-related issue.
  
  But what if index funds continue to grow? If there is an abundance of oil, it will eventually show up in the spot price, as storage will be lacking, no matter what the longer-term futures prices do. The market will soon tell us whether index funds are a major factor. I tend to think that even while index fund buying is bullish, it is not the major factor that is the driver of commodity prices. And even if it is significant in the short term, in the long term fundamentals will drive the true price.
  
  If it is simply index speculation, it will end in tears when the fundamentals catch up.
  
  Let me say that I believe the long-term price of oil is going much higher. I was writing about $100 oil two years ago. $150 and $200 oil is in the cards at some point in the future. If you have not read the Outside the Box from last Monday, you should. My friend David Galland points out that Mexico, which supplies 14% of US oil, is likely to be a net importer of oil by the middle of the next decade, as their internal demand increases and production decreases. Iran will be a net importer within six years for the same reasons. Russia's oil exports are down this year, as are Mexico's. Energy costs are going to rise in the next decade, and maybe much sooner.
  
  You can click on the following link to read the Outside the Box on where oil exports are headed in our future. And Casey Research does some top-notch analysis of energy investments (not just oil) in a very reasonably priced letter, if you are inclined to invest in individual stocks.
  
  As for today, if I was in a long-only commodity index fund, unless my time horizon was very long I would be watching it closely and have some close stops. And I might wait until I saw what the price of oil was going to do. If you have some profits, then you might want to think about taking some off the table. Just a thought.

Is Paper Loss Not A Loss?

Chapter 9, Page 88. How To Make Money In Stocks

When Does a Loss Become a Loss?

When you say, "I can't sell my stock because I don't want to take a loss," you assume that what you want has some bearing on the situation. But the stock doesn't know who you are, and it couldn't care less what you hope or want.

Besides, selling doesn't give you the loss; you already have the loss.

If you think a loss isn't incurred until you sell the stock, you're kidding yourself.

The larger the paper loss, the more real it will become.

For eg, if you had paid $40 per share for 100 shares of Buggers United, and it's now worth $28 per share, you have $2800 of that lousy good for nothing Buggers United that cost you $4000. You have a $1200 loss. Whether you convert the stock into cash or hold it, it's still worth only $2800.

Even though you didn't sell, you took your looss as the stock dropped in price. You'd be better off selling and going back to a cash position where you can think far more objectively.

When you're holding on to a big loss, you are rarely able to think straight; you rationalize and say, "It can't go any lower."

However, keep in mind that there are many other stocks to choose from where your chance of recouping your loss could be greater.

Here's another suggestion that may help you decide whether to sell:

Pretend you don't own the stock and you have $2800 in the bank.

Then ask yourself, "Do I really want to buy this Buggers United stock now?"

If your answer is no... then why are you holding on to the stock?


How true isn't it?

A loss is a loss is a loss.

In the share market, folks who hang on to their losses is an a self-denial state. They are simply wishing and hoping and praying that a market bull will occur and help them recover their losses.

Is this really rational thinking?

I know personally folks who are holding on the stocks that they bought at rm10.00 but now trades at a miserable 1.00 or so. "Why aren't you selling?", I asked. "It's alright since its paid for, so I will wait for the next bull run!" was the answer I got. Well, it's probably about a good 10 years ago!

Rational thinking or plain silly thinking.

Now I wonder, if a dire emergency really happened, would she be willing to finally accept the loss and cash out on her mistake?

The New SP 500 Bubble!

Financial Sense, market commentator, Martin Goldberg, has made an interesting posting called Bull Market in Trust, Bear Market in Dividend Yields

This part I find so interesting:

The apparent failure near an all time high suggests that the year 2000 high in the S&P 500 may have marked the beginning of a new secular bear market which, in spite of the eight year march to a marginal new high, has not ended. Remember, the 2000 high included contributions from a known and confirmed technology stock market bubble. So was the more recent S&P 500 high totally “clean” and supported by valuations? In my view, this new high is characterized by a general stock market bubble which is not getting any attention in the media or financial industry for several structural reasons, not the least of which are the more obvious bubbles that are taking place (and bursting) in real estate, US consumer debt, and also commodities (actually the commodity bubble is a legitimate one caused largely by central bank-created inflation). When was the last time you heard any serious discussion of dividend yields of stocks in comparison to those that occurred prior to the 1990s race to the 2000 high? Today’s stock market bubble is Wall Street and the financial industries’ “dirty little secret.” They’ll only tell you what they need you to know.

Still, unless the market action warrants it, you don’t need to know that the average dividend yield of S&P 500 stocks is just under 1.9% and dividends of less than 3% used to be cause for valuation alarm. (There are 113 S&P 500 stocks that pay no dividends at all.) All you have to do is believe that today’s businesses don’t require that corporations share their profits in any meaningful way with its shareholders.

Click here for the rest of the posting: Bull Market in Trust, Bear Market in Dividend Yields

Bashing iCapital and Tan Teng Boo for No Reason?

Received the following comments on the following posting, A Look At iCapital's Buy Call on NasionCom!

• 廖福深 said...
  I feel sad for TTB because some people here just like to bash people on some small mistakes. TTB has been in the market for a long long time and I don't think his record is anything is be ashamed of. Depending on how you look at your portfolio, I believe you can allow for some 100% writeoffs in your stocks (just like structured warrants expiring worthless). For every Nasioncom, our friend has a few LionDIV. If you strcutured your investment to allow for such eventuality, no need to say sorry!

Dear 廖福深,

Let me explain what has transpired here on this blog.

I had been noticing that Mr. Tan Teng Boo has been rather bullish on the mass media early this year. Several articles have been quoted that Mr. Tan had declared himself to be bullish on the markets. And in his OWN subscription editorial, he had stated that he was a long term bull on the local markets and that his long term targets for the KLCI is at 2000 pts.

(ps if you see this posting here one would notice that in iCapital own words "Instead of boring our subscribers with our LONG-HELD and CONSISTENTLY BULLISH VIEWS...!" )

Which was fine with me.

That's his opinions and views as an independent investment advisor.

I am not even challenging whether his views are correct or not.

Now what I found discovered in the quarterly earnings during this very same period that he had been telling the Malaysian public he was bullish, he contradicted what he said by selling some rm50 million worth of shares.

Everything else aside, is such actions correct?

Why tell everyone one you are bullish when you are actually disposing a lot of shares?

If it wasn't Mr. Tan and it was me. Imagine me blog about Hai-O and imagine me saying that Hai-O is a wonderful stock. And while I am singing my praise to you, I sell my shareholdings in this very same. Now is this correct?

Don't you think that this shouldn't be?

Now if I am wrong, then what about Mr.Tan Teng Boo?

Let's not judge who I am but judge the actions!

Which is why What Do You Think of ICap's Recent Disposal Of Shares Held? was posted. And then followed by More Rumblings On Tan Teng Boo's ICapital's Disposal Of Shares. Which lead to a blogger commented that Tan Teng Boo Declares Warren Buffett to be a lousy Economist! and Is iCapital Views Consistent? Is Warren Buffett a Lousy Ecomist?

Which comes to NasionCom, a stock that I had blogged a couple of times before. NasionCom Founder Charged With Bribery!

And I was shocked to read iCap recommended a BUY call on this stock.

Why was I shocked? I knew NasionCom was a terrible stock. That was a fact.

Let me repeat what I had posted on More on iCapital Buy Call On NasionCom

• A lot of folks like to rate investment advisors based on their accuracy, which is bench marked against the said stock movement.
  
  I do have a differing opinion.
  
  When one is focused on benchmark issues like accuracy and the performance of the said stock, then it renders the actual usefulness of the investment analysis/report. Focus is on performance, right? So what's the difference between a report/analysis with the basic stock tipster?
  
  Is there any difference?
  
  I see zero difference then because everyone is judged on how that stock performs, which ultimately renders the analysis/report useless.
  
  And more so when one considers that in the market, sometimes some stocks go mysteriously higher after a report is published. Which makes one wonder if the analysis was really good or perhaps the dark force was simply stronger?
  
  So what do I prefer?
  
  I prefer to rate the analysis/report based on the reasoning why a certain call is made on the stock.
  
  Yes, I do not want to see contradictory buy calls made despite the glaring issues within the stock.
  
  In short, it's not about how the stock call or recommendation performs but how the call is made.

Yes for me, most important is how the call is made.

Look at NasionCom.

The BUY call totally contradicts the glaring weakness in the stock. How could one well known and good independent investment advisor company like iCapital not able to acknowledge the weakness in the stock?

Am I bashing without a reason?

Or am I merely pointing out what is happening here?

Is it wrong for me to point this out?

ps... I actually feel sad to see all this happening.

More on iCapital Buy Call On NasionCom

Received the following comments on the posting, A Look At iCapital's Buy Call on NasionCom!

• KC said...
  Don't be so naive to think that Icap will have 100% accurate in their analysis.
  
  Read it, do your analysis, form your own judgement. Act on your own risk!

Dearest KC ,

Let's not be so arrogant and yes, obviously, everyone do understands that one should also do our own analysis and use our own reasoning and not rely on companies like iCapital.

And I am not here to suggest that iCap needs to be 100% accurate in their analysis.

The posting was made because I was simply amazed and appalled by how our most reputated INDEPENDENT INVESTMENT Advisory company could have had come up with the conclusion.

Do read the next comment for random.

And random said...

• The issue is not whether investment advisors can get it 100% accurate..
  
  If you can get 6 out of 10 correct, you're already very very good
  
  The issue is whether or not they own up to it when they've made a mistake..
  
  Last I heard, there is such a thing as a SELL call..

Dear random,

A lot of folks like to rate investment advisors based on their accuracy, which is bench marked against the said stock movement.

I do have a differing opinion.

When one is focused on benchmark issues like accuracy and the performance of the said stock, then it renders the actual usefulness of the investment analysis/report. Focus is on performance, right? So what's the difference between a report/analysis with the basic stock tipster?

Is there any difference?

I see zero difference then because everyone is judged on how that stock performs, which ultimately renders the analysis/report useless.

And more so when one considers that in the market, sometimes some stocks go mysteriously higher after a report is published. Which makes one wonder if the analysis was really good or perhaps the dark force was simply stronger?

So what do I prefer?

I prefer to rate the analysis/report based on the reasoning why a certain call is made on the stock.

Yes, I do not want to see contradictory buy calls made despite the glaring issues within the stock.

In short, it's not about how the stock call or recommendation performs but how the call is made.

Let me show what I am mumbling about.

Let's look at NasionCom table again. I added a new row to indicate the ttm (trailing twelve months) or most recent 4 quarters earnings then.

1. Earnings was poor yes? Look at the trailing earnings. A net profit of 4.352 million from a sales revenue of 178.352 million, equated to a net profit margin of a mere 2.44%. What's the likely conclusion from these numbers? Wasn't NasionCom a company that had razor thin profit margins? And given the extremely poor earnings shown in NasionCom's fy 2005 Q3 and Q4, shouldn't this be a concern?

2. Cash. Cash as at 05 Q1 was 10.285 million. 4 quarters later cash was only 3.638 million. Isn't it correct to say the cash is depleting?

3. Loans had ballooned from 28.138 million to 64.356 million. Isn't that not a concern?

4. Receivables exploded from 48.445 million to 71.150 million. Isn't that not a concern?

How?

What does common sense suggest here?

Let's see, with a cash balance of only 3.6 million versus total loans of 64 million, surely the level of borrowings is a worry. And when one adds in the fact the company ONLY made a net profit of 1.7 million for the quarter, surely the level of loans is totally massive! And to makes it worse, receivables is at a whopping 71.150 million!!! Why did the receivables grow so much? Anything smelly?

Commonsense question again.. which sane company would want to do business where the amount that is owed to the company is more than their loans? Why can't the company collect these receivables? And if these receivables, these money are collectable, then the company won't even need the loans right? Doesn't it make sense?

So many clear issues within this stock and yet Icapital comes up with the following conclusion.

• iCapital finds NasionCom to be an interesting company, with one of the factors being the direction and strategy that the new managing director has planned for the group. However, what worries us is the level of borrowings currently carried by the group. As at 1Q06, the group has rm64 million worth of borrowings, rm3.6 million of cash, and incurred interest expenses of rm1.3 million (35% of operating profit). On balance, iCapital rates NasionCom as a Buy below rm0.15 for the medium-term.

How would you rate iCapital based on such reasoning??

They see high level of borrowings but yet they chose to discount it.

Why?

How could they come out with such a terribly poor recommendation?

And this is how I would rate iCapital.

ps: Look at NasionCom now. The company cannot even officially release their fy 06 earnings and the company is fighting hard to ward off delisting from Bursa Malaysia!

A Look At iCapital's Buy Call on NasionCom!

I have gotten an interesting comment on my posting, NasionCom Founder Charged With Bribery!

• From The Wanderer
  Dear Moola, (the financial watch cow)
  I don't want I Cap to conveniently forget about their buy call on 18/08/2006
  The buy below 0.15 is......?????

Here is the screen shot of what The Wanderer posted.

In the last paragraph, iCapital wrote the following:

• iCapital finds NasionCom to be an interesting company, with one of the factors being the direction and strategy that the new managing director has planned for the group. However, what worries us is the level of borrowings currently carried by the group. As at 1Q06, the group has rm64 million worth of borrowings, rm3.6 million of cash, and incurred interest expenses of rm1.3 million (35% of operating profit). On balance, iCapital rates NasionCom as a Buy below rm0.15 for the medium-term.

Ok, iCapital was looking at 06 Q1 earnings of Nasioncom, Quarterly rpt on consolidated results for the financial period ended 31/3/2006

It was nice to see that iCapital recognise that NasionCom had a terrible balance sheet but then on the other hand, why then does it want to rate NasionCom as a BUY below rm0.15 for the medium-term???

Sounds not so correct, yes?

So I decided to compile a table on NasionCom.

Let's look at the numbers based on simple logic reasonings.

1. Net profit - Ok, for 06 Q1 did ok but the previous 2 quarters 05 Q3 and 05 Q4, the earnings has been terrible.

2. The net profit margins is terrible eh?

3. Cash balances. Cash balances have depleted, yes? Exactly a year ago, Nasioncom reported it had cash of 10.285 million in its 05 Q1 earnings. Now it only has 3.636 million.

4. Loan balances. Total loans is at 64 million. A year ago for the same period, Nasioncom had loans of only 28.138 million!

5. Receivables. Holy moly. Incredible. A year ago, Nasioncom Receivables was at 48.445 million. A year later, the receivables have balloned to 71.115 million. Which didn't make sense because during this period, from 05 Q2 to 06 Q1, NasionCom only had net earnings of 4.352 million! Earn so little, how could the receivables balloon so much? Not fishy, meh?

How?

Seriously, NasionCom looks like a damn lousy company yes?

Poor earnings, terrible margins, depleting cash, ballooning debts and receivables.

So many issues yes?

Would you want to invest in this company based on these information?

And yet, iCapital had a MEDIUM-TERM buy on this stock at 0.15 sen!

Do you understand their MEDIUM-TERM buy recommendation at all? I, for one, do not.

So why did iCapital make such a call?

And the only announcement of significant that NasionCom had was on the very same day, Nasioncom announced that it had a huge private placement of up to 80,000,000 new ordinary shares of RM0.10 each (Shares) in NHB, representing up to 10% of the existing issued and paid-up share capital of NHB (Proposed Private Placement)

And this is how NasionCom has done since 18th Aug 2006.

ps: The Wanderer, I wonder if iCap changed their recommendation on NasionCom since Aug 2006?

NasionCom Founder Charged With Bribery!

Utterly shambolic!

Published on Star newspaper today, NasionCom founder faces eight counts involving RM3.85mil

• KUALA LUMPUR: The founder of telecommunications service provider NasionCom Holdings Bhd Datuk Chee Kok Wing was charged in two courts with eight counts of bribery involving RM3.85mil.
  
  Chee, 45, claimed trial at a Sessions Court here to six charges of accepting bribes amounting to RM3.1mil and was slapped with another two bribery charges involving RM750,000 at the Petaling Jaya Sessions Court later.
  
  The former NasionCom Holdings group managing director is accused of committing the offences to help the listing of a seafood company on Bursa Malaysia and to stop investigations by the Securities Commission (SC).
  
  He is alleged to have received a RM1mil bribe each via a bank account from Gropoint Ocean Food Sdn Bhd (GOF) director Lee Sin Teck as an inducement for SC division director Kris Azman Abdullah to help in the listing of GOF on Bursa Malaysia and to stop a probe by the SC.
  
  He is said to have committed the offence at the Alliance Bank Malaysia Bhd in Mid Valley City here on May 19, 2006 and May 25, 2006.
  
  Chee faces a third charge of obtaining a bribe of RM600,000 from GOF director Datuk Lim Kim Ming through businessman Koh Yuet Yee for the same purpose at the NasionCom office here on May 29, 2006.
  
  He allegedly received a RM50,000 bribe from GOF corporate services division director Wong Tze Yen through Koh for the same matter at the same place on May 30, 2006.
  
  Chee is said to have received RM50,000 and RM400,000 from Lim through Koh at the same office on May 30, 2006 and the next day for a similar purpose.
  
  If convicted, he can be jailed up to 20 years and fined five times the amount of the bribe for each charge under the Anti-Corruption Act 1997.
  
  Judge S.M. Komathy Suppiah granted bail at RM500,000 in one surety and ordered him to report to an investigating officer once in two months.
  
  Komathy set June 27 for mention on an application by DPP Abdul Razak that the prosecution had yet to decide if it wanted a joint trial with his other bribery case.
  
  At 2.50pm, he claimed trial at the PJ Sessions Court to accepting bribes on two occasions from Lim for the same mattter at his house in Seri Kembangan between June 17, 2006 and the next day.
  
  Judge Nurmala Salim granted bail at RM50,000 in one surety and set June 26 for mention. His wife posted bail.

Incredible!

A year ago, this very same NasionCom boss was charged for giving false information in its financial statements!

• SC Charges Three For Giving False Information In NasionCom Case
  
  KUALA LUMPUR, May 28 (Bernama) -- The Securities Commission (SC) today charged three individuals for their involvement in the submission of false information related to NasionCom Holdings Bhd's financial statement for the year ended Dec 31, 2005.
  
  They were also charged for giving false information on NasionCom Prospectus for listing on the MESDAQ Market.
  
  The three charged were Datuk Chee Kok Wing and Shamsul Khalid Ismail, both directors of NasionCom, and Mah Soon Chai, a shareholder of Express Top-Up Sdn Bhd, a subsidiary of NasionCom, the SC said in a statement today.
  
  The Companies Commision of Malaysia (CCM) also charged Chee for authorising the making of false statements in NasionCom's documents, namely invoices, dealer agreements, ledgers and bank deposit slips.
  
  Chee is being charged with two offences under the securities law and one offence under the Companies Act 1965:
  
  He was charged for causing the issuance of NasionCom Prospectus for listing on the MESDAQ Market, which contained misleading information. The offence carries the punishment of a maximum penalty of RM3 million fine or 10 years imprisonment or both.
  
  He was also charged, in his capacity as a director, for submitting false information to the SC contained in the 2005 Annual Report of NasionCom, in particular, its revenue for the financial year ended Dec 31, 2005. This offence is punishable by a maximum fine of RM3 million or imprisonment not exceeding 10 years or both.
  
  He was also charged under the Companies Act 1965 for authorising false statement in the document of NasionCom Sdn Bhd which were used for the preparation of NasionCom financial statement for the financial year ended Dec 31, 2005.
  
  Shamsul was charged in his capacity as a director of NasionCom for the same offences.
  
  Mah is charged for abetting NasionCom to submit the false information.
  
  On conviction, Shamsul and Mah are liable to pay a maximum fine of RM3 million or imprisonment for a term not exceeding 10 years or both.
  
  The Court has offered the cases to be jointly tried from November 21 to 23 this year.
  
  The Court granted bail to the accused persons in the following amount with one surety and their respective passports to be surrendered to the court: Chee: RM200,000, Shamsul: RM100,000, Mah: RM50,000.
  
  The prosecution of the individuals follows the SC's action on Feb 15 this year where it publicly reprimanded NasionCom and directed the company to rectify and re-issue its financial statements for the financial year ended Dec 31, 2005.

And what's even more shocking is that 28-03-2008: Chee sells out of NasionCom

• KUALA LUMPUR: NasionCom Holdings Bhd’s major shareholder and former chairman Datuk Chee Kok Wing has disposed of his entire 13% stake in the telecommunications services firm to TBM Resources Sdn Bhd for RM4 million cash.
  
  NasionCom said yesterday it had been notified by Chee that he had on March 24 entered into a shares sale and purchase agreement with TBM to dispose of 100 million shares held directly or indirectly.
  
  As at June 29, 2007, Chee had 105.03 million shares or 13.13% in the Mesdaq-listed company, of which 38 million were held in his own name, 51 million shares under Wing Ken Jie Holdings Sdn Bhd and 15.81 million shares under Beyond Accord Sdn Bhd.
  

Chee has sold out and the company has received a show cause letter on De-Listing of Securities and it's even more shambolic because the company till today still cannot produce it's quarterly earnings for the period ended 31 December 2006 (“2006 Q4 Report”)!!

In a recent announcement dated 6th May 2008,

• Status of issuance of the following financial statements:
  (a) Quarterly financial results for the period ended 31 December 2006 (“2006 Q4 Report”) pursuant to Rule 9.22(1) of the Listing Requirements of Bursa Malaysia Securities Berhad (“Bursa Securities”) for the MESDAQ Market (“MMLR”);
  (b) Annual audited accounts together with the auditors’ and directors’ report for the financial year ended 31 December 2006 pursuant to Rule 9.24(b) of the MMLR (“AAA FY2006”);
  (c) Quarterly financial results for the period ended 31 March 2007, 30 June 2007, 30 September 2007 and 31 December 2007 pursuant to Rule 9.22(1) of the MMLR (“2007 Q1, Q2, Q3 and Q4 Report”);
  (d) Annual Report for the financial year ended 31 December 2006 pursuant to Rule 9.24(a) of the MMLR; and
  (e) half yearly research reports for the period ended 31 December 2006, 30 June 2007 and 31 December 2007 pursuant to Rule 9.23(1) of the MMLR.
  
  The Company wishes to announce that it is still unable to release the above financial statements.
  
  Bursa Securities had earlier issued notice on removal of the Company’s securities from the official list of Bursa Securities on 4 April 2008 in view that the Company has failed to issue the AAA FY2006, 2006 Q4 report and 2007 Q1 report within the extended timeframe, i.e. by 29 February 2008 and the Company had subsequently obtained a stay order dated 3 April 2008 restraining Bursa Securities from removing the securities of the Company from the Official List of Bursa Securities on 4 April 2008. Currently, the removal of the Company’s securities is deferred until further notice.
  
  The Company had on 13 March 2008 announced the resignation of Messrs Deloitte KassimChan (“DKC”) as Auditors of the Company and will convene an extraordinary general meeting in due course to appoint a new Auditor in place of DKC.
  
  This announcement is dated 6 May 2008.

And isn't it shambolic and ludicrous that Chee had already disposed his entire stake!

And NasionCom was a stock that I remembered too well.

April 10th 2007, I had written the following posting, NasionCom & Our Financial News Again!

Yes, I was utterly appalled by how OUR financial press had helped promoted this stock!

No joke!

Here read what I had written back then:

----------------------------------------------

My Dearest Moo Moo Cow,

I was going through my old blog postings and I found these interesting sequence of postings.

Let's take a step back in time.

------------------------------------------------------------
Saturday, February 11, 2006

Is our financial news really financial news?

Back in Sept 10th 2005, there was this article on Nasioncom.

In that article, again it was crystal clear how ludicrously written the article was. Words like it is believed, sources says, currently believed, it is understood were splattered all over the article.

Makes you wonder if our financial press was printing out actual financial news based on facts or was our financial news being used a tool for some to churn out rumors to seduce punters and speculators to punt on the stock?

And it was such blatant shenanigan when the reporter played around with some actual financial notes.

Take a look at the second last paragraph of that news article:

• For the six months ended June, NasionCom posted a net profit of RM7.2mil on the back of RM112.9mil in sales. In the notes accompanying its financial results to Bursa Malaysia, NasionCom says, “Compared against the group’s results for the financial year ended December 2004, for the half-year ended June 2005, the group has recorded a revenue of RM112.9 million or 70.2% of financial year (FY) 2004’s revenue and a profit after taxation of RM7.18 million, surpassing FY 2004’s full-year profit of RM3.76 million. Moving forward, the group believes that its continuous investments in Internet protocol network infrastructure, broadband infrastructure and Internet data centre, together with development on niche products and services, will yield positive contributions in the future.

The problem is, first of all...

Nasioncom first quarter net earnings was 5.171 million.
Nasioncom second quarter net earnings was 2.009 million.

The earnings report, which the reporter was referring to, saw Nasioncom's net earnings decline from 5.171 million to 2.009 million. This meant that Nasioncom's earnings weren't as rosy as what was indicated by the newsreporter. (see the highlight in blue: a revenue of RM112.9 million or 70.2% of financial year (FY) 2004’s revenue and a profit after taxation of RM7.18 million, surpassing FY 2004’s full-year profit of RM3.76 million.)

Now if I dig into Bursa Malaysia reports, the following is the link to that Nasioncom's earnings report:

Quarterly rpt on consolidated results for the financial period ended 30/6/2005

Click on the attached wordfile... and search for Nasioncom's REVIEW OF PERFORMANCE in their earning notes.... there was 4 paragraphs of remarks...

Ho ho ho... guess what? this reporter DECIDED to highlight ONLY the good stuff!!

The reporter only used the bottom 2 paragraphs, and cleverly ignoring and omitting the first two paragraphs of Nasioncom's notes.

I have pasted those 4 paragraphs in question...

• The 2nd quarter under review has shown a lower overall performance when compared to the immediate preceding quarter ended 31 March 2005. The Group recorded revenue of RM 51.798 million; earnings before interest, tax, depreciation and amortisation (EBITDA) of RM 6.186 million; and profits after taxation and minority interest of RM 2.009 million.
  
  The second quarter results has been impacted by lower revenue due to competitive pricing.
  
  There were no corresponding second quarter results for 2004 as this is the Group’s first 2nd Quarter result after its listing on 25 February 2005 on the MESDAQ Market of Bursa Securities.
  
  Compared against the Group’s results for the financial year ended 31 December 2004, for the half-year ended 30 June 2005, the Group has recorded revenue of RM112.9 million or 70.2% of FYE 2004’s revenue and a profit after taxation of RM7.18 million, surpassing the FYE 2004’s full year profit of RM3.76 million.
  
  Moving forward, the Group believes that its continuous investments in Internet protocol (IP) network infrastructure, broadband infrastructure and Internet data center (IDC) together with development on niche products and services would yield positive contributions in the future.
  
  

~~~~~~~~~~~~~~~

So I wonder, if this reporter made a simple mistake or perhaps there was intent by the reporter?

By leaving out the first 2 paragraphs, the reporter omitted the current poor performance of the company and most important leaving out the fact that the Nasioncom clearly said that the lower earnings was caused by competitive pricing. Isn't this not an important issue to report?

On 30th November 2005, Nasioncom reported its earnings again.

Quarterly rpt on consolidated results for the financial period ended 30/9/2005

Total net earnings from Nasioncom was only a paltry 260k!!!!!!!!! See how important the issue that in the previous quarter, Nasioncom had already being affected by lower earnings caused by competitive pricing?

So in summary:

Nasioncom first quarter net earnings was 5.171 million.
Nasioncom second quarter net earnings was 2.009 million.
Nasioncom third quarter net earnings was 260k.

Yup... and if you look at the very statement of that article: It appears that there is a lot going on at Mesdaq-listed NasionCom Holdings Bhd.

LOL!!!.... what nonsense isn't it?

That was then. In today's Bizweek, the very same reporter, made another attempt to sell the stock!

New major shareholder to emerge in NasionCom

Same style!

"Sources say, it is understood, it is believed" are plastered all over the article again. All hearsay and no actual facts!

Now check this out...

• The price tag of 50 sen may appear a tad high (compared to its current share price of around 29 sen), but an analyst says not necessarily so. “At 50 sen, NasionCom is being valued at a price earnings of about 9 times, which is fair considering the average PE of 15 times of some of the other prominent stocks on Mesdaq such as Green Packet Bhd and REDtone International Bhd.”

Now I really wonder who on earth this analyst is! Nasioncom's current earnings, which is declining drastically, totals some 7.4 million for the first 3 quarters of the year.

Let me put this 50 sen price tag into perspective. This ANALsyt is effectively equating that Nasioncom should be worth, in terms of market capital, some 400 million ringgit!! (This is the price one has to pay if one wants to buy each and every single share of Nasioncom @ 50 sen price tag!)

So can a company making some mere 7.4 million and worse still, in its last reported earnings in November reported a paltry earnings of 260k, be worth a whopping 400 million ringgit????

So clearly this ANALyst is basing the valuation on some incredibly high earnings per share!

Let's see... at 50 sen, with a price earnings ratio of 9 times, this means Nasioncom's earnings per share is some 5.5 sen. Now Nasioncom has some 800 million shares... which means this ANALyst is saying that Nasioncom's net earnings equates some 44 million!

44 million?

Amazing! Truly amazing!.. and how much is Nasioncom's current earnings? Some 7.44 million?

And regarding this ANALyst... isn't it a wonder that this reporter makes no attempt in naming who he or she is?


ps...

this blog entry is not about what and how Nasioncom will trade in the near future! Will Nasioncom go up or down? It interests me not!

Most important issue: Is our financial news really financial news?

-----------------------------------------------------------------

4 days later, I wrote the following article.

-----------------------------------------------------------------

Wednesday, February 15, 2006

What again about our financial reporting?

The issue of our financial news used to instigate wild speculation ideas on stocks.

Here are some blog postings on the issues:

• Is our financial news really financial news?


• Should Financial Press be allowed to spin-off Rumours?


• Mutiara

And incredibly, all of those articles was creatively written or should I call it engineered by one same reporter and his so-called sources (or should I call it as Maggie Sauce?!)

Take the latest one: Is our financial news really financial news?

Let's take the issue of Nasioncom. That article was posted on 11th Feb 2006.

1. Nasioncom ended the day trading on the 10th Feb 2006 at 0.305.

2. Nasioncom ended the day trading on the 13th Feb 2006, the day after that incredibly creative story was written, at 0.345. See how nice it is to publish a story, throws in the wild speculative 'according to sources" stuff all over the article. And better still, add in a wild insane, nonsensical valuation based on ONE so-called UN-NAMED analyst! Job done, eh? Check the high volume traded on that day!

3. Nasioncom ended the day trading on the 14th Feb 2006 at 0.30. What a lovely, I Love You Deep-Deep Valentine present from this reporter, eh?

4. Now? The selling pressure 'looks' very strong (errr... you might want to get a second opinion on this statement cause I am not one that could read what the trade is saying!).... anyway... at 11.30, Nasioncom is now trading at 0.285.

How?

Do we need such wild no-substance stories?

And worse still, how come one reporter in our financial newspaper can repeatedly publish nothing but speculative rumors in the financial news?

What good is our financial news if everything is but speculative rumors?

How?

Does all this even matters?

Or does it NOT matter as long as it provides us with an opportunity to punt in the said stock(s)?

Or should I question who gives the divine rights to allow this reporter to write as per his own whims and fancy?

How?

Or should I request that our financial news to be changed to our RUMOUR mill?

-----------------------------------------------------------

And the rest is history!

One year later...

-----------------------------------------------------

Friday, February 16, 2007

Nasioncom Caught Inflating Sales Revenue

Posted on Business Times.

SC raps NasionCom
for inflating
revenue figures

The telecommunications service provider has to rectify and re-issue its financial statements for the year ended December 31 2005 within a month

“NasionCom’s revenue of RM194.98 million as reflected in its 2005 financial statements contained RM143.11 million sales that were not transacted,” the SC said in a press release late yesterday.

--------------------------------------------------------

More Update on Timber Sector

A lot of bullish news on the timber sector lately: Timber product prices on the rise.

• Timber product prices on the rise
  By LEONG HUNG YEE
  
  PETALING JAYA: Prices of Malaysian timber products have been rising steadily as the raw materials shortage became critical as a result of tropical thunderstorms.
  
  CIMB Research said in a recent report the heavy rain in the country since February had affected timber-harvesting activities and could dent log and plywood supply over the next few months.
  
  “This could lead to a log shortage over the next few months, which is likely to translate into much higher timber prices if demand from Japan picks up quickly during the same period,” it said.
  
  CIMB said China could be one of the key factors in a major turnaround for plywood prices. It said China’s plywood production had declined since the government reduced the export rebate from 20% to 5% at end-2007. If the output continued to fall, a further recovery of plywood prices in the coming months could be expected, it said.
  
  “Although we believe the worst is over for the timber sector, we take a neutral stance until we see strong signs of a catalyst for the sector,” the research house said.
  
  Meanwhile, analysts said timber products prices were not soaring but gradually improving. They said the prices had risen partly because of the constraints on supply and high transportation costs due to rising oil prices.
  
  “While the construction industry in Japan is recovering, plywood manufacturers were not prepared to ease prices further.
  
  “Rising fuel costs had caused many manufacturers to resist cutting prices. Moreover, some manufacturers were expecting demand to pick up as several reconstruction projects will be launched in China to fix damage caused by recent winter storms,” an analyst said.
  
  Analysts continued to be optimistic about price stabilisation in the near future. However, they expressed concern over the volatility of oil prices as well as a possible recession in the US.
  
  According to Malaysian Timber Association president Datuk Sheikh Othman Rahman, industry players could expect to see better times ahead now that the worst is over for the local timber industry.
  
  He viewed the timber industry as a vibrant industry, contrary to market perception of it being a sunset industry.
  
  “Malaysia’s timber exports have risen to RM23.3bil in 2006 from only RM14bil in 1996, with the largest export markets being Japan, the US and China,” Othman said, adding that timber exports were forecast to reach RM50bil by 2020.
  
  Going forward, Othman expected timber companies to move towards more downstream production. He added that the Government had set up a special purpose vehicle to disburse RM1bil under a 15-year programme to plant 375,000ha of high-value timber trees by 2020.
  
  Meanwhile, two foreign brokerages, Merrill Lynch and Credit Suisse also issued calls to upgrade the timber sector last month.
  
  Credit Suisse issued a note to upgrade the Asian timber sector from neutral to overweight. Merrill Lynch's March 4 report said plywood prices had reached a bottom and had started to pick up.

And here is another news clip: Merrill: Plywood prices starting to rebound

• KUALA LUMPUR: The recent rising plywood price trend is lending support to our view that prices have reached a trough and are starting to rebound, said Merrill Lynch Research.
  
  It said according to forest products industry players, the recovery of plywood prices is gaining visibility and the upside impetus is expected to flow through to May. It said March concrete panel (CP) prices rose 11% month-on-month to US$480/m3 (RM1,536/m3), adding that indicative prices for April and May are also seeing another 10% higher month-on-month .
  
  “If this actuates, May CP price would be only 20% shy of all the all-time high,” it said.
  
  In a research note, it said that the Russian government will raise the softwood log export duty to 80% by January 2009. It opine that once the 80% duty is imposed, many plywood mills using Russian logs will be out of business, adding that this development would boost prices of log and plywood.
  
  It reiterated it’s buy recommendations on Ta Ann Holdings Bhd (34% upside) at a price objective (PO) of RM10.15 and WTK Holdings Bhd (40% upside) at a PO of RM3.30 on the back of improving industry fundamentals.
  
  “Both companies have long-term volume growth plans in place via forest planting and have also diversified into palm oil plantation.”

I had made 2 postings on this sector, Credit Suisse goes bull on Ta Ann and More on Timber Sector

Today RHB had a report on this sector and I was able to get a hand on the report.

In the second page, RHB analyst wrote abut the possibility that 'History May Repeat Itself'.

• Recall, in late-2006, in anticipation of the Russian export tariff hike from 6.5% to 20% effective July 2007, and coupled with the Indonesian government's efforts in curbing illegal logging, Japanese timber traders and stockists began stocking up logs and plywood. Sequentially, plywood prices soared to record levels in late-2006 (refer to Chart 4)....

I am less than convinced.

Yes, history can always repeat itself... but based on today's variables, I have my doubts.

• Based on current economical environment, with tighter global credits, would Japanese timber traders and stockists want to stock up their lumber???
• Look at the housing chart (chart 2) provided by RHB. The housing starts are showing the glaring difference between 2006 and 2008. Why would Japanese timber traders and stockists want to stock up their lumber??? ( See chart from RHB below)
  
  
  

How now my Dearest MooMooCow?

Would you want to be in this sector?

Do you see enough justifications to be in the timber sector?

Yes, they say that there recent timber prices have shown a rising trend and that it indicates that perhaps timber prices have bottomed but do I see enough strong reasoning that suggest that timber prices should surge?

Do I see clear signs that housing starts in Japan are increasing? And given the massive issue within the housing market in America, could one even contemplate a housing boom in Japan? Reasoning is simple here again, without housing boom in Japan, where will the demand of lumber come from?

And if there is no strong demand for lumber, would one ever see a boom in the timber sector?

However, RHB analyst thinks otherwise. In page 3 of their report, they wrote the following:

How?

Do I want to be in this highly cyclical sector under the current economical environment?

Would you be Bullish On the Chinese Stock Markets?

As I was making some housekeeping on my blog, I realised that I had highlighting the following article about Investing In China almost a year ago, back on May 18th 2007.

I would like to highlight that posting again:

• 1. watching Chinese stock prices gallop upward for months, Ding Xiurui wanted a piece of the action. The 45-year-old office worker stood in line at a bustling brokerage Friday to open her first trading account. She brought her sister, who opened an account too. They joined millions of other novice investors who are jumping into a market that has soared to dizzying heights, with prices up nearly 50 percent this year.
  
  "We still can make money," Ding said as she stood at the counter at Tiantong Securities with the paperwork for her new account. Asked what stocks she would buy, Ding said, "I don't know. I'm still learning."
  
  2. Economists say the government should take steps to moderate the price surge or risk a sharp fall that could hurt millions of small investors.
  "This is a very critical time. If policy adjustments take place now, the market can still have a sustainable development," said Hong Liang, a Goldman Sachs economist. "The longer they wait, the harder the eventual landing will be."
  
  3. Enthusiasm for stocks is fueled in part by a lack of other investments in a heavily regulated economy. Famously frugal Chinese families save up to 40 percent of their incomes, but bank accounts pay just 3 percent interest — less than the rate of inflation.
  
  4. "I have a stable income but in China now a stable income doesn't mean a good life," said a 26-year-old government employee who was opening an account at Tiantong Securities and would identify himself only by the English name Leon. "Seeing other people earning a lot of money, all you can think is, you're earning so little and how can you make more?"
  
  5. A 60-year-old cleaning woman in the southwestern city of Chongqing is being feted in the media as a market wizard after doubling her 20,000 yuan ($2,600) investment in two months.
  "At a time like this, who can lose money?" the newspaper Chongqing Morning Post quoted her as saying.
  
  6. The Beijing Youth Daily carried a photo of a Buddhist monk opening a trading account last week at a brokerage in the western city of Xi'an.
  In Nanjing in the east, a man in his 70s mortgaged his apartment to raise 60,000 yuan ($7,800) to play the market, the Web site Shenzhen News Net reported.
  
  7. "It might be dangerous, but who knows? People thought it was dangerous in March," Leon said
  
  8. Stock prices are 30 to 40 times earnings, an unusually high ratio for many major markets, which some say makes them unrealistic. "But that is not paying attention to earnings growth, which is very, very strong," Liang said.
  
  9. "We hear that before 2008, the government won't let prices fall," said Ding's sister, Ding Jingxian. "We're not afraid."
  
  And the most interesting point in my opinion is number 10.
  
  10. "We are opening 40 to 50 new accounts a day," said Zhang Jun, the branch's deputy manager. "Six months ago, it was four to five a day." Nationwide, the number of trading accounts has soared by 30 percent over the past year to 95 million, one-sixth of them opened in the past four months, according to the China Securities Depository and Clearing Corp., which is owned by China's two stock exchanges.
  On Wednesday alone, investors opened 552,559 new accounts, the company said.
  
  Source: 1st-time investors buy up Chinese stocks

See this clip also: http://www.tudou.com/player/player.swf?iid=6236614

And boy oh boy how the excuberance drove up the stock market.

On May 17th 2007, SSE was at 4048 pts. By Oct 17th 2007, the SSE index reached 6092 pts. An increase of 2044 pts or a whopping increase of 50% in a mere 6 months.

Here is an even more interesting view if you look at the SSE from May 2005 to Oct 2007.

However, as we all know, things did not turn up well. That the SSE has been underperforming is an understatement.

At this moment of time, the SSE is only at 3604 pts. Which is LOWER than what it was on May 17th 2007 when the SSE was at 4048 pts.


In my opinion, the decline was rather deadly. I mean, the SSE did NOT fall off the cliff but instead it was like rolling off a hill. And because it was rolling off the cliff and not falling off the cliff, I reckon that many did not realise how drastic the fall could be. And sadly, the longer the time pass, the decline eventually turned severe!


And this drastic decline was highlighted in the following posting, Chinese Stock Markets: The Day They Jumped!

• Published on Seattle Times. Chinese get a taste of investing's downside
  
  SHANGHAI, China — When emergency workers found Wang sprawled unconscious after having downed two bags of insecticide, he was still clutching the PDA he had been using to check stock prices.
  
  Like a number of other small investors in China, Wang had bet — and lost — his life savings, about $15,000, on the Chinese stock market. The propaganda office and doctors at the hospital where he was treated said the 36-year-old factory worker had been preparing to get married and that he had hoped to use the money to buy an apartment for his fiancée.Wang's attempted suicide and those of other investors are a heartbreaking consequence of China's great experiment in capitalism.
  
  In February, Li, a 25-year-old engineer, jumped from the seventh floor of the building where he worked in the city of Chengdu. His company said he had lost a huge amount on the stock market. On March 30, a 39-year-old former ice-cream- shop owner, also named Li, leaped to his death from his apartment building in the inland province of Shandong after losing a third of the $4,500 he had invested.
  
  As China's stock markets crashed over the past six months, the Communist government reacted in a way most consumer investors like Wang did not anticipate: It watched from the sidelines. It wasn't until last week, after the Shanghai benchmark index's fall to a symbolic milestone, below 50 percent of its peak in October, that Beijing finally stepped in.

However, as it is, it does look as if the worse is over for the Chinese Markets, right?

The correction that everyone was looking for has had happened and after the Chinese Government stepped in to stop the rot in the market back in April, the correction had stabilised, right?

So as it is, would one consider this an opportunity to buy in the SSE?

Some still don't!

Posted on CBS MarketWatch recently: Chinese stocks not attractive, even after correction

• But the investment newsletters I track are finding it especially difficult when it comes to China. On the one hand are newsletters who are predisposed to seeing huge opportunity in Chinese stocks, and who accordingly tend to downplay any evidence or objections to the contrary.
  
  On the other hand, some other newsletters appear to harbor an almost jingoistic aversion to investing in China. They accordingly tend to exaggerate the risks and problems that plague the Chinese economy.
  
  The debate on both sides reminds me of a famous remark attributed to Adlai Stevenson, the Democratic Party's candidate for president in the 1952 and 1956 elections: He was fond of mocking opponents by saying, "Here's the conclusion on which I will base my facts."
  
  It is against this background that I paid special attention to a recent article that John Dessauer devoted to investment opportunities in China.
  
  Dessauer, of course, is editor of the Investor's World newsletter. According to the Hulbert Financial Digest, the advice Dessauer has provided in his newsletter since the beginning of 1982 has produced a 10.2% annualized return, in contrast to 9.4% annualized (before dividends) for MSCI's Europe Australia and Far-East (EAFE) index.
  
  Dessauer earned his bona fides as not being knee-jerk against China over a decade ago, before investing in that country had become so popular. "I first visited China in 1994," he wrote in his most recent issue. "After that, ... I went back many times, visiting many of China's provinces. Starting in 1995, I began writing about the Chinese economic miracle, and I advised buying stocks in companies that were doing business in China."
  
  Does Dessauer consider Chinese stocks to represent a good value today, with the Shanghai Composite index trading at barely more than half its high set last fall?
  
  In a word, no.
  
  For starters, Dessauer is concerned about the speculative motivation of most individual Chinese investors in Chinese stocks, and what it would do to the prices of those stocks if and when they decide to pull out en masse. "The sixfold rise in Shanghai stocks happened at the same time that millions of new Chinese investors flooded into stocks," he pointed out. "At times, Shanghai stockbrokers were opening a million new individual accounts a week. Does anyone really believe these individuals are long-term investors?"
  
  Answering his own question, Dessauer continues: "It will be interesting to see how all those millions of individual Chinese who rushed to buy stocks on the way up will react now that the market has fallen sharply. My guess is that many will lose interest in stocks and go back to work to earn back their losses."
  
  In addition to being concerned about the speculative nature of the Chinese stock market, Dessauer also worries about the "lack of managerial talent in China. Mao killed or severely punished most intellectuals, or any talented people. An entire generation of managerial talent is missing in China. It takes a long time to create managerial talent. China has been making progress with education and training but the problem is still far from solved."
  
  A third source of concern for Dessauer is "the difficult issue of guanxi, the intertwining of personal and business relationships, which leads to what we would call corruption or nepotism. In China, it has become ingrained that you combine personal and business relationships... I have visited many companies in China -- public, private and state-owned. The business culture is slowly changing, but it is still common to find high-level managers who do not know what 'profit' means, never mind shareholders. There is still a question about who owns what ... If you are still tempted to buy Chinese stocks, take a look at one or two prospectuses for Chinese companies. That is a sobering exercise that should curb your enthusiasm."
  
  Instead of investing in Chinese companies, Dessauer says that the preferable way to profit from the Chinese "economic miracle" is by investing in "established companies from the developed economics that are succeeding in China."

Interesting views made by Mr. Dessauer, yes?

But what about views from folks like Jim Rogers? Mr. Rogers has been a constant bull on the Chinese Markets for so long already.

For example on March 17th 2007, I made the following posting, And what about Jim Rogers Views?

• "I've sold out of emerging markets except for China," said Rogers, long a prominent China bull.
  
  Even in China, the world's fastest expanding economy, Rogers said stocks were overvalued and could go down 30-40 percent.
  
  But he added: "China is one of the few countries in the world where I'm willing to sit out a 30-40 percent decline."

And in the posting, How now my dearest Moo Moo Cow?

• "I own Chinese shares. I'm not selling Chinese shares. If the Chinese stock market doubles again this year I'll have to sell, because then it's a full-fledged bubble," he told a media briefing after a speech in Hong Kong.
  
  "If it goes down 50 percent this year I will buy a lot more Chinese shares. I'm not smart enough to know what it's going to do, but I'm not selling China at all."
  
  "There's no question that PEs (price to earnings ratios) in China in the A-share market are too high for some companies, but that doesn't mean it can't get much worse. When you have a bubble develop, crazy things happen," he said.
  
  "The Chinese stock market could double this year, even though it's expensive right now."

And in Novemeber 2007, And What Does Jim Rogers thinks Now?

• But I'm gearing up. I didn't put in any orders for tomorrow but I'm starting to prepare my list of things to buy in China. Whether I buy this week or this month or this quarter, who knows. But I'm starting to think about buying new shares in China for the first time in a while. And I'm not thinking about buying in America."

And just last month, it was posted on Bloomberg that Investor Jim Rogers Buys Chinese Shares as Market Hits `Bottom'

• April 27 (Bloomberg) -- Investor Jim Rogers is buying Chinese shares, among the world's worst performers this year, as the market has bottomed, and he's focusing on agriculture, tourism, airlines and education.
  
  ``All my new money goes to commodities and China,'' said Rogers, who co-founded the Quantum fund with George Soros in the 1970s and correctly predicted the start of the commodities boom in 1999. He spoke at a seminar in Beijing yesterday.
  
  ``All the panic looks like a bottom,'' he said. ``I have bought in the last four to five weeks. I've been buying shares in China for the first time in a long time.''
  
  China's benchmark CSI 300 Index plunged as much as 39 percent this year, becoming at one point the world's second- worst performer, amid speculation government steps to quell inflation would hurt corporate profits. The index is a measure of shares traded in Shanghai and Shenzhen.
  
  The stock market, the world's fourth biggest, surged almost six-fold in the two years through 2007, driven by optimism growth in the economy would boost earnings.
  
  The slump triggered government moves to support the market, with the latest taking effect April 24, when the tax on stock trading was reduced. Chinese stocks jumped 9.3 percent that day, the most since Oct. 23, 2001, helping lift the index to a 16 percent gain last week.
  
  Analysts Differ
  
  Some analysts remain unconvinced the measures will have an effect with Morgan Stanley and Credit Suisse Group last week saying China's shares are a ``sell.''
  
  ``Given earnings deceleration, we do not think such a rally can last,'' Morgan Stanley's Jerry Lou and Allen Gui wrote in a report April 25. ``The government's cut of the stamp duty seems to suggest that it is running out of silver bullets.''
  
  Chinese companies' Hong Kong-listed `H shares' are more attractive than yuan-denominated `A shares,' Credit Suisse's Vincent Chan wrote in a separate note.
  
  Selling Chinese shares in 2008 ``is a big mistake,'' said Rogers, adding that he had also bought stocks in Singapore, Taiwan and Hong Kong. ``I have never sold any Chinese shares.''
  
  Rogers said he bought shares related to tourism and education, which ``in China will continue to be a major industry.'' Other investments include those of airlines, water companies and agricultural producers, he said.
  
  ``China has a huge agricultural problem,'' Rogers said. The ``government is doing everything it can to revive the agriculture industry.''
  
  Yuan to Climb
  
  Rogers was bullish on the Chinese yuan, saying it could eventually rise to 2 yuan per dollar.
  ``Don't sell your renminbi, because it will go a lot higher in the next 20 years,'' Rogers said.
  The yuan has gained more than 4 percent against the dollar this year, after climbing 7 percent in 2007. The currency traded at 7.01 to the dollar April 25.
  
  Rogers traveled the world by motorcycle and car in the 1990s, researching investment ideas for his books, which include ``Adventure Capitalist'' and ``Hot Commodities.''

How now my dearest MooMooCow?

Would you be as bullish as Mr.Rogers is on the Chinese Stock Markets?

Update on BCT

Here's an update to the following postings, BCT , BCT Part; II and BCT III

BCT announced its earnings last Friday. And yes, it still isn't a pretty sight.

And besides the lack of earnings issue, the company's balance sheet is deteriorating as well.

And it's no wonder why the stock is getting punished.

Makes me wonder about all the bullish projections made by HwangDBS and KN mentioned in the posting, BCT III .

Jun 8th, 2007, from HDBS

• Cheap stock. With 3-year CAGR of 40%, BCTT shares are trading at only 5.0x FY08F EPS. We believe it should be worth 8x FY08 EPS or RM1.70/share, which implies a very conservative 0.2x PEG.

Jun 11th, 2007, from KN

• Maintain BUY with a revised 12-month target price of RM1.56 (+30.0%) based on a FY08 P/E of 10.0x (2-year (FY06-FY08) PEG ratio of just 0.52x). BCTT’s FY07 and FY08 net profit growth of 45.9% and 38.6% y-y remain respectable despite our slight exchange rate driven earnings downgrades. At RM1.03, BCTT shares are trading at highly attractive FY07 and FY08 P/E of 8.8x and 6.6x, respectively.

Yet another clear destruction of market capital in another Messdaq stock!

Update On MTouche

Made the following two blog postings on Mtouche back in February 2008, MTouche and MTouche Reports Its Quarterly Earnings!

What we had was a stock whose stock price was falling off the cliff and the management came out in the press defending it's poor 2007 performance.

First artice was published on Star Biz on Feb 9th 2008, After a tough year and another article was featured on the Edge a couple of days later on Feb 11th 2008, 11 Feb 2008: Corporate: Worst is over, says mTouche

Some of the points mentioned by the boss then was:

• In defence of 2007
  
  No doubt, 2007 was a challenging year for the company. Up to the nine months to September 2007, the company recorded net profit of RM5.4mil.
  
  As indicated in its announcement to Bursa Malaysia, the poor results were largely due to higher expenses from its new subsidiaries, provision of doubtful debts and higher depreciation and amortisation of intellectual property.

and

• Yet, business-wise, Goh, who is also the CEO, describes 2007 as a "bad" and "difficult" year. That's no surprise. For one, it has yet to convince Japanese mobile phone companies to buy M-Bit. The same could be said of the company's stock price. From an all-time high of RM4.18 on Nov 15, 2006, investors sold down mTouche's shares to as little as 47 sen late last month, after earnings disappointed most of last year. Its recent rights issue was about 9% undersubscribed despite attracting excessive applications. It remains to be seen if 4Q2007 numbers — tentatively slated for release on Feb 15 — will be any different. Last Monday, the shares closed at 58 sen.
  
  "Last year was a bad year. Some acquisitions did not do as well as expected and I think we were also punished for over-expanding… We streamlined operations last year, took in new people, got rid of unhealthy parts that are not strategic to our growth going forward," Goh says.

A week later on Feb 19th, MTouche reported its earnings: Quarterly rpt on consolidated results for the financial period ended 31/12/2007

Well.. MTouche reported a whopping net loss of 15.7 million for the quarter!

Last Friday, Mtouche announced its earnings: Quarterly rpt on consolidated results for the financial period ended 31/3/2008

MTouche reported another set of losses totalling some 5.159 million for the quarter!

This is what the company has got to say.

• For the financial quarter ended 31 March 2008, the Group recorded revenue of approximately RM9.2 million. The lower revenue as compared to the preceding year corresponding period was mainly attributable to the decrease in revenue from sales of goods sold due to lower new telecommunication projects undertaken. The Group’s mobile messaging business remained relatively stable. However, the Group recorded a Loss Before Tax (“LBT”) of approximately RM5.2 million in the current quarter mainly due to the following expenses incurred:-
  
  i) provision for doubtful debts of RM2.8 million made in compliance with the Group’s accounting policy;
  ii) plant & equipment written off amounted to RM0.5 million;
  iii) increase in depreciation and amortisation of RM0.5 million;
  iv) recognition of unrealised foreign exchange loss of RM0.8 million mainly in respect of the translation of foreign currency denominated Murabahah Loan Notes (“MLN”) issued by GMO Limited; and
  v) the Group’s share of loss from its associate company namely GMO Limited of approximately RM0.6 million.

And here is how the stock is trading.

Now what's most disappointing is that at its peak, this Messdaq stock traded around 4.10.

Yet another destroyer of market capital from yet another Messdaq stock!

Will the Markets Continue to Advance?

FinancialSense Market Commentator, Tim Wood, has written an interesing editorial, A Toxic Economy and a Witches Brew.

The opening line of his editorial has been on my mind.

• The equity markets continue to advance out of the January/March lows, commodity prices surge, oil continues to hit record highs...

Yes, I have been concerned with what I am seeing and I have been frequently asking myself "Has anything really changed?" and as much as I have doubted, it's also clear that the equity markets have continued to rise, which is an issue which I had posted quite long ago, If Ze Market continues to rise..

• “During the strong market of the 1990s, most investors who rode the wave ignored traditional ideas about valuation. Some money managers remained invested on the basis of a practical calculation: "If the market continues to rise and I'm not participating, I'll lose my job. But if it falls dramatically, I'll be in the same situation as everyone else." Others were conscious market cynics who thought they could successfully exploit the foolishness of others. Momentum investors didn't need an opinion about valuation. They were consciously saying, "The market may be overvalued-we don't know and we don't care. All we know is, it's been going up, and we're going to invest as long as it does-and get off the train before everyone else." The problem lies in executing the greater-fool theory. If you get off every time the market ticks down and then reestab­lish your position when the market starts to go up again, you're going to get killed, because even rising markets fluctuate on the way up. And if you wait, you risk going down with everyone else.

Yes, if the market continue to rise, am i gonna miss Ze opportunity?

• Should an investor's reasonings to invest and hold a stock be based on that particular stock's underlining fundamentals or should it be based on the prevailing market conditions?

Let me refer back to Tim Wood's editorial again.

• The equity markets continue to advance out of the January/March lows, commodity prices surge, oil continues to hit record highs and the consumer is now pulling back in a big way. History tells us that manipulation ultimately fails and that it typically only serves to make matters worse in the end. Well, when looking at what is physically happening around me, if the technical picture that I now see developing continues to unfold, then the backlash from the attempts to “stimulate the economy” may have now created a witches brew with a not so happy ending.

Mr. Wood reckons that the market is so badly twisted and from a technical point of view, he gave his reasoning based on the technical divergences within the markets.

• ..the chart below I have included the Dow Jones Industrial Average along with the NYSE cumulative advance/decline line. One of the issues that I am now seeing with this rally is that even though price has bettered its February 1st high, this measurement of breadth has not quite bettered that level. This in turn serves as a warning about the underlying health of this advance.
  For those that question the integrity of the NYSE data because of the interest sensitive securities, I have also included in the next chart below the Industrials along with the AMEX cumulative advance/decline line. Here you can see that the AMEX, stock only, advance/decline line is lagging badly. Again, the fact that breadth is not expanding along with the price advance is reason to question the health of this advance.

Rather technical but what I found most interesting was Tim's daily observations.

• Another item that is contributing to the toxic American economy is rising commodity prices and the stagnate business environment that rising commodity prices have caused. Let me give you a few examples. This past week I went to my local lube and car wash. The manager and I were talking while I was waiting on my vehicle to be washed. He told me that a year ago they would do anywhere between 80 and 100 oil changes in a typical day. But with the rising fuel prices, business has dropped to an average of somewhere between 50 and 60. As for car washes, he said that they were doing upwards of 400 a day. At present, business has dropped to between 60 and 100 per day.
  
  Another friend of mine is a boat dealer and sells bay boats and pontoon boats. This time last year if you went by his store, you could hardly talk to him because he was so busy. I remember needing something and literally not being able to get to him. He told me this week that June is his peak month and it was absolutely dead at his store. He said that he counts on the summer sales to help carry him through the winter season. He is now worried about making it through the summer. There was also another local business owner present and he too is also now feeling the exact same pain.
  
  In yet another example, I needed a trailer ball so I stopped in at a truck accessory store. It was also dead there and I quizzed the owner. He too was telling me how slow it had gotten. He said that recently he had 13 employees between all of his sales and installation people. He is now down to one sale person, a secretary, one installer and himself. He said that it is now costing him to keep the doors open. He had a beautiful black 4-door F-250. He said that it cost $170 to fill it up and he had it parked in the shop and is no longer driving it.
  
  Here’s another one. I went to the local mall with my wife this week. She knows the lady that runs one of the shops in the mall. This lady is looking for a job because sales are so bad that the company is not going to renew its lease this summer and will be closing the doors.
  
  In yet another example, I was talking to a lady at the local gym. Yes, I talk with everyone trying to get a feel for things. Anyway, she was telling me that they are now seeing gym memberships declining.
  
  I also know people at one of the local giant home improvement stores. Sales are down and I am being told that they are not refilling positions in an effort to cut overhead. This slow down is not just affecting the small business owner. It is hitting everyone.

And his closing remarks..

• So, on top of the unhealthy stock market advance we have a tapped-out and fed-up consumer. People are without a doubt pulling back as rising prices have choked off discretionary spending. We also have poor business conditions as a result. In the meantime, both commodity prices as well as the stock market continue to rise. If commodities miss their upcoming opportunity to peak, then the fallout from still years of escalating prices will hit the consumer very, very hard and my guess is that that would indeed knock the stock market to its knees. At the same time, I think it is also possible that given what is so far a weak rally by the stock market and the tapped out consumer, both the stock and commodity markets could find themselves on the way down in a much bigger way than most people can currently imagine. The key to these developments lie with my statistical data and the Cycle Turn Indicators. The bottom line is that we have a weak equity rally, rising commodity prices, poor business conditions and a tightening consumer. The price action this summer as we move into the potential turn points are beyond important, and I can tell you now that we had best pray for a top in commodities. Otherwise, rising commodity prices beyond the statistical turn point will set the stage for rising commodity prices for years to come.

The following was posted on the following article, Except for food, gas, April inflation was tame

• Inflation was well behaved in April - as long as you didn't eat and kept your car in the garage.


• "Lower-income families are really getting hammered,"


• Nationwide, food prices are climbing in all categories, including produce, meat, dairy products and grains. In the year that ended in April, bread prices rose 14.1 percent, milk 13.5 percent, and fats and oils 12.3 percent.

Don't eat, don't drive??????

And Mr. Kevin Philips simply calls this as being shambolic and calls it a clear Numbers Racket - Why the economy is worse than we know!

• If Washington's harping on weapons of mass destruction was essential to buoy public support for the invasion of Iraq, the use of deceptive statistics has played its own vital role in convincing many Americans that the U.S. economy is stronger, fairer, more productive, more dominant, and richer with opportunity than it actually is.
  
  The corruption has tainted the very measures that most shape public perception of the economy—the monthly Consumer Price Index (CPI), which serves as the chief bellwether of inflation; the quarterly Gross Domestic Product (GDP), which tracks the U.S. economy's overall growth; and the monthly unemployment figure, which for the general public is perhaps the most vivid indicator of economic health or infirmity. Not only do governments, businesses, and individuals use these yardsticks in their decision-making but minor revisions in the data can mean major changes in household circumstances—inflation measurements help determine interest rates, federal interest payments on the national debt, and cost-of-living increases for wages, pensions, and Social Security benefits. And, of course, our statistics have political consequences too. An administration is helped when it can mouth banalities about price levels being "anchored" as food and energy costs begin to soar.... (do read the rest of his editorial!)

How?

For me, I need to address if there has been any changes fundamentally in the market.

Should I believe and trust my own reasoning or should I revaluate my mindset and reasoning just because the markets looks like it could continue to move higher?

How my dearest MooMooCow?

Has anything really changed?

Intel Investing In Green Packet???

Mentioned on a cbox: http://www.btimes.com.my/Current_News/BTIMES/Saturday/Nation/intelgp.xml/Article/ woke up early only to read this resurface of another crap reporting!

Here is what the said crap reporting is saying:

• Intel may take 7pc stake in Green Packet
  By Goh Thean Eu
  gohtheaneu @nstp.com.my
  
  INTEL Corp may pay about RM65 million for a seven per cent stake in Green Packet Bhd, a deal that gives the US chipmaker a larger footprint in the global wireless broadband industry.
  
  Intel, whose chips are brains to most of the world's computers, has been constantly investing in companies in the telecommunications sector, including broadband.
  
  So far, it has stakes in companies like Bulgaria's Nexcom, an Internet service provider using WiMAX technology, Egypt's Orascom Telecom Wimax Ltd, and UK's Freedom4 among others.
  
  "Intel is probably looking at around a seven per cent stake in Green Packet, for about RM2.80 a share. Green Packet is expected to issue new shares to facilitate this deal," said an industry source.
  
  The deal could turn Intel into Green Packet's fourth largest shareholder, ahead of Goldman Sachs, a US investment bank that holds 5.76 per cent.
  
  Intel chairman Datuk Dr Craig Barrett is expected to be in town on Monday, to attend the World Congress on Information Technology (WCIT) 2008. A signing ceremony between Intel and Green Packet is due to be held on the same day.
  
  In a statement, Intel said that "it will announce its investment in a listed Malaysian telecommunications company". Green Packet plans to hold a signing with a "global IT partner".
  
  Green Packet shares have done better than the broader stock market so far this year. It was traded at an average of RM4.22 in 2007, with a high of RM5.90.
  
  The company made a net profit of RM30.16 million in 2007, against RM55.29 million in 2006. The lower earnings is mainly due to slower growth in China, and the investments for its WiMAX operations.

This same story was also being featured on CBS MarketWatch, Intel to announce Malaysian investment on Monday

Intel Corp. will likely announce on May 19 that it is buying a minority stake in Malaysian high-speed wireless broadband operator Green Packet Bhd (0082.KU), a person familiar with the deal said Friday.

Intel's entry will help Green Packet - which will soon launch Malaysia's first WiMAX broadband service - break into other markets in the region, the person said.
Details of the deal aren't immediately available.

Intel said in a note earlier that it will announce an "investment in a listed Malaysian telecommunications company" at 0400 GMT on May 19, on the sidelines of the World Congress On Information Technology 2008.

The investment - if it goes through - will come just weeks after Green Packet Managing Director C.C. Puan said in a May 2 interview with Dow Jones Newswires that the company was in talks to secure a strategic foreign partner.

Green Packet shares have been on the rise since then, gaining as much as 23% and outperforming a 2% rise in the benchmark Kuala Lumpur Composite Index.
The shares were last traded at MYR2.77.

Puan had also said that Green Packet expects to roll out its 2.3Ghz WiMAX broadband service in June, targeting revenue of MYR1.0 billion from the business by 2012.

So since Green Packedt had been saying it's in talks to secure foreign partner since May 2 and since Intel had mentioned it will announce an investment in a listed Malaysian investment telecommunication company, this PERSON (who is familiar to the deal), this INDUSTRY SOURCE is telling the whole world it's had to be Green Packet.

How?

At this moment of time I am curious. Who and what is a person familiar to the deal? Who is this Industry Source?

An insider?

Would this be same as leaking of insider news?

Would it?

I do not know.

All I know is that I had blogged on Green Packet several times.

Firstly on Green Packet's overly aggressive share buybacks: Regarding Green Packet's Share Buybacks. and Update on Green Packet's Share Buybacks and then on its earnings, Green Packet Earnings and More On Green Packet

And if you read these postings, you would understand my displeasure against this company.

Firstly, the earnings announced in Feb was utterly poor.

A quarterly net earnings of only 277k??? Which was so rather ironic when you look at the chain of events.

You have the stock price collapsing.

And then you have the company buying back their shares aggressively.

Way too aggressive.

• from Dec 26th 2007 to Jan 2nd 2008, Green Packet's share buybacks saw it paid a lowest price of 2.38 and a highest price of 2.93! ( ps. that's a price differential of a whopping 23% in the share price in a mere 5 trading days. So how could anyone not be suspicious that perhaps Green Packet had used its share buybacks to push the stock higher?)

And next you have the stock actively featured in the weekly financial news.
( 4 Feb 2008: Corporate: Taking a chance on Green Packet and 25 Feb 2008: Corporate: 'Transformation year' for Green Packet. )

And when Green Packet announced its earnings, it announced a net quarterly earnings of only 277k!!!!

So how?

Could Intel make an investment into Green Packet?

Ok I do question why Green Packet but I won't say this deal is not possible! In fact, it's possible but we shall see come Monday!

And all I will say is any company can make any investment. Sometimes the investment pans out but sometimes it fails. And sometimes, even big name companies can screw up by making some rather lousy investments. It does happens! (Transmile comes quickly into my mind!).

Baltic Dry Index Soars Due to Quake Factor!

Published on Bloomberg: Baltic Dry Index Advances to Record in London on Chinese Demand

• May 15 (Bloomberg) -- Commodity shipping rates jumped to a record on increasing Chinese demand for iron ore and may advance further as rising finance costs curb growth in shipbuilding.
  
  The Baltic Dry Index, a measure of costs to move everything from coal to grain, gained 418 points, or 3.9 percent, to 11,067 points on the Baltic Exchange in London.
  
  Chinese steel production has expanded more than fourfold in a decade, forcing the nation to step up imports of coal and iron ore from Australia and Brazil to feed its furnaces. The country, the world's most populous, is also the biggest consumer of metals including copper, nickel, zinc, tin and aluminum.
  
  ``The main thing is iron ore coming out of Brazil and Australia,'' Peter Norfolk, an analyst at London-based shipbroker Simpson, Spence & Young Ltd., said by phone today. ``Steel prices globally are very, very high so steel production is very strong, particularly in China.''
  
  China's steelmakers imported a record 42.9 million metric tons of iron ore in February, beating the previous all-time high set in April by 4.7 million tons, according to data from the China General Administration of Customs on Bloomberg. Stockpiles of the raw material, at 62 million tons, are also at a record.
  
  The delivery of as much as 10 percent of new ships faces delay or cancellation because of tighter credit markets and rising steel costs.
  
  ``There are not sufficient ships open in the Atlantic,'' David Webb, a director at London-based Arrow Chartering Ltd., said by telephone today. There are delays in China which ``are a new theme, a couple of days here and there. If that becomes a factor it would have a massive effect.''
  
  Congestion Worsening
  
  Simpson, Spence & Young's Norfolk also said congestion at Chinese ports is worsening.
  
  The loss or delay in deliveries of about 250 cargo ships, or 10 percent of orders, will tighten the supply of vessels and support rates when demand from China and India for everything from soybeans to coal has never been greater.
  
  The Bloomberg Dry Ships Index, which includes 12 shipping companies, has gained 75 percent in the past year, compared with a loss of 6 percent for the Standard & Poor's 500 Index. STX Pan Ocean Co., a Korean shipping company, and DryShips Inc., an Athens-based shipper, have more than doubled. The Baltic Dry Index has risen 65 percent in a year.
  
  Tighter credit, brought on by the $329 billion in writedowns by the world's banks and securities firms because of the collapsing mortgage markets, is taking a toll on the record level of ship orders that was expected to increase capacity and rein in rates. Costlier steel and the instability of less established shipyards are adding to the uncertainty.

Yup, it's at a record high. Dry bulk freight costs at record high. And note how them buggers at Goldman Sachs are fanning the fire!

• Freight costs for basic commodities such as iron ore, coal and grains surged to an all-time high on Friday, placing new inflation pressures on the countries such as China that import large amounts of natural resources.
  
  The Baltic Dry Index, the benchmark for dry bulk commodities' freight costs, rose to 11,459 points – a 3.5 per cent rise on the day – surpassing its previous peak of 11,039 points last November, boosted by a combination of strong demand for commodities and port traffic jams.
  
  It was the second successive day that shipping costs hit a record high and the index closed the week up 11.9 per cent. It has jumped tenfold since 2000.
  
  Analysts said demand for iron ore and coal was the main factor behind the jump but they also highlighted strong consumption of agricultural commodities.
  
  Crude oil prices ended the week by hitting a record high of close to $128, prior to the news that Saudi Arabia had pledged to increase oil production to its highest level in two years.
  
  The price rises were prompted by a bullish forecast from Goldman Sachs, the Wall Street investment bank, and fears that China would need to step up fuel consumption after the earthquake damaged its hydro-electric power plants.
  
  Nymex June West Texas Intermediate surged to a high of $127.82 a barrel, and later traded at $126.70 a barrel, up $2.58 on the day. That was a rise for the week of 2.3 per cent.
  
  Goldman Sachs said high oil prices would continue and told investors to buy long-dated futures for delivery in 2012.
  
  Its recommendation sent the December 2012 futures contract in New York to $123.96 a barrel, up $4.54 on the day. Adam Sieminski, chief energy economist at Deutsche Bank in Washington, said damage to hydro-electric facilities in China could prove to be critical for energy demand in the near term.
  
  "It is becoming clear that the earthquake has damaged as many as 17 dams in Sichuan where the earth quake occurred."

And remember me talking about Thorseen Thai, the dry bulk carrier from Thailand mentioned on posting Dryships, Maybulk and Dry Baltic Index (BDI) and Update on Dryships (DRYS) and Baltic Dry Index ? Well Thoresen Thai has reported that its profit surgeds on dry bulk boom!

• THORESEN Thai Agencies’ first-half profits leapt 90% on the back of the renewed dry bulk shipping boom. The Thai-listed handysize and handymax owner and operator reported a net profit for the six months ended March 31 of Baht4.81bn, 90.1% higher than in the same period a year earlier. The company reported first-half revenue of Baht16.2bn, up from Baht10bn a year earlier.

And the drybulks shares soared.

• NEW YORK (Associated Press) - Shares of drybulk shippers sailed higher Friday, as key index measuring drybulk ship activity blasted through an all-time high for the second consecutive day.
  
  The Baltic Dry Index, which measures drybulk shipping rates on 40 routes across the world, leaped 392 points Friday to close at 11,459. The index made its biggest jump ever _ 443 points _ just a day earlier and eclipsed a previous all-time high of 11,039 set in mid-November. The index is managed by the Baltic Exchange in London.
  
  Among the largest gainers were Excel Maritime Carriers Ltd., which rose $4.18, or 7.8 percent, to $57.72; and Euroseas Ltd., which added $1.30, or 8.4 percent, to $16.80.
  
  Drybulk ships have been in high demand as China and emerging nations import massive cargos of iron ore and coal to make steel, and require cement, construction and agricultural products.
  
  But demand was slowed in the first quarter by iron ore price negotiations in China and flooding that led to coal production slowdowns in Australia and South Africa.
  Jefferies analyst Douglas Mavrinac said the index's two-day surge can be attributed to the ramp-up of iron ore production in Australia, as well as an "emotional" response to the massive earthquake earlier this week in China.
  
  Mavrinac said that some speculation is brewing that the damage from the earthquake may require the Chinese to import more agricultural products to account for damaged crops, and construction materials as the rebuilding process begins.
  
  "It's adding a little bit of tightness to an already tight market," he said.
  
  Other gainers were DryShips Inc., which leaped $4.24, or 4 percent, to close at $110.74, and Diana Shipping Inc., which added $2.40, or 6.6 percent, to $39.

Dryships gained some 4% to $110.74!

The price movement of Dryships is certainly most impressive. Here is the recent 5 day movement of the stock.

And if I zoom out and look at its one month performance, it's even more impressive!

And even our local bulk carrier is showing some sign of life! Yeah no joke!

How?

Do you still trust your reasonings?

Do you think that trust is a must?

Update on OrnaSteel

Since the steel stocks are so hot and I had blogged on a steel stock before, here's an update to Review on OrnaSteel Again

Q-Q earnings have improved a lot from its dismal fy 2007 Q4 Earnings. Rather impressive considering the company only made 14.9 million the previous quarter.

Same quarter previous comparison.

Earnings improved marginally from 22.6 million to 24 million.

However, surely some would be disappointed. For other stock leaders like Ann Joo and Southern Steel showed darn impressive earnings recently.

Balance sheet is still as impressive as ever. Total net cash balances have increased yet again.

Understanding My Investment Risks. Every stock has it minus points or risks. So does Ornasteel.

If you refer to my earlier postings, my concerns were on the marketable securities issues with Ornasteel. Yeah, I absolutely hate it when our local corporate leaders dabbles in such investments. Why can't they return the extra cash baack to the shareholders?

And in their last reported earnings on Feb 2007, Quarterly rpt on consolidated results for the financial period ended 31/12/2006

• The status of the Group’s investment in marketable securities as at the end of the reporting quarter is as follows:-
  (i) at cost: RM30.240 million;
  (ii) at carrying value: RM30.388 million; and
  (iii) at market value: RM30.388 million .

Now in yesterday earnings notes, Ornasteel has made much more investments!

• The status of the Group’s investment in marketable securities as at the end of the reporting quarter is as follows:-
  
  (i) at cost: RM56.240 million;
  (ii) at carrying value: RM56.956 million; and
  (iii) at market value: RM56.956 million

56.2 million in marketable securites???

Seriously, that's massive yes?

This is a concern yes?

Is this getting out of hand?

The Clear Underperformance of Maybulk when compared to other BDI Shippers

My dearest Jamesy or otherwise known as James Bull has left me an very interesting comment on "Dryships, Maybulk and Dry Baltic Index (BDI)":

Actually i wanted to show the comparative performance for bdi shippers but i had a difficulty to upload it yesterday.Here is the comparative performance since Feb08, where BDI rebounded from its bottom: ttp://img98.imageshack.us/img98/4540/comparativeperformance1iu1.gif

Here is the comparative performance since April08, where BDI rebounded from its higher low: http://img98.imageshack.us/img98/8214/comparativeperformance2zj8.gif

As usual, our kampung saham always has tendency to be a lagger, and that make us unique :D

~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~

And here is the bigger picture of what Jamesy is saying to me. ( I took out the other shippers mentioned by Jamesy because there are rather smallish shippers. )

The comparison of BDI Shippers since Feb 08.

The comparison of BDI shippers since April 08.

As pointed out by my dearest Jamesy, it's rather so clear that Maybulk has been a terrible laggard when compared to other BDI shippers.

And this is where it gets tricky, if you ask me.

In my honest opinion my dearest Jamesy, if you strongly believe that the current situation where Maybulk is underperforming other BDI shippers, equates to a buying opportunity and that there should be no reason why Maybulk should not move in tandem with other BDI shippers, then this is where the issue of trust is so very important.

I had actually made a rather short note on MooTakTrade yesterday called Eternity

• "A man must think for himself, must follow his own convictions...Self-trust is the foundation of successful effort."

Of course, it's so important that one needs to understand that own owns convictions needs to be spot on in the very first place and blind self convictions can equally kill when one fails to acknowledge one's own short comings.

So do you trust your reasoning that the current situation represent an opportunity?

If so... trust is indeed a must, yes?

Huh? Tame US Inflation???

The headlines said Tame US Inflation and US Economy: Consumer Prices Rise Less Than Forecast.

I went huh?

Serious? Tame US Inflation??

The Reuters News article wrote

• Wall Street liked America's April consumer inflation numbers, even though there was little in the Wednesday report to ease the pressure on Main Street wallets.
  
  The Labor Department said that the Consumer Price Index jumped 0.2%, a bit less than the 0.3% gain economists had expected. Core CPI, which excludes food and energy costs, was up by 0.1%, also slower than general expectations for 0.2%.
  
  Year-over-year consumer prices rose more modestly than forecast. Overall prices advanced 3.9% from April a year ago, and core prices were up 2.3%. Analysts were expecting a 4.0% advance in overall prices and an annual rise of 2.4%.
  
  The Labor Department 's Consumer Price Index, the federal government's primary inflation yardstick, measures the prices of a mix of consumer goods and services such as transportation, energy, food and medical care.
  
  Numbers aside, "better-than-expected" was all Wall Street wanted to hear. Stocks traded modestly higher late in the day and interest rates held steady in the bond market, with the 10-year Treasury issue yielding an unchanged 3.91%..
  
  Len Blum, managing director of Westwood Capital, argued it would be difficult for an inflationary picture to develop because of the weak economic environment. Workers in many industries cannot push their wages much higher because their employers can easily shift production overseas.
  
  Instead Blum was firmly focused on the continued economic slowdown. "We're a consumer driven economy but consumer can't borrow as they historically have with their homes," Blum said. "They're getting pressured with gas and food prices, and with earnings lowering, consumers are going to slow spending."
  
  Blum observed that the 0.9% spike in food prices in April probably dampened the core CPI figure because consumers simply didn't have the cash to pay for nonfood items .
  
  Last month's figures weren't the runaway disaster many had feared, but that only shows how rough things have become, as the U.S. economy deals with the twin problems of inflation and a slowdown. (See: "CPI Shows Inflation Is Still Chugging") In particular, energy prices have spiked by 15.9% over the past year, and food prices have gone up 5.1%.
  U.S. mortgage application volume rose 2.9% during the week ending May 9, according to the Mortgage Bankers Association's weekly application survey. The MBA's application index increased to 674.4 during the week, compared with 655.4 one week earlier.

CNBC.com, however, carried a differing opinion, Tame Inflation? Tell That To People Buying Gasoline

• High gasoline prices got you down? Come to the land of seasonal adjustment, where the sun is always shining and gas prices fell 2 percent last month.
  
  What? You paid more? Well, in the real world, gasoline prices did rise by a sharp 5.6 percent in April from a month earlier, but the way that the Bureau of Labor Statistics adjusts the figures to smooth out seasonal oddities, it appeared to be down in the consumer price index released Wednesday.
  
  "The drop makes absolutely no sense. Where does the BLS buy their gas?" asked Mark Vitner, senior economist at Wachovia.
  
  No, there is not a magical government gas station where pump prices remain below $3 per gallon while the national average stands at $3.72.
  
  Another branch of the very same U.S. government, the Department of Energy's Energy Information Administration, said average retail gas prices actually shot up 9.5 percent in April from March.
  
  So who's right? It has to do with how the Bureau of Labor Statistics compares current price trends with the norm.
  
  Typically, gasoline prices rise sharply in April as the arrival of warmer weather encourages people to drive more.
  
  The government data is adjusted to reflect that pattern so that it can highlight variations from the trend.
  
  Because gas prices did not rise as much last month as they typically do in April, the seasonal adjustment showed that prices fell.
  
  This is no consolation for consumers grappling with record-high gasoline prices that have curbed spending on other goods and services, adding another drag to an already sluggish U.S. economy.
  
  "We don't feel great about paying less for seasonally adjusted gas. We feel bummed that we actually had to pay more for gas," said Kenneth Beauchemin, U.S. economist with Global Insight.
  
  But the seasonal adjustments are a useful tool for economists because they eliminate factors that probably say more about the calendar than the health of the economy, he noted.
  
  The data may also offer some peace of mind to Federal Reserve officials who have been increasingly wary of rising inflation.
  
  Investors have begun to speculate that the central bank may be forced to raise interest rates as early as this year if price pressures continue to build.
  
  Overall, the consumer price index rose by a smaller-than-expected 0.2 percent in April.
  
  So-called core prices, which strip out food and energy costs, were up just 0.1 percent, half the increase that analysts had forecast.
  
  Back in the unadjusted world, not only did gas prices rise sharply in April, but with oil hitting record highs on a regular basis, they are likely to keep climbing in the coming weeks.
  
  That means May's CPI data may look less tame.
  
  "We do not think that the market or the Fed should take false comfort from the data. We expect to see much worse numbers in both the headline and the core a bit down the road," said Joseph Brusuelas, chief economist with Merk Investments.
  

And it's incredible when the Bank of England is saying that the inflation should remain high. See the following video UK Inflation to Remain High...

And oh yeah, Food price surge in April

Oh yeah the markets liked the CPI numbers.

However, do note the differing opinions from the bond markets as yields remain relatively high.

Update on Dryships (DRYS) and Baltic Dry Index

The Baltic Dry Index has soared another 2.849% to close at 10,649!!!

And Dryships has continued to perform.




Here is an article from UK Guardian, Baltic capesize sea index hits record on China ore

• By Stefano Ambrogi
  
  LONDON, May 14 (Reuters) - The Baltic Exchange's capesize freight index for merchant ships hauling minerals worldwide soared to a record on Wednesday on sizzling demand for iron ore into China and increased global coal demand.
  
  Sea freight markets for natural resources have largely been impervious to the turmoil sweeping financial markets and a weakening U.S. economy, buoyed instead by the rapid industrialisation of China and India.
  
  The capesize index <.BACI>, monitoring costs for classes of merchant ship typically hauling 150,000-tonne cargoes of minerals, soared 588 points, or 3.7 percent, to a record 16,357 points, surpassing the previous all-time high struck in November last year.
  
  "China's iron imports in April were at a new record and they are enormous -- they are almost 5 million tonnes higher than the previous record month, which is a huge rise," said Peter Norfolk, a senior dry commodities analyst at consultancy Simpson, Spence & Young.
  
  "We are also seeing a lot of coal activity, which is positive for tonne-mile demand, and U.S. coal exports have made a strong start to the year, making up for shortfalls in supply elsewhere, especially in the Pacific," Norfolk said.
  
  "Everything (fundamentals) is still booming," he said pinning the main driving force for the spectacular rise on raw materials demand from China.
  
  "Demand for all these commodities is broad based, steel prices are strong everywhere, but in volume terms it is still China," he said.
  
  Jim Lennon, a commodities analyst at Macquarie Bank who monitors freight markets, said the record clearly showed demand for natural resources had not been dented by the credit crisis or economic worries in the West.
  
  "What it tells you is that China is still booming, which is what we always thought, and that India is requiring a lot more coal -- the shipping of commodities does not really reflect the U.S. (downturn) at all," he said.
  
  "What it says is that there is onging demand and the world economy is growing reasonably strongly and it's more a question of congestion and a lack of ships being built than anything else," Lennon said.
  
  Citing ship industry sources, Lennon said costs could climb even higher this year due to congestion at key export terminals in Brazil and Australia and higher projections of iron ore and coal supplies.
  
  "There is just a huge amount of new iron ore to be shipped and so there is a real scramble. They (sources) are predicting it is going to blow out, it could go up another 20 to 30 percent," he said.
  
  Other key Baltic indices are also close to records on robust demand for natural resources.
  
  The Baltic Exchange's chief sea freight index <.BADI>, which monitors 40 major trade routes for minerals, grains, cement and sugar, jumped on Tuesday, closing rapidly on an all-time high struck last November.
  
  Prices have recovered strongly after a near collapse at the start of the year on short-term logistical disruptions to commodity supplies.
  
  Freight costs on key export routes are more than 10 times higher than the economic crisis of 2001-2002, when the dot-com bubble burst and the Sept. 11 attacks hit world trade.

They predict that index to move up another 20 to 30 percent??!!

WOW!

And even Thoresen Thai is performing rather well.

All except Maybulk!

LOL!

Why oh why?

Dryships, Maybulk and Dry Baltic Index (BDI)

January 8th 2008.

That was when I was blogged on the Baltic Dry Index: Regarding the Dry Bulk Shipping Sector

One of the stock that was featured by Ms.Teresa Lo, from Invivoanayltics.com (see dry bulk shipping industry ) was DryShips.

A month later, I had made another update. Update on Baltic Dry Index

• Since the Baltic Dry Index has recorded some decent recovery (see most recent quotes above), I only think that it's appropriate that I also make an update on my past BDI postings ( Regarding the Dry Bulk Shipping Sector., Maybulk And The Baltic Index and Another update on Maybulk ).

And by March 8th, I had posted yet another update. Do They Know It's Christmas Time for ...

• Yes, since hitting the peak, the index for the Baltic Dry Index had tumbled. And as stated precisely, cargo shipments were indeed impacted by bad weather condition (severe snow storms in China to be precise) and this had put a huge damper in the charter rates. However, at this moment of time, this has clearly passed. The charter rates had certainly rebounded extremely strongly and as can seen above, the BDI closed at 8536.
  
  Yes, the plunge of the BDI from 11k has spooked the shipping shares. The index fell to a low of a 5615 on Jan 29th 2008.
  
  But the BDI is now at 8536!
  
  Oh, that's a recovery of some 2921 points or a whopping 52% from its Jan 29th lows!
  
  How?
  
  Do you reckon that Maybulk, whose earnings depending heavily on the index, should rate much higher?
  
  Ah yes, if you read Maybulk's earnings, there's a proposed 30 sen dividend. And if you use historical fiscal years as an indicator, Maybulk's dividend should go ex in April and payment would be made in May.

And here is latest update for the BDI.

Yes the BDI is now 10,354 pts! Which means the BDI has recovered an incredible 84% since its lows in January 2008.

And the following shows the trylu amazing recovery of the Index.

Why the sudden spike in this Baltic Dry Index? (Note this is just an index and it's not a tradeable thingee!)

The following Bloomberg News article offered some clues: Shipbuilding Torpedoed by Subprime Causes Cost Surge

• ``Cancellations would certainly be bullish for rates because the ships won't be there,'' Natasha Boyden, an analyst at Cantor Fitzgerald in New York, said.


• Freight rates have risen as fewer vessels have been delivered. The Baltic Dry Index, a measure of rates, has risen 58 percent in the last year as an index tracking the number of cargo ships under construction has fallen 21 percent in that time, using Lloyd's Registry Fairplay data.

And other shipping giant such as Mitsui OSk is feeling really bullish. Mitsui O.S.K. to Beat Profit Forecast on Higher Rates

• Mitsui O.S.K is benefiting from China's demand for iron ore as the country builds more cars, ships and factories. China's economy grew at the fastest pace in more than a decade last year and the country's imports of iron ore jumped 17 percent, the China Metallurgical Mining Enterprise Association said in April.
  
  ``Given the increase in rates, it wouldn't be unusual to see profits come in higher than forecast,'' said Osuke Itazaki, an analyst in Tokyo at Credit Suisse Group.
  
  Mitsui O.S.K rents 22 of its 100 large so-called ``capesize'' vessels at daily rates. It can quickly raise prices for those ships in response to fluctuations in demand. The other ships are contracted out for longer periods with fixed rates.
  
  The Baltic Dry Index, a measure of commodity-shipping rates, last week rose to the highest this year. It rose 53 percent to 10,220 in the past 12 months and touched a record 11,039 in November.
  
  `Strongest' in History
  
  ``The strongest dry-bulk commodities market in history is extending this run of higher prices,'' said Yonetani. ``Operating profit is likely to exceed our expectations.''
  
  The company plans to add 53 iron-ore carrying ships to its fleet over the next six years, it said today in a statement. Mitsui O.S.K. currently operates 125 such ships and plans to retire some of the older vessels. It had 364 bulk commodity ships in its fleet at the end of March.

And over in Thailand, folks are getting bullish on Brokers bullish on Thoresen Thai (note this a current news!)

• Given the level of the Baltic Dry Index - now above 10,000 points for the first time since December - and strong demand for dry bulk shipping, most brokers have recommended "buy" on Thoresen Thai Agencies' stock.
  
  Of 20 brokers in the Securities Analysts Association's consensus, 14 brokers recommend "piling up" TTA's stock, four brokers recommend "trading buy", while one each advises" hold" and "sell". The target price in the consensus ranges between Bt48.50 and Bt79 per share.
  
  TTA is Thailand's largest dry bulk shipper, owning 45 general cargo vessels and bulk carriers as at the end of last year. It has expanded into offshore oil and gas-related services through its subsidiary, Mermaid Maritime, which owns four offshore supply and support vessels and two tender drilling rigs.

Now let's our leading dry bulk carrier stock, Maybulk Carriers.

Firstly, the chart had been adjusted to account for the 30 sen dividend that was paid in late April.

Maybulk last traded at 4.26 and if you use the January low of 3.50 as the low, the stock had appreciated some 76 sen. Adding back the 30 sen dividend, this would mean that the stock has appreciated by some 30%.

Now let's compare Maybulk's performance to Dryships performance.

Back on Jan Dryships was trading at 52.18. It closed at 98.40 yesterday. Dryships has increased by a whopping 88.5%! (Which is about correct when one consider that BDI had increased some 84%) ( Dryships was also blogged by Chris Perruna,DryShips (DRYS) Drying up?. )

The below chart shows the incredible disconnect between Maybulk's performance and Dryships performance.

So why is Maybulk so under performing?

Is there something wrong with Maybulk?

Why is Maybulk being ignored by our local market?

How now my dearest MooMooCow?

Hefty Fines Imposed on Transmile Directors?

Published on the Edge: Transmile case jolts auditors on governance issues

• KUALA LUMPUR: Actions such as hefy fines on Transmile Group Bhd directors have jolted many audit committee members and auditors into paying greater attention to corporate governance issues, said consulting firm Columbus Circle Governanance chairman Navin Pasricha.
  
  “There is a big breakthrough in the actions of regulators when policing corporate governance. In the past, limited policing and action were barriers to getting real corporate governance improvement,” he said in a statement released here yesterday in conjunction with the forthcoming 4th Asia Pacific Audit & Governance Summit (APAGS).

I am so puzzled!

Are the fines imposed on the Transmile Group Bhd directors really hefty?

Have a look at this Bernama news clip on May 5th: SC Drops Charge On Ex-Chief Financial Officer Of Transmile

• KUALA LUMPUR, May 5 (Bernama) -- The Securities Commission (SC) Monday withdrew the charge against former chief financial officer of Transmile Group Bhd after he paid a compound of RM700,000.
  
  Sessions Court Judge S. M. Komathy Suppiah allowed the charge against Lo Chok Ping, 39, to be withdrawn after SC's Deputy Public Prosecutor Foo Lee Mei told the court that the Attorney-General's Chambers had allowed a representation by Lo's counsel N. Sivananthan.
  
  Lo was charged with the company's former chief executive officer Gan Boon Aun and executive director Khiudin Mohamed on July 12 last year with abetting the company in making a misleading statement in its quarterly report.
  
  Lo, Gan, 47, and Khiudin, 51, had claimed trial to committing the offence at Bursa Malaysia Securities Bhd here between Feb 28, 2006 and Feb 15, 2007.
  
  According to the charge, the alleged statement was made in the unaudited consolidated results for the fourth quarter of the financial year ending Dec 31, 2006, and it was likely to induce purchase of securities of Transmile Group by other people.
  
  SC had issued a statement that the misleading statement was related to Transmile's revenue of RM338.473 million.
  
  Komathy fixed May 26 for mention of the case against Gan and Khiudin.

A compound fine of rm700,000 was paid and SC withdrew the charges.

Is a fine of rm700,000 enough?

Transmile was trading as high as rm14.00. It now trades at around rm1.50.

Do you think this fine is just for investors who had purchased the stock based on the misguided figures at around rm14.00?

Yeah, some would simply argue that the stock market is simply a cruel, cruel world but this simply isn't correct!

The so-called misleading statement had caused the market to rate the stock at a much, much higher valuation. There was growth, the stock was going places.

It made the justifications required for the stock to trade above RM14.00.

The market was valuing the stock with a market capitalisation of as much as rm3.7 billion!

As it is, without these so-called misleading statements, Transmile is making losses. Now there is no growth and the company has heaps of massive problems.

And the stock is sinking into the abyss.

And currently the market capitalisation of the stock is only around 400 million!

What a difference the so-called misguided statement had on the stock market capital.

So tell me, is rm700,000 hefty?

We shall see what happens next.

Poor Martha!

The Grand Saga Issue

Fellow Dali blog on it, Finding Out More About Grand Saga

Do check out the two links:

http://insidesglong.blogspot.com/

and

http://www.youtube.com/watch?v=AtSRluxGBIk

* * * * * * * * * * *

Update: 13th May 2008

Posted on Star News: Zin: Government can act only after Narajaya suit is resolved

• THE Federal Government has to wait for a court decision on a lawsuit filed by developer Narajaya Sdn Bhd against Cheras-Kajang Highway concessionaire Grand Saga and the Malaysian Highway Authority (LLM) in 2007 before negotiations could resume on the use of the access road.
  
  Works Minister Datuk Mohd Zin Mohamed said no action could be taken by the federal government for fear of subjudice.
  
  “The Government has held a series of meetings between Bandar Mahkota Cheras residents and the concessionaire to resolve the matter over the access road.
  
  “Under the terms of the agreement signed between the federal government and the concessionaire in 1995, any financial loss due to the leakage of traffic volume from the toll highway will have to be borne by us,” he told Cheras MP Tan Kok Wai during a question and answer session in Parliament yesterday.
  
  Zin said the Government was sympathetic to the plight of around 37,000 residents in Bandar Mahkota, who had dismantled the barricades installed by Grand Saga barring them use of a road allowing them a shorter and toll-free route into their housing areas.
  
  “We understand why the residents have resorted to such drastic action. The main toll road is also highly congested due to the high traffic volume of lorries and cars,” he said.
  
  The standoff had turned ugly on Thursday night when police used tear gas and water cannons to disperse a crowd comprising residents who were trying to dismantle the latest barricade put up by Grand Saga.
  
  To a supplementary question by Tan, Zin said although the Survey and Mapping Department report showed that the land the barricade was on belonged to the Selangor state government, there was still the question of who would bear the financial loss incurred by Grand Saga
  

Is iCapital Views Consistent? Is Warren Buffett a Lousy Ecomist?

Got the following screenshot from a reader on the recent iCap commentary.


WOW!

Instead of boring our subscribers with our LONG-HELD and CONSISTENTLY BULLISH VIEWS...!

Well, are these views truly consistent?

If the views are consistent and if iCapital Long-term view of the KLCI is valued at 2000 pts, then tell me WHY DID iCap.Biz sold some rm50 million worth of shares recently? ( Do refer: More Rumblings On Tan Teng Boo's ICapital's Disposal Of Shares )

How?

Truly consistent?

And then more comments were made on Warren Buffett again!

Now this irks me a lot.

Why the need to use Warren Buffett as reference?

Has Warren Buffett ever claimed to be an economist? Did Warren Buffett ever claim to be a good economist? And what has Warren Buffet known to have said all his life? Who has been quoted too many times saying "I don't read economic forecasts. I don't read the funny papers." Wasn't it Warren Buffett?

And yes in Berkshire Annual Meeting, Warren Buffett has fielded questions on this issue. ( see previous posting here! )

• Q3: Sam from Fort Lee. Recession, stock market up in April. What next?
  
  WB: I could expand on that question, but I couldn’t answer it. Charlie and I haven’t the faintest idea where it goes next week, next month or next year. We are not in that business. It isn’t our game. We see 1,000s of companies priced every day. We ignore 99% of what we see. Every now and then, we find an attractive price for a business. When we buy it, we would be happy if market was closed for a few years. Wouldn’t get a price quote daily on a farm. We look at expected yield, cost of taxes. If you buy a farm, you would look at cost of fertilizers, what a farm produces relative to purchase price, price per acre, production per acre, etc.. We make judgments.

And the following article was published on CNBC: Buffett Says US in Recession, Banks to Face Pain

"Warren Buffett, the world's richest person, said on Sunday the U.S. economy is in recession, putting him at odds with a government report that showed weak growth.

Buffett offered his assessment during a wide-ranging news conference, a day after a record 31,000 shareholders of Berkshire Hathaway attended the insurance and investment company's annual meeting in Omaha."

• Last Wednesday, the Commerce Department said the economy grew at a 0.6 percent annual rate in the first quarter. But Buffett said the nation's population also grew, making the real growth rate lower. He also said that, even if the data do not show the economy retracting, people feel as though it is.
  
  "The U.S. is in recession as I define it," Buffett said. "I would define that as a situation where people are doing less well than they were three months, six months or eight months earlier and most businesses find themselves in that position too.
  
  "If were are in a non-recession, I don't think people want to see it going in the same direction as it is and saying it's wonderful."
  
  Weakness at Berkshire units that sell bricks, carpets and other products dependent on a healthy housing market contributed to a 64 percent decline in overall first-quarter profit.
  
  Housing remains a critical problem, he said, as hundreds of thousands of homeowners find their mortgage payments heading higher, or that their homes are worth less than they owe.

Note what Buffett is saying and addressing here. It's a fact that the US national population also grew.

So does Warren Buffett knows what he's talking about?

Here are some other articles.

Take this other editorial by FinancialSense market commentator, Frank Barbera, Mad Cow & Economics Mumbo-Jumbo Media Babble, who focuses on the job loss issue.

• All of this sounds very mild, nothing to be concerned about, but unfortunately, all of this is just a statistical mirage. In the official release from AP, the total job losses of 240K were obtained by adding up the prior reported figures for March –81K, Feb –83K, and Jan –76K. However, what the media are not reporting, and what is not getting sufficient attention is the BLS Birth-Death Model. Yes, we have written about this in the past, and perhaps it is asking too much of reporters to actually look for the ‘numbers behind the numbers,’ but the end run effect is disingenuous at best, and an outright lie at worst. In the case of the BLS Birth-Death Model, this is a complex ARIMA Model that seeks to extrapolate prior cycle job gains and losses for the current cycle on the premise that prior history can be used to impute/refine today’s data. Unfortunately, this is not the case as the American economy has undergone traumatic fundamental changes in the last two decades, with the rise of Corporate Capitalism and the exportation of the US Manufacturing base. Call it the 'Return to the Guilded Age,' or more euphemistically, a ‘Transnational Restructuring of the American Economy,’ or simply, ‘The Rise of Globalism;’ any way you slice the baloney, today’s US economy does not resemble anything seen in the 40’s, 50’s, 60’s, 70’s or 80’s. (Well, OK. I’d have to concede that we do have a revival of the late 1970’s stagflation, except, before we are done, this is likely to prove an even stronger brand, but that’s a story for another day).

And here is John Mauldin's editorial on this job stats issue, Lies and Other Statistics

• Without that addition from the birth/death number, total private employment would have dropped by 296,000. Now, if that had been the headline number, the market would have tanked. Now, I have no doubt that the economy did create a lot of new jobs last month. But when the final revisions are in, we will see that job losses were well south of 100,000. If memory serves me correctly, the BLS had to add about 800,000 jobs that they missed during the recovery in 2003-4. (The birth/death model misses job growth during recoveries, the opposite result of the miss in slowing periods.) They did this just last year, in a major revision of the data. We will see the same type of revisions in 2010, only this time it will be downward.
  
  And even the BLS says that the birth/death numbers have little statistical meaning. The following is from their own website (courtesy of Dennis Gartman) [emphasis obviously mine]:
  
  "Birth/death factors are a component of the not seasonally adjusted estimate and therefore are not directly comparable to the seasonally adjusted monthly changes. Instead, the birth/death factor should be assessed in the context of its effect on the not seasonally adjusted estimate... The components are not seasonally adjusted separately because they do not have particular economic meaning in and of themselves."
  

Or how about this other editorial, Yes Virginia, This Is A Recession, who address the US Economy growth of 0.6% as stated by iCapital.

As quoted by the US Statistics:

• Real GDP growth from Q1 2007 to Q1 2008 was therefore (in the neighborhood) of .57%. Or to put it another way, although “Real” GDP growth in the first quarter of 2008 was very weak, the American economy is not in a recession.

As argued by Mr. Cooke:

• People are not buying more. They are just paying more for what they buy.
• Tell that to a mother struggling to find enough money to buy food for her family and suddenly realizing she also has to buy gas with the little bit of cash that’s left in her purse.
  
  Farm prices are up. We can get an indication of the world-wide competition for available agricultural products by looking at the prices American farmers received in February 2008 versus February 2007, and Q4 2007 versus all of 2006. We can also make a projection of average annual prices in 2008 versus the actual prices farmers received in 2006. Higher consumer demand, coupled with decreased production due to crop failures and increasing production costs, have increased the competition for available food grains, sending projected prices up by more than 123%. Higher fertilizer, herbicide, insecticide and fuel costs will push up the price of commercial vegetables, and fruits and nuts. Higher feed costs mean higher prices for meat animals, dairy products, and poultry and eggs.

And how about this news posted on APress last Friday, Federal regulators close Arkansas bank ANB Financial

• BENTONVILLE, Ark. (AP) — Federal regulators says they've closed ANB Financial National Association banks after discovering "unsafe and unsound" business practices there.
  
  David Barr, a spokesman for the Federal Deposit Insurance Corp. says many customers served by the bank's nine locations had accounts under $100,000, which will be fully insured by the government. Barr says customers can continue to write checks and draw money from ATMs through the weekend.
  
  Barr says Pulaski Bank and Trust Co. agreed to assume control over ANB Financial's bank locations, which will be open Monday.
  
  As of Jan. 31, federal regulators say ANB Financial had about $2.1 billion in assets and $1.8 billion in total deposits.
  
  It was the third closure this year of an FDIC-insured bank. Douglass National Bank, a Missouri bank with $58.5 million in assets, was shut in January; another Missouri institution with assets of $18.7 million, Hume Bank, was shut down in March.
  
  Both were dwarfed in size of ANB Financial, where regulators found lax lending standards, mostly for construction and development loans for projects in Utah, Idaho and Wyoming, as well as Arkansas.
  
  Observers have been watching for signs of bank distress resulting from the mortgage crisis. Profits at federally insured U.S. banks and thrifts plunged to a 16-year low in the fourth quarter as institutions set aside a record-high amount to cover losses from sour mortgages

Is this end of this mortgage crisis? Third FDIC bank to be shut down this year. And this ANB is no smal bank. It has US$2.1 billion in asset and US$1.8 billion in total deposits.

Everything ok?

How?

Pintaras Jaya III

Published on Business Times: Pintaras Q3 net profit surges 62pc

• PINTARAS Jaya Bhd's third-quarter net profit surged 62 per cent due to better contribution from its construction and manufacturing divisions.
  
  It expects to report good numbers for the fourth quarter due to its outstanding orders.
  
  However, it cautions that profit could be hurt by rising costs steel. Pintaras made a net profit of RM7.6 million for the quarter to March 31 2007. Revenue was up 22 per cent to RM44.3 million.

Since I had written on Pintaras Jaya before and I do keep track of this stock, I was confused by that news clip. Was it that good?

Here is the snapshot from Dow Jones News Clip.

And here is my compiled data of Pintaras Jaya.

As can be seen, Pintaras Jaya earnings was decent but it did not surged 62%!!

I wonder where Business Times got that set of information!

The following notes were taken from Pintaras earnings notes:

• For the nine months ended 31 March 2008, the Group's revenue increased by 2% to RM119.3 million from RM116.9 million in the preceding year, while profit before taxation grew by 20% to RM28.7 million from RM24.0 million for the respective period. The improvement is mainly attributable to higher contribution by the construction and manufacturing divisions.
  
  The construction division recorded a lower revenue of RM88.1 million compared to RM89.1 million last year. Despite the decline in revenue, profit before taxation increased by RM6.3 million or 41% to RM21.9 million from RM15.6 million last year due to higher margins achieved.
  
  Sales from the Group's manufacturing division grew by 12% to RM31.2 million from RM27.8 million last year, while profit before taxation rose by 43% to RM4.0 million from RM2.8 million last year. The increase was entirely due to better sales and margins achieved by the metal container operation.
  
  For quoted investments, there was a gain on disposal of marketable securities of RM2.7 million but a loss due to an allowance for diminution in value of RM1.5 million, as against last year's write back in allowance and gain totalling RM4.1 million. The first quarter of 2008 saw one of the worst performances of equity markets in the world. In addition, the March election results triggered widespread selling in our local bourse.

My last posting was posted on Pintaras Jaya II.

Here are some of my thoughts on Pintaras earnings.

1. Sales revenue

Sales revenue is certainly positive, showing growth on a quarter-quarter comparison.

2. Earnings

Current twelve months earnings totals 27.147 million, indicating strongly that Pintaras should record decent growth this fiscal year.

3. Balance Sheet.

Total cash balances is 65.283 million.

This is where I see some issues that needs to be evaluated.

Inventories are higher and most important the receivables has risen quite substantially.

And of course the total cash balances consist of Short Term Investments totaling 27.415 million.

And again this is a massive issue for those who do not like to see our plc dabbling in such investments.

From the company's own notes:

• For quoted investments, there was a gain on disposal of marketable securities of RM2.7 million but a loss due to an allowance for diminution in value of RM1.5 million, as against last year's write back in allowance and gain totalling RM4.1 million. The first quarter of 2008 saw one of the worst performances of equity markets in the world. In addition, the March election results triggered widespread selling in our local bourse.

And here is a snapshot from its earnings notes.

Yes there is gain made on disposal but this has been negated by the current paper loss.

How?

John Mauldin on Why Investors Fail

One of my favourite newsletter is from John Mauldin's Frontlinethoughts.com

Today's newsletter features an article called Why Investors Fail where John featured a report from Gavin McQuill from Financial Research Center.

• Investors Behaving Badly
  
  Gavin McQuill of the Financial Research Center sent me his rather brilliant $5,000 report called "Investors Behaving Badly." He was the author and he did a great job. I read it over one weekend, and refer to it again from time to time.
  
  Earlier we looked at a report which showed that over the last decade investors chased the hot mutual funds. The higher the markets went, the less likely it was that they would buy and hold. Investors consistently bought high and sold low. Investors made significantly less than the average mutual fund did.
  
  McQuill focused on six emotions that cause investors to make these mistakes. You should read these and see whether some of them are familiar.
  
  1. "Fear of Regret - An inability to accept that you've made a wrong decision, which leads to holding onto losers too long or selling winners too soon." This is part of a whole cycle of denial, anxiety, and depression. As with any difficult situation, we first deny there is a problem, and then get anxious as the problem does not go away or gets worse. Then we go into depression because we didn't take action earlier, and hope that something will come along and rescue us from the situation.
  
  2. "Myopic loss aversion (a.k.a. as 'short-sightedness') - A fear of losing money and the subsequent inability to withstand short-term events and maintain a long-term perspective." Basically, this means we attach too much importance to day-to-day events, rather than looking at the big picture. Behavioral psychologists have determined that the fear of loss is the most important emotional factor in investor behavior.
  
  Like investors chasing the latest hot fund, a news story or a bad day in the market becomes enough for the investor to extrapolate the recent event as the new trend which will stretch far into the future. In reality, most events are unimportant, and have little effect on the overall economy.
  
  3. "Cognitive dissonance - The inability to change your opinion after new evidence contradicts your baseline assumption." Dissonance, whether musical or emotional, is uncomfortable. It is often easier to ignore the event or fact producing the dissonance rather than deal with it. We tell ourselves it is not meaningful, and go on our way. This is especially easy if our view is the accepted view. "Herd mentality" is a big force in the market.
  
  4. "Overconfidence - People's tendency to overestimate their abilities relative to individuals possessing greater expertise." Professionals beat amateurs 99% of the time. The other 1% is luck. The famous Clint Eastwood line, "Do you feel lucky, punk? Well, do you?" comes to mind.
  
  In sports, most of us know when we are outclassed. But as investors, we somehow think we can beat the pros, will always be in the top 10%, and any time we win it is because of our skills and good judgement. It is bad luck when we lose.
  
  Commodity brokers know that the best customers are those who strike it rich in their first few trades. They are now convinced they possess the gift or the Holy Grail of trading systems. These are the people who will spend all their money trying to duplicate their initial success, in an effort to validate their obvious abilities. They also generate large commissions for their brokers.
  
  5. "Anchoring - People's tendency to give too much credence to their most recent experience and to show reluctance to adjust their current beliefs." If you believe that NASDAQ stocks are the place to be, that becomes your anchor. No matter what new information comes your way, you are anchored in your belief. Your experience in 1999 shows you were right.
  
  As Lord Keynes said so eloquently when forced to acknowledge a shift in a previous position he had taken, "Sir, the fact have changed, and when the facts change, I change. What do you do, sir?"
  
  We expect the current trend to continue forever, and forget that all trends eventually regress to the mean. That is why investors still plunge into index funds, believing that stocks will go up over the long term. They think long term is two years. They do not understand that it will take years - maybe even a decade - for the process of reversion to the mean to complete its work.
  
  6. "Representativeness - The tendency of people to see patterns within random events." Eric Frye did a great tongue-in-cheek article in The Daily Reckoning, a daily investment letter (www.dailyreckoning.com). He documented that each time Sports Illustrated used a model for the cover of their swimsuit issue who came from a new country that had never been represented on the cover before, the stock market of that country had always risen over a four-year period. This year, it is time to buy Argentinian stocks. Frye evidently did not do a correlation study on the size of the swimsuit against the eventual rise in the market. However, I am sure some statistician with more time on his hands than I do will brave that analysis.
  
  Investors assume that items with a few similar traits are likely to be associated or identical, and start to see a pattern. McQuill gives us an example. Suzy is an English and environmental studies major. Most people, when asked if it is more likely that Suzy will become a librarian or work in the financial services industry, will choose librarian. They will be wrong. There are vastly more workers in the financial industry than there are librarians. Statistically, the probability is that she will work in the financial services industry, even though librarians are likely to be English majors.

According to Sources Yet Again!

Posted on 5th May 2008: 5 May 2008: Corporate: CCB capital repayment? By Jose Barrock

• 5 May 2008: Corporate: CCB capital repayment?
  By Jose Barrock
  Email us your feedback at fd@bizedge.com
  
  Automotive player Cycle & Carriage Bintang Bhd (CCB) is understood to be mulling a special dividend or capital repayment, which could be announced to Bursa Malaysia by the middle of this month.
  
  The Edge understands that a board meeting slated for early this month will discuss some details of the payment, which have yet to be ironed out, and finalise the salient features of the repayment plan.
  
  Sources say a payment of about 50 sen per share is being contemplated, which works out to a lump sum of about RM50.3 million to the CCB shareholders.

Jose strikes yet again.

The very same, according to sources financial journalist (?) has done it yet again.

Yet another story based on unnamed sources!

Just who the sources?

The toilet cleaner? The parking attendant? Well, they can be considered a source, yes?

Needless to say such sources never do seem to get it correct!

The very next day, the Edge daily were forced to publish the following: 06-05-2008: CCB says no decision on special dividend yet

• 06-05-2008: CCB says no decision on special dividend yet
  
  Email us your feedback at fd@bizedge.com
  
  KUALA LUMPUR: Cycle & Carriage Bintang Bhd (CCB) had yet to make any decision with regard to a special dividend payment as reported in The Edge weekly last week, the company said.
  
  Its board was not slated to meet early this month as reported, the company told Bursa Malaysia yesterday.
  
  CCB added that it regularly reviewed its cash flow position and had not made any decision with regard to any special dividend of capital repayment exercise.
  
  CCB’s announcement came on the back of the company’s shares yesterday gaining 23 sen or about 10% to RM2.48 from its close last Friday. The stock was among the top gainers for the day.
  
  With its mainstay in the distribution of Mercedes-Benz automobiles in the country, CCB no longer has strong capital expenditure requirements, giving it the option to pay good dividends.
  
  CCB has also divested several non-core businesses and assets as part of a streamlining exercise, which will strengthen its cash position.
  
  The company’s largest shareholders are Jardine Cycle & Carriage Ltd, which has about 59% equity, and the Employees Provident Fund with a 19% shareholding.
  
  For the first quarter of FY08, CCB posted a net profit of RM4 million from RM144.8 million in revenue. Compared to a year earlier, net profit surged by 167% despite revenue dipping by about 8%. The robust performance is attributable to gains made from the disposal of assets more than improving business prospects.

How my dearest MooMooCow?

Why do our financial reporters keep reporting news based on un-named sources?

Is this even reporting?

AIG Posts Massive Losses

The news that really caught my eyes this morning was about AIG, AIG posts 1Q loss of $7.8B, plans to raise $12.5B in capital

• American International Group Inc. said Thursday that it swung to a first-quarter loss of $7.81 billion because of losses tied to credit swaps and mortgage-related operations and that it plans to raise a total of $12.5 billion in new cash to shore up its capital base..........
  
  Like so many other financial services firms, AIG has been hit hard by deterioration in the credit markets. As defaults sharply increased on mortgages beginning in the middle of 2007, investors shied away from purchasing all but the safest debt. Because of the illiquidity in the credit markets the value of risky debt has plummeted, forcing firms like AIG to reduce the value of their investments in products such as credit default swaps and mortgage-backed securities.
  
  "While we anticipated a difficult trading environment, the severity of the unrealized valuation losses and decline in value of our investments were beyond our expectations," Martin Sullivan, AIG's president and chief executive, said in a statement.
  
  New York-based AIG lost $9.11 billion in its credit-default swaps portfolio during the first quarter. The swaps promise to cover losses on $579 billion in bonds or other kinds of debt. AIG recorded an $11.12 billion loss on the swaps portfolio during the final quarter of 2007.
  
  Losses in its investment portfolio, which includes debt backed by troubled mortgages, totaled $6.09 billion. It booked a $3 billion loss on the portfolio a quarter earlier.....
  
  Shares of AIG tumbled $2.70, or 6.1 percent in after hours trading to $41.45, after closing at $44.15 in the regular session.

That statement from the chief executive was incredible!

"... Decline in value of our investments were beyond our expectations".

What do you really expect when your company indulge in such toxic investments????

And this was reported on CNBC website, AIG Loss Wider than Expected; Shares Plunge

Insurance companies getting caught in this mess???

Really scary.

Here's another article, Who Has More Level 3 Assets Than Capital?

• Level Three assets include real estate, mortgage-backed securities, private equity investments and possibly even "undertakings of great advantage, but nobody to know what they are" (cf. South Sea Bubble).
  
  The three magic words that make an asset a Level 3 asset are "no observable inputs." What this means is that not only are they hard to price, but nearly impossible to sell.
  
  Recently there's been such deterioration in all types of mortgages that more and more assets are finding their way into this category. Also, this is the first time insurance companies have made the list. I think the list will continue to grow.
  
  Ten companies now have more Level 3 assets than capital. In order they are (as a % of total shareholder equity:
  
  1) Bear Stearns (BSC): 313.97%
  2) Morgan Stanley (MS): 234.88%
  3) Merrill Lynch (MER): 225.4%
  4) Goldman Sachs (GS): 191.56%
  5) Lehman (LEH): 171.18%
  6) Fannie Mae (FNM): 161.48%
  7) Northwest Air (NWA): 142.02%
  8) Citigroup (C): 125.06%
  9) Prudential (PRU): 119.36%
  10) Hartford (HIG): 108.52%
  
  So now we have insurance companies joining the party. Yes, the contagion is spreading and no, it's not over. Not even close. C just had to pay 8.5% for $2 billion in preferreds. One of these days, there will be no takers.

A Look At Mems Technology Again

Now that Mems had finally reported its earnings and resumed its trading, I thought I take a look at Mems again.

Quarterly rpt on consolidated results for the financial period ended 31/1/2008

Net earnings was only 1.434 million from sales revenue of 16.464 million. Only 1.434 million. This is utterly smallish eh?

Let's look at the Balance Sheet.

Trade receivables now totals at 34.998 million. Reported period is at 31st January 2008. Compare to the column on left, receivables were only 22.824 million. Which means receivables increased a whopping 12.174 million. Which is extremely massive when the company's net earnings is only 1.434 million for this reported period.

Cash and bank balances as at January 2008 shrank to 9.874 when compared to July 2007's balance of 18.995 million.

And the below table highlights Mems' liabilities:

Total loans as at 31st Jan 2008 is at 43.355 million compared to a loan total of 34.267 million in July 2007. An increase of 9.088 million in loans.

How?

As it is what do you see?

I see its net earnings as rather extremely small with low profit margins with a rather below average set of balance sheet. Receivables and debts are increasing while cash is shrinking!

Back in July 2007, Mems was trading around 81 sen with a market capital of 531 million.

Oh yes by that much!

Given the current data, do you reckon that Mems justified such valuations?

Mems last traded at 14.5 sen, with a market capital of only 95 million!

And would you consider this as a clear decisive destruction of market capital???

Here is a newsclip on Mems:

• 07-05-2008: MEMS up 2 sen, heavily traded on re-quotation
  by Cindy Yeap
  
  KUALA LUMPUR: Shares of MEMS Technology Bhd were heavily traded on re-quotation yesterday after a nine-week suspension for failing to submit its annual report in time.
  
  The stock rose as much as three sen or 20.7% in early trade to 17.5 sen, but ended the day at 16.5 sen, up two sen or 13.8% from the 14.5 sen it last closed at on Feb 29.
  
  The Mesdaq-listed wafer fabrication and packaging company led the most active list yesterday with 30.51 million shares done, just ahead of Keladi Maju Bhd’s volume of 29.2 million shares.
  
  In retrospect, MEMS shares had plunged 16 sen or 44.44% to 20 sen on Nov 28 last year after the company said it was not able to issue its audited financial for the year ended July 31, 2007 in time as its external auditors had “expressed concerns” over certain transactions relating to its revenue as well as some of its assets.
  
  Its board had then ordered a special audit and decided not to recognise RM19.72 million revenue, which resulted in its unaudited net profit being cut to RM13.45 million from RM21.47 million. MEMS made RM13.11 million net profit on the back of RM53.7 million in revenue for the said financial year, according to its audited accounts submitted on April 24.
  A trade suspension on its shares, imposed on March 3, was lifted after MEMS submitted its annual report on Monday. The annual report was due for public release by Jan 31 this year.
  
  In its report, the company’s external auditor KPMG said the company’s accounts are “not subject to any other qualifications” apart from the several points it made pertaining to MEMS’ wholly owned subsidiary SenzPak (M) Sdn Bhd.
  
  MEMS has proposed to appoint Atarek Kamil Ibrahim & Co as its external auditor at its upcoming AGM as KPMG did not wish to seek re-appointment. The company’s AGM will be held on May 30.
  
  MEMS and its unit SenzPak are still under investigation by the Securities Commission, according to its 2007 annual report.

Chinese Stock Markets: The Day They Jumped!

Published on Seattle Times. Chinese get a taste of investing's downside

• SHANGHAI, China — When emergency workers found Wang sprawled unconscious after having downed two bags of insecticide, he was still clutching the PDA he had been using to check stock prices.
  
  Like a number of other small investors in China, Wang had bet — and lost — his life savings, about $15,000, on the Chinese stock market. The propaganda office and doctors at the hospital where he was treated said the 36-year-old factory worker had been preparing to get married and that he had hoped to use the money to buy an apartment for his fiancée.
  
  Wang's attempted suicide and those of other investors are a heartbreaking consequence of China's great experiment in capitalism.
  
  In February, Li, a 25-year-old engineer, jumped from the seventh floor of the building where he worked in the city of Chengdu. His company said he had lost a huge amount on the stock market. On March 30, a 39-year-old former ice-cream- shop owner, also named Li, leaped to his death from his apartment building in the inland province of Shandong after losing a third of the $4,500 he had invested.
  
  As China's stock markets crashed over the past six months, the Communist government reacted in a way most consumer investors like Wang did not anticipate: It watched from the sidelines. It wasn't until last week, after the Shanghai benchmark index's fall to a symbolic milestone, below 50 percent of its peak in October, that Beijing finally stepped in.
  
  Its announcements that it would slash a tax on stock transactions and control volatility by requiring some big block trades to take place off the regular stock market, pushed the market up 14 percent. It has fallen again since then, however.
  
  But given that the Chinese government has the power and money to do much more, some say the fact that its help arrived so late and is so limited means it is sending a message to shareholders that they should no longer expect a government bailout in such situations.
  
  The former shop owner's sister, Li Chunyan, 34, said she understands that those who lost everything have only themselves to blame for risking so much. But because the stock market is "damaging common people's lives this much, there should be policies" to help them. She said even the U.S. government is doing more to help its investors: "I heard about the U.S. lowering interest rates to save the market," she said. "Well, different countries are different."
  
  In online bulletin-board postings, small-time retail investors — who, unlike in U.S. markets, make up the vast majority of those who hold money in China's exchanges — have vented their anger at the government. "China's stock market is piled up with investors' tears and blood," wrote one shareholder.
  
  Institutional investors, fund managers and analysts who follow the Chinese stock markets are less sympathetic, saying that the suffering of consumers who lost money is a necessary step on the road to capitalism.
  
  "You lose money, you jump out the window, too bad. It's your problem," said Vincent Chan, head of China research for Credit Suisse. "For any market to grow, this is something the government should realize: At the end of the day, it's the investors who bear the responsibility of the investment, not other people."
  
  The nose-dive of the Shanghai stock market and its sister exchange in the southern city of Shenzhen has been humbling for Chinese investors who had once believed the only direction share prices could go was up.
  
  Analysts say they were overdue for a correction. Despite weak earnings by many companies and rampant corruption, the Shanghai composite index quadrupled in value from 2002 to 2007.
  
  Briefly in November, PetroChina became the world's first $1 trillion company by some measures of its market value. But by the end of April, shares of PetroChina had plummeted to below its IPO price for the first time.
  
  Andy Xie, a former chief economist for Morgan Stanley Asia Pacific and now an independent analyst, said the challenge for the Chinese public is that "generally speaking, retail investors bought stocks at a high point. They listened to their relatives, friends and heard propaganda.
  
  "When the stocks fall, they are unwilling to sell off and they sit there waiting for the government to save the markets," he said. "This is not rational."
  
  Psychologists across the country say that in recent months they have seen more patients seeking treatment for addiction to gambling.
  
  Some investors like Ma Guocheng, 26 and an office worker, say they have learned their lessons from the recent stock-market plunge. In April and May 2007, Ma invested some 270,000 yuan — about $38,600 at today's exchange rate — in stocks. By November, those shares were valued at 440,000. He thought about selling, but then he thought they would climb even higher. Now his holdings are worth 50,000, about $7,000.
  
  "I was greedy," Ma admitted. As a consequence, "I lost more than 80 percent of my total investment."

OMIGOD!

• "You lose money, you jump out the window, too bad. It's your problem," said Vincent Chan, head of China research for Credit Suisse.

That's being so nasty man!

A Look At Boustead Heavy (BHIC)

Published on Business Times: Boustead Heavy Q1 profit up sharply

• BOUSTEAD Heavy Industries Corp Bhd posted a significantly higher pre-tax profit of RM31.773 million for its first quarter ended March 31, 2008 compared with RM466,000 in the pervious corresponding quarter.
  
  Its revenue rose to RM100.981 million from RM14.69 million.
  
  The group’s deputy chairman, Datuk Seri Ahmad Ramli Mohd Nor, attributed the group’s improved performance to increased revenue arising from the completion of its projects.
  
  Higher share of profit from its defence-related shipbuilding associate company, Boustead Naval Shipyard Sdn Bhd, also contributed to the group, he said in a statement yesterday.
  
  “Our strategic objective is to strengthen our earnings potential by building on our core competencies to tap local and international opportunities.
  
  "Ultimately, we want to deliver sustained financial growth and enhanced shareholders value in a consistent and long-term basis,” he said.
  
  During the quarter under review, the group’s unit, Boustead Penang Shipyard Sdn Bhd, was awarded a contract from Sealink Sdn Bhd for the construction of two units of 7000DWT oil and chemical carriers for RM102 million.
  
  In January this year, BHIC Petroleum Sdn Bhd, another wholly-owned subsidiary, was awarded a contract from Carigali-PTTEPI Operating Company Sdn Bhd to provide engineering, procurement, construction and on-shore commissioning of the Muda Living Quarters Building for RM82.8 million.
  
  In terms of its defence-related business, the group’s unit, BHIC BOFORS Asia Sdn Bhd, executed a contract also in January with the Ministry of Defence Malaysia to supply and deliver BOFORS 57mm gun spare parts to the Royal Malaysian Navy worth RM9 million.
  
  “We intend to secure more business by broadening our market reach and catering to a wider clientele base in both the commercial and defence sectors of the maritime industry,” said Ahmad Ramli. — Bernama

It sounded very interesting so I decided to take some time and do some personal research.

Last Quarter BHIC reported the following set of earnings.

Link: Quarterly rpt on consolidated results for the financial period ended 31/12/2007

And this was said by the company:

"The BHIC Group recorded sharply improved results with turnover of RM117.1 million and profit before non recurring item (waiver by financial institutions pursuant to Restructuring Scheme) and tax of RM82.1 million for the financial year ended 31 December 2007, compared to revenue of RM80.5 million and a loss before tax of RM89.9 million in the previous year.

The turnaround is mainly due to a marked improvement in the contribution from ongoing businesses and the share of profit of associate companies. The non recurring item of RM392.8 million were due to the waiver of interest and principal outstanding from financial institutions arising from the corporate restructuring."

Ok, there is a waiver of interest and principal outstanding from financial institutions from BHIC's corporate restructuring. ( WOW rm392.8 million! - oh my, what generosity from its debtors!)

So BHIC's earnings were rather boosted by its restructuring.

This was BHIC's earnings last night.

The company said the following in its notes, "The BHIC Group recorded improved results for the financial period ended 31 March 2008 with a turnover of RM100.9 million and profit before tax of RM31.8 million, compared with a revenue of RM14.7 million and a profit before tax of RM0.5 million in the previous year corresponding period.

The turnaround is mainly due to a marked improvement in the level of business activity, a higher percentage of completion on ongoing contracts together with the share of profit of associates.

Included in the share of results of associates is the Group's share of utilisation of previously unrecognised tax losses by Boustead Naval Shipyard Sdn Bhd amounting to RM4.05 million."

So how?

Two issues on the article posted on Business Times from Bernama.

1. On a Q-Q basis, the earnings were actually lower.

2. On a Y-Y basis, the earnings comparison is rather meaningless for last year BHIC was still undergoing its restructuring exercise.

So I would take with a pinch of salt that BHIC earnings has improved since it's so early days still.

The following is some stats from BHIC earnings.

Some notes.

Cash has depreciated a lot but under the cash flow, BHIC has indicated that it has paid a huge chunk to its suppliers and employees.

At first look, it would difficult to fault them because under the balance sheet, the trade payables has indeed shrunk from 121.784 million the previous quarter to 85.2761 million, or trade payables decreasing by some 36.523 million. Hmmm.. but under BHIC stated some 98.522 million was paid to suppliers and employees..... oh, could I be wrong and does this mean that BHIC paid some 61.999 million to its employees?

Have a look at BHIC Balance Sheet below.

Now, would this depletion of cash be a concern from this perspective??

I wonder how much BHIC actually paid to its employees? Is it really that much? Could I be missing something here?

Lastly, the built-up in trade receivables is sticking out like a sore thumb! An increment of receivables by as much as 38.618 million compared to the previous quarter reported in February is rather a worry. And if not mistaken, during its pre-restructuring scheme, BHIC or PSCI during its better days in 2004, had a massive issue with their receivables too. If not mistaken, receivables were as high as 500 million!

How?

Yes, perhaps I am being too cynical and critical on BHIC considering that its still early days yet. However, I am indeed interested because whenever any company reports good earnings, it could represent an opportunity. However, since BHIC has had a poor history perhaps it's best to scruntise the stock much more in detail!

Anyway, most of the local investing community seems rather positive on this stock.

Back in March the following was posted. Speedy delivery to drive BHIC earnings, says TA

• Monday March 3, 2008
  
  Speedy delivery to drive BHIC earnings, says TA
  
  By SHANNEN WONG
  
  PETALING JAYA: Boustead Heavy Industries Corp (BHIC), which has successfully delivered on its contracts last year, is expected to continue riding on its capability for speedy delivery to improve its earnings, said TA Securities.
  
  In an update report, TA said: “We are increasing our target price to RM10.80 from RM9 to reflect our upbeat opinion.
  
  “This is largely based on the premise that the company is heading for an aggressive operation to ensure that all deliveries are on time, if not sooner.”
  
  BHIC had a proven record of delivering on time, it said.
  
  Its current order book stands at about RM540mil, and TA said the BHIC management had full confidence of achieving its target order book of RM1bil by year's end.
  
  “We share this confidence as we have been presented with constant good news of the company securing private contracts since the beginning of the year,” the brokerage added.
  
  TA, which maintains a “buy” call on the counter, has increased its estimates of BHIC earnings for financial years ending Dec 31, 2008 (FY08) and FY09 by 13.4% and 11.1% respectively.
  
  “We are bringing forward our FY09 estimates into FY08 as we believe that the company's speedy delivery is sustainable,” it said.
  
  Standard & Poor's (S&P) has also increased its forecast for BHIC's net profit for FY08 to RM140.8mil from RM136.2mil previously.
  
  For FY07, BHIC's core net profit of RM92.7mil was almost double S&P's forecast of RM52mil, it said.
  
  Revenue for the fourth quarter had increased 56% quarter-on-quarter thanks to shipbuilding and ship maintenance sectors, which grew by 64% over the period.
  
  BHIC's 20.7% owned associate Boustead Naval Shipyard recorded a strong performance with a net profit of RM273mil, of which BHIC has a share of RM56.6mil for FY07.
  
  Operating profit surged over 650% as work on shipbuilding and maintenance gathered steam following the completion of the group's restructuring scheme in August last year.
  
  S&P is maintaining a “buy” call on the counter with a higher target price of RM7.30

How now my dearest MooMooCow?

Berkshire Hathaway's 2008 Annual Meeting Q&A Session

One of my favourite part of Berkshire Annual meeting is the Q&A part. And this year, Omaha World-Herald has published a transcript.

• 9:49 The question and answer session began with one shareholder asking how to be a winning investor. Buffett said people should look at stocks as owning part of a business, use the stock market to serve you and not instruct you and to leave a margin of safety. Another questioner asked where Buffett could expand on where the stock market is headed. Buffett laughed and said "I could expand, but I couldn't answer." Buffett said he and Charlie have no idea where the stock market is headed. He said the question never comes up, because Berkshire invests in companies, not the stock market.
  
  9:53 One shareholder asked how to pick good managers. Buffett said he can't pick a good manager out of a group of MBA students, but he does evaluate the track record of a business and look for passion for the job in the managers. Buffett says his job is to retain those managers.
  
  10:04 One shareholder asked about using stock options. Buffett said does not think much about them. Buffett said if he and Charlie want to buy something, they will buy it. If they want to get out of something, they will sell it. Buffett says too often business schools spend time on things like auction pricing because teachers know the formulas and the students don't, so they can fill the time. Buffett says an investor needs to know only two things: how to value a business and how to think about stock market fluctuations. He says it is similar to teaching theology: It all comes down to the 10 commandments.
  
  10:08 A shareholder asked Buffett about the joys of giving. Buffett is known for dedciding to give the bulk of his fortune to charity. Buffett says he has never given up anything in his life that makes a difference to how he lives his life. Buffett says that is far different, and not even on a par with, someone in a church pew giving to the church in a way that impacts whether he will take his family out to dinner that night. Buffett says he has given away his excess money, and while that is useful, it is not making a difference in his everyday life.
  
  10:22 A shareholder asked Buffett if stock investments by Berkshire made over the last 12 months is likely to bring 7percent to 10 percent returns. And will that be below what Berkshire has made in the past? Buffett says yes to both questions. Buffett says Berkshire will be happy with dividend combined with capital gains before taxes of 10 percent -- and would settle for a bit less. Berkshire will not give its shareholders the returns they have had in the past, either, because it is dealing with far bigger companies, with market caps of $10 billion to $50 billion. Buffett says that is a less profitable universe proportionately than having the entire universe of companies in which to invest.
  
  10:32 A shareholder says he is a Native American who fasted for 10 days before coming to the annual meeting, and he is concerned about the environmental effects of Berkshire-owned Pacificorps dams on the Klamath River. He asked Buffett to sit down and negotiate a solution to the problem. He says the group came last year and felt it was treated disrespectfully. Buffett says he cannot make decisions on the dealings of Pacifcorps under agreements signed when Berkshire bought the utility company. Buffett says he understands there are disagreements about what to do, and he did not think Berkshire officials were in any way disrespectful last year. Buffett asked utility company and Berkshire-owned MidAmerican Chairman David Sokol to comment. Sokol said federal and state regulators, fishing interests, Native Americans and others making up about 28 groups have not agreed on what should be done. Sokol says relicensing of the dams is a long and complicated process, and Pacificorp will be happy to help find a resolution.
  
  10:39 A shareholder asked Buffett how he stays healthy. Buffett took a piece of See's candy and said "You start with a balanced diet." Buffett says he works out 45 minutes three times a week with a personal trainer, otherwise he does what he wants. He says he likes Mar's candy, Coca-Cola and See's. Buffett says very important factors for him have been a job he loves with people he loves to work with. He gets to work in an air-conditioned office with all kinds of help. He asks "How can you be sour about life when being blessed in so many ways?"
  
  10:43 A shareholder says she is a teacher trying to help introverted people become more comfortable in public settings. She asked for advice on how to do that. Buffett says when he was young he deliberately avoided classwork that included getting in front of people, but over time forced himself in front of crowds. Buffett says that seems to have helped him. Buffett says people should do that when they are young because it becomes more difficult with age. Charlie says it is nice to have someone in education come to the annual meeting who is doing something helpful and not foolish. Buffett says he hopes Charlie doesn't name any names.
  
  10:47 A shareholder says she is concerned about the Klamath River controversy and wonders if Buffett knows it would save hundreds of millions of dollars to tear down the dams and not relicense them. She asks if Buffett is concerned about ratepayers paying more than they should if the dams are kept. Buffett says public utility commissions will weigh rates payed by customers, and that is the commissions' jobs. Buffett says other factors need to be weighed, including replacing clean power like hydro dams with energy that brings more pollution such as coal. MidAmerican's David Sokol addressed questions about algae in the rivers, saying blue-green algae is not unique to the Klamath River. Sokol says many factors must be taken into account as the dam discussions continue.
  
  11:06 In the course of discussing small businesses and large business, Charlie says most small businesses will not become big businesses and most big businesses will fall into mediocrity or worse. Charlies says the only company he and Warren created is Berkshire's reinsurance division. Warren says Berkshire executive Ajit Jain actually created that division. "He did it, we just sat there cheering." Warren says the municipal bond company Berkshire created recently with Jain leading the charge has about $400 million in premiums, far more than any other municipal bond company and perhaps more than all others combined. Buffett says many cities came to Berkshire already insured but wanted the added insurance Berkshire had to offer.
  
  11:09 A young shareholder asked what people should learn outside of school. Buffett suggests reading a daily newspaper, reading encyclopedias, just sop it up and you will find what is most interesting to you. Buffett says the more you learn, the more you want to learn. Charlie says the young person asking the question appears already to have figured out how to succeed in life.
  
  11:19 A shareholder asked about hedging against the U.S. dollar. Buffett says he is happy investing in overseas companies because currencies in those countries are not likely to decrease in a big way to the U.S. dollar. Buffett says the U.S. government appears likely to follow policies that make the dollar weaker, so he does not feel a need to hedge on other currencies.
  
  11:33 A shareholder asked what Buffett and Munger would do as economic policy if elected president, and it appears the three current candidates appear to be pandering to voters. Buffett says all three candidates are strong this year, and each of them would do well in the White House. Buffett says U.S. political process seems to invite some degree of pandering as each candidate seeks votes. Buffett says he doesn't think he would do much better, if he were running for president.
  
  11:46 A shareholder asked what deals Buffett and Munger have seen in the past that they were willing to sink large amounts of money into. Buffett says he has had up to 75 percent of his net worth in some deals, and people who know what they are doing should be shy about sinking 50 percent of their net worth into some investments. Buffett says someone could have put 100 percent of their stock into Coca-Cola back when Berkshire invested heavily in that company and their returns would have been fine. Munger says diversification is NOT key, but rather safe and strong investments are key. Buffett says people who are not sophisticated investors could use diversification as an investment strategy.
  
  11:59 A shareholder asked about whether oil is running out. Buffett says oil production is high right now, about 87 billion barrels of day. Eventually, production will decline and it will happen over time and hopefully the world will adjust. Buffett says we will be producing oil far beyond this century. Munger says it is foolish to use as much oil as we do right now. Munger says eventually if the world's population continues to increase and the standard of living is good, oil and other natural resources will run out and people will turn to solar energy. Munger says he predicts oil production will be down 25 years from now. Buffett says "That's not an insignificant prediction, believe me. If oil production is down 25 years from now, it's going to be a different world."
  
  12:01 A shareholder asked about food shortages of today and Buffett turned to Munger. Munger said "Turning American corn into motor fuel is one of the dumbest ideas I've ever seen. This idea is so monstrously dumb that I think it's probably on its way out."
  
  12:01 The annual meeting is on a 30 to 40 minute break.
  
  12:03 [Be Right Back Countdown] 30 minutes
  
  12:42 The crowd has thinned a bit as people wait for Buffett and Munger to return from a lunch break. But thousands of people remain.
  
  12:57 Warren Buffett and Charlie Munger have taken their seats. Buffett says three questions have been asked and that is more than proportional to the interests of the crowd. So they will skip any questions about that.
  
  1:15 A shareholder asked if business practices and investment banks have become too complex and large for financial leaders to keep up day to day and week to week on the risks they might face. Buffett says yes, though a few banking leaders appear able to get their minds around risk. Buffett says it is hard to regulate. the government tried to keep an eye on Fannie Mae and Freddie Mac, but those mortgage companies wound up with accounting problems. Buffett says leaders are needed whose DNA is very much tuned against risk and is not tempted to follow the financial crowd toward investments that appear to bring good returns. Munger says it is crazy to let firms get too big to fail. Munger says as an industry banking turned to greed and overreaching. Munger says it was crazy to let derivatives trading go the way it went. He says "it needs a huge reining in." Buffett says the Fed did the right thing to help Bear Stearns. He says an investment bank or two would have failed only days later, as well. Bear Stearns h ad $14.5 trillion in derivative contracts and if Bear Stearns had failed those contracts would have had to be undone in a very short time. Buffett says "It would have been a spectacle of unprecedented proportions." Buffett says at Congressional hearings later people at Bear Stearns said they knew they couldn't borrow money unsecured, but they had no idea they couldn't borrow money secured. Buffett says if people don't want to loan you money, they don't want to loan you money.
  
  1:19 A shareholder asked once Buffett and Munger are gone and Buffett's shares get given away, what will happen to this fine company and what is to prevent a private investment firm taking over? Buffett says you would be dealing a company with market cap bigger than Berkshire's is today, and big financial institutitons would still hold big blocks of shares. Buffett says it could not happen at all until after he dies, and even after he dies there will be lots of moats to protect Berkshire. Buffett says if we do anything close to decent rates of compounding, it will beone of the biggest companies in the United States. And nobody is talking about taking over General Electric or Exon.
  
  1:23 A shareholder asks about Berkshire investing in Kraft. Buffett says most big food companies are good investments. Strong brands are good assets. He says Coca-Cola, See's, Mars candy all are strong and it is difficult to challenge those brands. Buffett says what Berkshire buys might have something to do with the price and the management.
  
  1:31 A shareholder says Buffett has identified four investment managers who could run Berkshire's investments after he is gone. He asks what was the criteria and what will be their strategy? Buffett says good records are needed, but human qualities are enormously important. Buffett says the company made an affirmative decisions about four. Buffett says someone genetically able to identify serious risks, including those never before experienced. Buffett says that is somewhat prophetic of what happened last year. He says all banks have financial modesl to work with but several had no idea what serious risks they faced. Buffett says an inability to recognize risk that does not show up in your models can be fatal. Charlie says Berkshire is risk averse. He says we behave in a way that no one will question its credit, and even if no one likes their credit they wouldn't know it for months. That double layering against risk is like breathing in Berkshire. The alternative is the opposite. Charlie says he might be called the risk manager but in fact he makes you feel good while you do dumb things. Buffett says he and Munger want to run Berkshire so that if the world isn't working tomorrow the way it is working today, we really will not have a problem. Buffett says that gives up earning higher returns 99 percent of the time, and maybe 99.9 percnet of the time, but we wouldn't feel comfortable. Buffett says a lot of people have almost all their networth in Berkshire, including me, and the company would not feel comfortable putting that at risk. Buffett says we want to handle our own risk and not farm it out. He says we saw what happened with some companies who thought they farming it out.
  
  1:35 A shareholder asks how large is the universe of companies Buffett could act on in a day or two if market price was good. Buffett says the immediate decision is yes or no, and very early in a conversation Buffett and Munger can tell if the offer is actionable for Berkshire. Buffett says that rules out a lot of potential offers. Buffett says if a company makes it through one or two of the filters at Berkshire, the decision can be made very quickly. Charlie says Berkshire can make a lot of decisions very fast, and it is unusual in that way. And Charlie says one reason is that Berkshire will not allow itself to think about certain things. Charlie says that what remains is still a fairly large universe.
  
  1:37 A shareholder asks Buffett about Mexican billionaire Carlos Slim. Buffett says he had lunch with him a number of years ago and it was pleasant. Buffett says outside of that visit and what he reads in the newspaper he does not know much about Carlos Slim.
  
  1:38 A protestor interrupted one shareholder's questions with a shouted comment about the Klamath River. The interruption was brief.
  
  1:40 A shareholder asks if people should not participate in the Olympics to protest human rights in China. Buffett says that is not a good idea because over time the Olympics does good things for the world. Charlie says he agrees, and he says China is moving in the right direction. Buffett says the United States practiced racial bigotry but this country, too has moved in the right direction.
  
  1:43 A shareholder asks if people will need more coal and is there an environmental disadvantage to it. Buffett says yes and over time energy will be found that is cleaner and offers what coal does. Buffett says that will not happen in a short period of time. Buffett says it will require cooperation and leadership. Buffett says the United States is not in a good position of leadership because per capita it has done more harm than many other countries around the world. Buffett says the world will need a leader, however. Munger says the people who are against the use of coal should reflect on which they would rather use up fast, oil or coal? Munger says he would rather use up coal.
  
  1:47 A shareholder asks about investing in small banks or large banks. Buffett says it is good to know the culture of the bank. He says Wells Fargo is one bank Berkshire has invested in that it believes will avoid financial stupidity.
  
  1:52 A shareholder asks what ideas they have for nuclear nonproliferation. Buffett says it is the big problem of mankind. He says the genie is out of the bottle on nuclear power and more and more people will be able to do damage. He says a certain number of people will wish ill on their neighbors and the choke point will be deliverability. Buffett says many people associate nuclear damage with terrorists and not so much countries. Buffett says there can be threats on both fronts and all should be done that can be done to reduce access to nuclear materials. Buffett says chemical and biological weapons also are dangerous threats. Buffett says the U.S. needs to have nuclear safeguards as a top priority.
  1:58 A shareholder who teaches office administration and business says she teaches that slow and steady wins the race and she asks a great deal of her students. She asks what more can she do? Buffett says ask students to imagine if they were 16 and could have car of their choice, but the car would have to last the rest of their life. Buffett says how would you treat it? You would read the manual, keep it washed, keep it garaged. And Buffett says you get one body and one mind, so you better treat it right. Buffett says "Anything students can do for their body and their mind, particuarly their mind, we didn't work too hard on our bodies around here." Buffett says establishing good habits as students will help them the rest of their lives. Munger says specifically, teach them to avoid being manipulated to their disadvantage by vendors or lenders.
  
  2:01 A nine-year-old boy says he is a big baseball fan and his favorite teams is the Chicago Cubs. He asks if buying baseball teams is a good investment. Buffett says it has been a good investment and cable television has expanded that investment. Buffett says a lot of that went to the players, though some of it stuck with the owners. Buffett says there is a psychic income to buying sports teams. He says it is a way to instant celebrity.
  
  2:05 A shareholder asks why don't Americans save and what can we do about the problem. Buffett says the savings rate in this country has fallen significantly and may be negative. Buffett says the value of the country has expanded, so something good has happened. Buffett says the propensity to save almost seems innate. Buffett says if own Berkshire stock you automatically save because we retain earnings. Buffett says the savings rate is computed on consumption and imports. buffett says we are importing $7 billion in goods and serviceds more than we are exporting. Buffett says that will have consequences over time, but it it may not be really apparent. Buffett says the standard of living will improve in real terms, thoguh the super rich will benefit more than the middle class. Buffett says in net real terms the value on a per capita basis will increase decade to decade. Buffett says this country may not save very much because it does not need to save very much.
  
  2:08 A shareholder asks what are his reasons for coming to Germany? Buffett says we would like more family owners of German businesses, who when they feel some need to monetize their business think of Berkshire Hathaway. We want to be on their radar screen. Buffett says "If they care about their business, we are their best call." He says we are not as much on their radar screens in Europe as in the United States. He says that may be something I should have done something about earlier.
  
  2:11 A shareholder asks about the housing bubble. Buffett says he does not remember another such bubble spreading to other areas of the economy the way this one does. But Buffett says something similar is likely to happen again in the future, and this behavior can pop up once in a while. Buffett says he has not immediate solutions. Munger says it was a particularly foolish mess.
  
  2:19 A shareholder asks what can be done to improve the integrity of financial statements when there is a lot of leverage being used. Buffett says fair value might be one way. Buffett says the complicated mortgage packages banks developed was madness. Buffett says telling banks they have to value holdings at market value might help. Munger says the free market cannot do everything, and there are some innovations that should be banned. Munger says if the words diversified risk had been banned the world would have worked a lot better.
  
  2:21 A shareholder asks about mass transit and what that has to do with the railroads. Buffett says Americans don't like mass transit. Buffett says one person to a car seems to be an enormously popular way to get around. Buffett says a move to mass transit is not likely. Buffett says Americans don't like waiting for a bus or whatever it may be. Buffett says Americans don't like to double up in cars. Munger says Buffett has a more optimistic view of it than he does.
  
  2:34 A shareholder asks if the credit default swap market could be the next problem? Buffett says a credit default swap can be considered insurance against a company going bankrupt. Buffett says Berkshire has written insurance on companies and expects to make money from it. Buffett says there is no doubt that credit defaults will rise. Buffett says probably it will not be a big problem, though if Bear Stearns had failed it would have been a problem. Buffett says it should not be a problem, particularly if the Fed is willing to step in when something like an investment bank threatens failure.
  
  2:41 An eighth-grader asks if Berkshire would buy any businesses in China or India. Buffett says they would like to, and if lucky Berkshire could buy one or two companies over the next few years somewhere overseas. Buffett says he doesn't know if that will be Germany, Britain or some other company.
  
  2:50 A shareholder asks what can we do as common shareholders to lower executive compensation. Buffett says you can't do much, but there is only a handful of people who could do much. Buffett says big institutional shareholders withholding votes and registering why might be one way. Buffett says chief executives don't like to be embarrassed and it will make boards of directors sit up and take notice. Buffett says it would not take many of the big institutions, only a few of the biggest, the press would do the rest and boards would take notice. Buffett says it takes real, effective pressure to get people to give up self interest. Munger says the people taking the compensation have a moral duty not to take it. Munger says leaders should be underpaid. Munger says it is very difficult to implement those measures.
  
  2:53 A shareholder asks about tracking the innovation pipeline of pharmaceutical companies. Buffett says it is hard to do, and it changes every five years or so. Buffett says if you buy pharmaceutical stocks, a group of them, at reasonable prices, you probably will do well. Buffett says he doesn't know how to pick any one of them.
  
  2:58 A shareholder asks about Chinese companies learning from American companies, such as Berkshire. Buffett says U.S. companies may have a lot to learn from China. He says the country is just realizing its potential and it is very impressive. Buffett says people from China should take what they can that is good from American companies and leave the rest behind. He says he is not sure the Chinese want to take some American practices with them to China.
  
  3:01 A shareholder asks what is Buffett's hope for Berkshire. Buffett says he hopes the culture remains, and it is strong with good managers and a strong board of directors. Buffett says he would like family-owned companies look to Berkshire as a place to grow. Munger says he hopes more in the business world look to Berkshire and learn from it. Munger says a great deal has happened at Berkshire that others could learn from. The crowd game Buffett and Munger a standing ovation. ( source: here )

And of course, this annual meeting is hot news.

• Warren Buffett bets his bottom dollar on Europe
• Buffett Hints at Targets for His Global Buying Spree (Update1)
• Buffett buys subprime mortgages, freezes resets
• Battered Buffett down to last $37bn (LOL! Berkshire has only $37 Billion hor... danger!)
• Buffett's Berkshire to look at RBS insurance unit
• Buffett sees no bank panic, but expects more losses
• Buffett praise for Fed
• Buffett Says Credit Crisis Ebbs for Wall Street Firms (Update4)
• Buffett Says Bond Insurers Don't Deserve AAA Rating (Update3)
• Warren Buffet bond insurer heads US league table in first year
• Buffett’s Bond Success
• Buffett says US economy is in recession
• Buffett again rebuffs protesters who want Klamath dams out
• Native Women Protest Over Warren Buffett's Klamath River Dams
• Buffett, Munger say many financial companies deserve pain
• Buffett says misled mortgage borrowers need help
• Buffett: Korean stock market is attractive

And of course, this is Jason Zweig take on the event. Buffett to investors: Think small

• Note: What follows is based on a best-effort attempt to take accurate notes of a fast-moving discussion and does not purport to be an exact transcript of Buffett and Munger's remarks.
  
  "We would be very happy if we earned 10%, pre-tax" on the additions to Berkshire's equity portfolio, said Buffett. "Anyone that expects us to come close to replicating the past should sell their stock; it isn't going to happen. We'll get decent results over time, but not indecent results." Added Munger: "You can take what Warren said to the bank. We are very happy at making money at a rate in the future that's much less than the past... and I suggest that you adopt the same attitude."
  
  "We think Berkshire is an attractive investment [at today's price]," said Buffett. "We don't think it's the most attractive in the world."
  
  Both men made it clear that their preference now is to acquire 100% ownership of private businesses at a "fair" price and to increase BRK's interest in companies that get substantial portions of their earnings in non-U.S. currencies.
  
  "We are happy to invest in businesses that earn their money in euros in France or Italy or sterling in the UK, because I don't have a feeling that those currencies are likely to depreciate against the dollar," said Buffett. "Overall I think that the U.S. continues to follow policies that will make the dollar weaken against other major currencies.... I feel no need to hedge purchases of companies that earn profits in other currencies." Buffett added that major U.S. multinationals, like Coca-Cola (KO, Fortune 500), are a natural hedge against the dollar, since they earn most of their profits offshore -- which, he said, "will be a net plus over time."
  
  Asked what's in store for the economy, Buffett said he doesn't have a clue and doesn't care.
  
  "I haven't the faintest idea," he said. "We never talk about it, it never comes up in our board meetings or other discussions. We're not in that business [of economic forecasting], we don't know how to be in that business. If we knew where the economy was going, we'd do nothing but play the S&P futures market."
  
  His simple point: As an investor, you don't need to predict the economic cycle (or even pay much attention to it). Instead, you should focus on evaluating individual businesses if you pick your own stocks -- or, simply buy the entire market in the form of an index fund. When a shareholder asked for the single best specific investment idea Buffett could recommend to an individual in his 30s, Buffett said: "I would just have it all in a very low-cost index fund from a reputable firm, maybe Vanguard. Unless I bought during a strong bull market, I would feel confident that I would outperform...and I could just go back and get on with my work."
  
  In response to a similar question from an investor asking how Berkshire (BRKA, Fortune 500) would invest differently if it had only a few million dollars to put to work, Buffett advised him to think small. "That would open up thousands of opportunities," said Buffett. Earlier this year there were "very mispriced bonds" that "we could buy nowhere near enough of to make a difference to Berkshire," but a smaller investor could have exploited. "Most of the opportunities would probably be in small stocks or in specialized bond situations."
  
  On succession
  Asked about succession, Buffett (who is 77) and Munger (who is 84) had this to say:
  
  "On the CEO front, we have three [internal candidates] who could step in," said Buffett. "The board is unanimous in knowing which one it would be, although the answer might change with time.... In terms of the [chief] investment officer, the board has four names, any one or all of whom would be good at my job. They all are happy where they are now [working outside of Berkshire], but any would be here tomorrow if I died tonight, they all are reasonably young, and compensation would not be a big factor.... There will be no gap after my death in terms of having someone manage the money. They'll be much more energetic [than I am] and may even have a better record."
  
  Added Munger: "We still have a rising young man here named Warren Buffett. And I think we want to encourage this rising young man to reach his full potential." At this point, Buffett interjected: "At the average age of 80, we're aging at the average rate of only 1 1/4% per year. That's a lot better than younger people."
  
  From the Cubs, to China
  
  Later, asked by a teen shareholder whether he is interested in buying the Chicago Cubs (currently on sale by the Tribune Co. for roughly $700 million), Buffett said he did not need the "psychic income" and would not swing at the offer.
  
  Asked whether Berkshire will seek to purchase entire private companies based in China or India, Buffett responded: "We would like to. If we get lucky, we'll buy one or two in the next three or four years. I don't know if it will be in China, India, Germany, the U.K. or Japan -- there's a lot of luck in that in terms of families thinking of us specifically.... But you will see the day that BRK owns businesses in both countries [India and China]."
  
  Despite its huge cash hoard, Berkshire won't be paying a dividend anytime soon. "The test," said Buffett, "is whether you can continue to create more than $1 for every $1 you're retaining." He and Munger feel they still can put surplus cash to work and earn a higher return with it than shareholders could on their own, after tax, if BRK paid it out. "If we can turn $1 in dividends into $1.10 or $1.20 on a present-value basis, they're better off if we don't pay out. When the day comes, it should be paid out. But because we still have this ability to redistribute money in a tax-efficient way within the company, we can reallocate it," he said, where it will earn a higher return than shareholders may be able to on their own."

Yes, one should note what Jason is saying here. The Q&A discussions are rather fast moving and sometimes things will be written out of context! It has happened many times before and will continue to happen!

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Here is another fantastic compilation: here

• Berkshire Hathaway Annual Meeting, Omaha NE 2008
  May 3, 2008
  
  Typewritten notes courtesy of Peter Boodell
  
  (As is standard, no recording equipment was used to reproduce these notes. As a result, these notes are recollections only – not quotes, and should not be relied upon. –PB)
  
  A short introductory skit – Susan Lucci from All My Children walks on stage:
  
  CM: Where could he be?
  
  Susan Lucci: Detained at the TV studio. Hi Charlie, I’m Susan Lucci. He’s going to be a big star.
  CM: You have some important qualities that Warren lacks.
  
  SL: There are some changes we need to make. We need to change our dividend policy. We are so cheap to our shareholders.
  
  CM: Sounds good to me.
  
  SL: And I want guidance on earnings, weekly. And we need to pay our directors more than $900/yr. [directors stand up and applaud]
  
  [WB walks in]
  
  WB: What’s that talk about dividends? My show is Berkshire Hathaway – All My Children can’t do without you, and I can’t do without Berkshire.
  
  SL: The deal is off?
  
  WB: You’ve brought me back to my senses. Pick out anything you would like at Borsheim’s, and charge it to Charlie.
  
  WB: We are going to follow usual procedure. We are going to answer questions between now and then, based on who gets lined up at microphone first. Our best estimate is 31k people are here to today.
  
  We have Charlie Munger - he can hear and I can see - we work together for that reason. Hold your applause until the end. Howard Buffett, Bill Gates, Don Keogh, Tom Murphy, Walter Scott, Don Olson. The best directors in America.
  
  We’ll take a break at noon.
  Q1: Rajesh Vora, Bombay India. I salute your 100% honesty. What key states to correct crowd mindset?
  
  CM: He wants to know how to become less like a lemming.
  
  WB: Since you repeated the question, I’ll let you give first answer.
  
  CM: He wants to invest less like a lemming.
  
  WB: I started investing when I was 11. I believe in reading everything in sight. I wandered for 8 yrs with technical analysis. I read Intelligent Investor, chapters 8 and 20 I recommend, and if you absorb it you won’t be a lemming. I read it early in 1950, and I think as good a book now as then. You can’t get a bad result if you follow it. There is another book out there, Food You Will Enjoy about the Buffett family grocery store. Neither of us were any good at groceries. You don’t want to pay attention to my Grandfather’s advice on stocks. It has three big lessons, a) stock is a part of a business b) market serves you doesn’t instruct, and c) margin of safety. Berkshire holders are better than most at understanding that they own a part of a business.
  
  Q2: George from Cologne Germany. How is operational integration of Cologne Re?
  
  WB: 95% subsidiary of General Re, of which we own 100%. Oldest reinsurance company in world. It does a wonderful job. We have a process in place such that we will soon own 100% of Cologne. It runs fine as it is. They have run own portfolio, but I will take responsibility for Cologne’s investment portfolio. We will consolidate 100% rather than 95%.
  
  Q3: Sam from Fort Lee. Recession, stock market up in April. What next?
  
  WB: I could expand on that question, but I couldn’t answer it. Charlie and I haven’t the faintest idea where it goes next week, next month or next year. We are not in that business. It isn’t our game. We see 1,000s of companies priced every day. We ignore 99% of what we see. Every now and then, we find an attractive price for a business. When we buy it, we would be happy if market was closed for a few years. Wouldn’t get a price quote daily on a farm. We look at expected yield, cost of taxes. If you buy a farm, you would look at cost of fertilizers, what a farm produces relative to purchase price, price per acre, production per acre, etc.. We make judgments.
  
  CM: Nothing to add.
  
  WB: He’s been practicing for weeks.
  
  Q4: Chandra from Seattle. I am bad at hiring good managers. How do you assess capabilities.
  
  WB: You have to understand that we cheat. If you give me 100 mba’s (I am meeting over 30 schools this year), I no more could take the 100 and rank them - it would be impossible. We buy businesses with great management in place. We have seen their record. They come with business. Our job is not to select great managers, our job is to retain them. A majority are wealthy. They don’t have a monetary reason to work in many cases. We have nineteen people at headquarters, and 250k around world. Our job is to make sure they have same enthusiasm. We have to see passion in eyes and believe the passion will remain, but we can create an environment to keep them happy. At these annual meetings, we tell them what a great job they did and make them feel appreciated. We don’t have contracts – it doesn’t work. Our managers are appreciated. I can’t be of help if you are looking at group of MBAs. They know at this point in life how to fool you, what answers to give you. I would look for person with passion for job, doing more than their share, good communicators. At baseball you have to hang up cleats at 40, but our guys go on and on and on. Mrs B worked till 103, then died the next year. That’s a good lesson for our managers. [laughter]
  
  CM: Story of Howard Amundsen, a young man asked him how do you get ahead? He replied, ‘I always keep a few million dollars lying around just in case a good opportunity shows up’.
  
  Q5: Would you use stock options to enter a position in a public co?
  
  WB: If you want to buy or sell a stock, you should buy or sell a stock. We sold puts on Coca-cola once, but usually it is best to just buy stock. Using option technique is an idea where you get to buy a stock cheap. 4 out of 5 times you get it right and one time you may miss the opportunity to buy. We virtually have never used options to enter or exit a position. We have sold long term equity put options described in press report. We don’t get involved in fancy techniques.
  
  CM: If I remember right, a public authority was wondering if they should set up an option exchange market. Warren was alone in the opinion (against it). You wrote a letter saying it wouldn’t do any good to throw out margin rules in this fashion. It doesn’t serve the country. I always thought Warren was totally right. Turning financial markets into gambling markets to enrich the croupiers doesn’t make sense.
  WB: A University of Chicago Graduate student asked me once, what are we being taught that is wrong? In business school the amount of time spent teaching option pricing is total nonsense. You only need 2 courses, how to value a business and how to think about stock market fluctuations. The thing is that instructors know the formulas and you don’t, so they have something to fill the time. It has nothing to do with investment success – what matters is buying businesses at the right price. If you were teaching Biblical studies and you could read the Bible forward, backward and in four different languages, you would find it hard to tell everyone that it comes down to the Ten Commandments. The priests want to spend a lot of time preaching. You must have attitude where you aren’t influenced by market. You need a mindset, and you need to have the attitude to divorce yourself from letting the market influence you.
  
  Q6: Germany. You are both generous. Joys of giving, pitfalls of donating money?
  
  WB: I’ve never given up anything that made a difference to me. There are people that drop in the collection plate an amount that makes a difference in their lives. I’ve never given a penny that way. I’ve lived a long time which gives you a huge advantage in accumulating money. I’m giving away excess, not necessity. What I am doing is useful, but it isn’t on a par with people who give real money. Doris gives away money and time which is a real cost – gives help beyond the money. She is retail, I am wholesale. You should give to things that you personally have interest in. I won’t prioritize your giving.
  
  CM: Regarding pitfalls, I would predict that if you have an extreme political ideology, you are very likely to make a lot of dumb charitable gifts.
  
  WB: If you hang around Charlie enough, you get the sunnyside of life.
  
  Q7: Bombay. Ethical dilemma? Fruit of loom have competitors with sweatshops?
  
  WB: We let managers run businesses, and their standards over the years have been extraordinary. I am very happy turning over keys of financial and business performance. I write them a letter every two years, and I ask them to send a letter with successor. I also tell them we have all the money we need. We never want to trade reputation for money. Not only do they behave to conform with the law, but act as if there was going to be a story in local paper in morning written by intelligent investigative reporter. There are no budgets, we have no incentives to cause people to do anything or push people to play games.
  
  CM: We have no rule against foreign plants. We don’t favor foreign plants, we just do what makes sense. The US was doing one billion of shoes per year, 30yrs ago. We tried to compete, great brand and workmanship. We found out it wouldn’t work against shoes produced in china. There are one billion shoes now in USA but all produced outside of US. Some of those factories don’t have same norms. We won’t tell world how to run business. We have standards, but not all same as USA.
  
  Q8: Financial foghorn. Iscar and tungsten. Will it affect profitability of Iscar? Why locating plant in China?
  
  WB: Reason Iscar plant built in China was to serve China, growing. Nice to be near raw material, but geographic plant decision has nothing to do with changes in price of product. If you are creating higher value add like Iscar, there may be 3-6mnth adjustment to raw material prices. But there won’t be substitutes for tungsten as raw material for cutting tools in near term. Raw materials do get passed through. In carpet business, oil based raw materials are having more trouble passing costs. Over time it will pass through. But we’d be having trouble in that anyway. This candy will reflect sugar and cocoa over time. You can have squeezes here and there, not a big deal. Facility in Dalian – I have very high expectations for Iscar, exceeded in every way, both financial and human relations.
  
  CM: I would say that short answer is that while we don’t like inflation because it is bad for country and civilization, we will probably make more money over time because there is inflation.
  
  Q9: Melbourne Auz. Berkshire has bought a lot of shares in last twelve months in listed companies. Do you expect return to be between 7-10% pa over many years? Well below achievements in past.
  
  WB: Yes. We would be very happy if we could buy pretax returns of 10%, dividends included. We would probably settle for a little less than that. Berkshire returns will be less, no question, in future than in past. We operate now in universe of marketable stocks with caps of 10bil, but really 50bil and up in order to have an impact. This universe is not as profitable. If we find 10bil, a 5% position is 500mil. If it doubles, we make 325m, this is less than 2/10ths of 1%. We have found things to do time to time to make money. They are nice, but don’t move needle much at Berkshire. Anyone who expects us to replicate past should sell their stock. We’ll get decent returns, but not indecent returns.
  
  CM: You can take Warren’s promises to bank. We are happy making money at lower rate in future, and we suggest you adopt the same attitude. You may have better things to do with your money than buying Berkshire. You will find things that are more intelligent, if you spend the time. We don’t think it is the most attractive investment in world. We like buying good size to very large with good management. Nice formula, it should work well over time.
  
  Q10: Pacific Corp / Klamath River.
  
  WB: First dam built in 1907. We are prohibited from commenting on this. There are strong disagreements.
  
  David Sokol: It was inappropriate for Mr Buffett to respond. These four dams on Klamath river, there are whole series of issues in the federal regulatory relicensing process. It will be ongoing for eight years. It won’t culminate for another six years. There are twenty eight various parties that are party to a discussion about what should or not happen with these assets. Of these twenty eight parties, there are four different directions that this process should go. We will be pleased to find a resolution. It is up to regulatory commission, state legislators, then each regulator in each state. When public policy moves in direction of removal, fish ladders etc. We are working constructively with each of the parties. We have met with each of the parties, and hope we find an acceptable compromise.
  
  Q11: Dilesh, California. How do you maintain your good mental and physical health?
  
  WB: You start with a balanced diet. [laughter] If Charlie and I can’t have a decent attitude, who can? We get to do what we like every day, and we work with people who love to do what they do. We are not forced to do what we don’t want. I get to do what I like everyday. We are very blessed in so many ways. How could you be sour? Charlie is 84 and I am 77. We have slowed down but we pretend we haven’t. There is no reason to look at minuses in life. It would be crazy. We count our blessings. Not much more to it than that.
  
  CM: I wish we were poster boys for benefits of running marathons with slim bodies, but as much as you can tell we don’t pay attention to health advocates and dietary rules. I for one don’t plan to change.
  
  WB: From moment we get up, till we go to sleep, we are associating with wonderful people. We are biased, we live in best country in world. We could have stayed in grandfather’s store and would have been terrible.
  
  CM: You are in a job you would pay to have, and you are supposed to be an exemplar – there is a lot to be said for not paying yourself very well.
  
  WB: On corporate compensations, the idea that you have to pay someone $10 million dollars in pensions just to keep him around… there’s something wrong in that.
  
  CM: Executives should volunteer to get paid less.
  
  Q12: Germany, high school. What should I do with my life?
  
  WB: We prefer questions that are harder. [laughter]
  
  Q12 cont: what would you do if you started over?
  
  WB: You have to find your passion in life. I would choose same job. I enjoy it. It is a terrible mistake to sleep walk through your life. Unless Shirley Maclain is right you won’t have another one. Dad had a business, with books on his shelves and they turned me on. This was before Playboy. If he was a minister I’m not sure I would have been as enthused. If you have obligations, you have to deal with realities. Go to work for organization you admire or an individual you admire. Which also means most MBAs I meet would be self employed. [laughter] I went to work for Ben Graham. I never asked my salary. Get the right spouse. Charlie talks about the man who spent twenty years looking for a perfect woman and found her. Unfortunately she was looking for perfect man. If you are lucky, you will be happy and as a result you will behave better. It makes it easier.
  
  CM: You’ll do better if you have passion for something in which you have aptitude. If Warren had gone into ballet, no one would have heard of him.
  
  WB: Or would have heard of me very differently.
  
  Q13: What advice would you give to the quieter population to raise their visibility and gain recognition they deserve?
  
  WB: I avoided all classes that had public speaking, I got physically ill if I had to speak. I signed up for Dale Carnegie course. Gave them check for $100, then I went home and stopped payment on check. I was in Omaha, took $100 cash to Wally Kean, I took that Carnegie course, and then I went to University of Omaha to start teaching – knowing I had to get in front of people. Ability to communicate in writing and speaking – it is under taught – and enormously important. If you can communicate well, you have an enormous advantage. Force yourself into situations where you have to develop those abilities. At Dale Carnegie – they made us stand on tables. I may have gone too far. You are doing something very worthwhile if you are helping introverted people get outside of themselves.
  
  CM: It is a pleasure to have an educator come who is doing something simple and important rather than foolish and unimportant.
  
  WB: I hope he won’t name names [laughter].
  
  Q14: Klamath River.
  
  WB: Regulator will deal with issues, when government gets involved in eminent domain there are always tradeoffs. Overall you have people with widely different interests. A big interest is cost of electricity. Every commission who makes decision on coal vs gas makes a tradeoff, and tradeoffs are partly economic cost and partly other issues. FERC will listen to everyone. They have to listen to everyone. We will do exactly what they say. We follow the dictates of regulatory bodies. They give us a fair return. From the standpoint of profitability, it is neutral. Society will make the decision.
  
  Sokol: We distributed a study that found an accumulation of bio-algae and microsystin. There are 27 other lakes in Oregon with that type of blue green algae. It is created from lakes that have high abundance of nutrients. Klamath lake is hyper-eutropic – great abundance of algae and nutrients. 4 reservoirs. FERC does take it into account. Some do not call for removal of dam. All the parties will need to come to agreement.
  
  Q15: Henry Patner, from Singapore. From the partnership letters in 1964, strategy called generals relatively undervalued. We have recently begun to implement a technique, we buy something at 12x, when comps sell at 20x. Comps go to 10x. Is this pair trading?
  
  WB: Yes, didn’t know we started so early. Ben Graham did it in 1920. He did pairs trading. He was right 4 out of 5, but the last one would kill him. We shorted market to some degree, and we would borrow stocks from universities. We were early in this. We wouldn’t short a stock because it was unattractive but as a general market short. ) I would borrow from Treasurer of Columbia, “which ones do you want”, “just give me any of them”. It provoked some odd looks. It was not a big deal, we might have made a little money on it in 1960s, but it is not something we do these days.. If you have good ideas on businesses that are undervalued, it is not necessary to short. 130/30 is being marketed today. Many will sell you the idea of day. No great statistical merit.
  
  CM: We made our money by being long wonderful businesses, not in long short.
  
  Q16: Germany, fixed income markets at discounts. Will you take advantage?
  
  WB: We have seen some important dislocations. I’ve brought some figures. Tax exempt money market funds [auction facilities]. $330b of them. Repricing of first grade muni’s every 7 days. LA County Museum of Art. Jan 24th: 3.1%. Jan 31st: 4.1%. Feb 7th: 8%. Feb 14th: 10%. Fell back down to 3% on Feb 21st. Now 4.2%. Somehow rates were much higher on Valentine’s day. Look at bid sheet of Citigroup. Repricing every 7 days. You would find same issue on several different pages. Same broker at same time on different pages quoting different prices. On one page we bid 11%, and someone else bid 6%. You found this in 1974, after LTCM. These are great times to make extra money. Auctions in esoteric securities. We have $4bil in it. We will have made some insignificant money in this for a few months. There may be opportunities that we can’t spot. If you have enough time you can figure out something that are really mispriced. We don’t play with that, just don’t have enough time. If you spend enough time you may find those that Charlie and I can’t find because we just can’t look at that many things.
  
  CM: What is interesting is how brief these opportunities are. Some idiot bought muni’s, bought 20x what he could afford at incredible margin, those things were dumped on margin calls and suddenly got really mispriced. The dislocation was very brief, but very extreme. The moves are fast and short. You must think fast, resolutely. You have to be like man who stands by a stream and fish comes by once a year.
  
  WB: 2002 junk bond market happened.
  
  CM: Very big dislocations happen about twice a century.
  
  WB: That means we only have 4, 5 times we can do it
  
  Q17: India, how to grow small business into big business?
  
  WB: Berkshire was a small business at one time. It just takes time, it is nature of compound interest. You can’t build it in one day, or one week. Charlie and I never tried to do a master stroke to convert Berkshire into something four times bigger. We have felt and kept doing what we have understood consistently and have fun doing it then it’ll be something quite large at some point. Nothing magical. It would be nice to multiply money in a few weeks. In a general way we have done same things for years. We will have mor