Thursday, March 11, 2010

Tips on how investors could build a large portfolio

OWING TO the global economic downturn, some investors may have to put aside their aim of wealth accumulation lately.

For now, wealth accumulation seems to be far away given their current low salary level, worsened by lower bonuses received or no salary increment.

As a result of the uncertainty arising from salary reduction or getting retrenched, some may even need to tap into their savings to survive through this period of difficulty.

We can fully understand this situation. However, we believe that we should consider building a portfolio at this time.

We may not want to rush in to buy stocks now in view of the current high prices. However, we need to prepare ourselves to “fish” good quality stocks at reasonable price levels if the market turns down again.

We will regret if we are not investing during this period because usually the best opportunities are discovered during a downturn.

Nevertheless, some investors think that it may not be realistic for them to invest now given that they are already having difficulties making ends meet.

However, we believe that we need to start somewhere. Every big portfolio always starts from a small one. If we never sit down and start thinking about building a portfolio, we will never get a big portfolio. Hence, we should start now and start small.

When our portfolio is about RM10,000 in size, a 10% return means a return of only RM1,000. However, when our portfolio grows to RM1mil, a 10% return means RM100,000!

Some investors may have the intention of building a portfolio but they do not know how to do so. In fact, some may depend on wealth advisers on this issue.

However, even if we get a very good, knowledgeable and responsible wealth adviser, we also need to equip ourselves with some knowledge in this area to make sure we make sound investment decisions; after all, we need to be responsible for our future.

We can gain this knowledge by reading books related to this topic or attending some training courses.

Know what we want to achieve

T. Harv Eker says in his book, Secrets of the Millionaire Mind, that “the number one reason for most people who do not get what they want is that they don’t know what they want.”

For example, if we want to have a good retirement, we will have to know how much we need for our retirement and plan ahead for it. To give you some ideas, there are quite a few websites that can provide free advice on how to determine your retirement needs.

Once we know how much we need for retirement and set it as an objective, we need to focus on growing our net wealth to achieve it.

Sometimes investors are too focused on their current income level and short-term gain that they end up neglecting the long-term growth of their net wealth.

High income does not mean high net wealth if your expenses are higher than your income level. Hence, we need to control and monitor our expenses in order to have a net positive cash inflow instead of outflow.

If possible, we should have a cash budget that will guide us on the expected income to be received as well as the expenses to be incurred in the coming periods. We should try our best to stick to the plan and be committed to build our wealth.

Lately, some investors have been affected by high credit-card debts, which may be due to high expenses that cannot be supported by their current income.

During hard times, we need to plan carefully for big expenses and, if possible, we should delay expenditures which are not critical.

Given that nobody will know when our economy will recover, it is safer to spend less and try to reduce our debts.

In fact, if we have cultivated good spending habits from the start, regardless of economic situation, we will not have the problem of having to trim down unnecessary expenses during bad times. We have seen a lot of successful people living below their means and being very careful in spending money on luxury items. We should learn from these examples.

Don’t look down on low returns

Sometimes, a guarantee of low returns is better than the uncertainties of high returns, depending on the risk tolerance level of individuals. Always remember that risk and return go hand-in-hand. Not every investment product suits our return objective and risk tolerance level.

Therefore, we need to understand the characteristics and nature of investment products that we intend to invest in before we make any investment decisions.

We cannot always think of big returns without considering the potential risks that we need to encounter.

For those who like to play it safe, it will be wiser to go for defensive ways of investing, which means looking for stocks that pay good dividends and have solid businesses.

Remember, we need to be patient, go slow and steady. If we can avoid making losses during this period, we should be able to achieve our financial goals when the economy recovers again.

Ooi Kok Hwa is an investment adviser and managing partner of MRR Consulting


Tips on how to choose unit trust funds

UNIT trust funds offer an attractive alternative to retail investors, especially those looking for the benefit of diversification with a small pool of capital while enjoying the possibility of earning higher returns compared with conventional savings.

However, a lot of people have the misconception that the diversification nature of these funds means that the risk of investing in unit trust is low and they can just close their eyes and simply pick any of the funds that come along.

This misconception has led to many paying high prices in learning that as in any type of investments, investing in unit trust funds requires some basic understanding and research before we commit our hard earned money to it.

In general, we can classify the unit trust funds in the market into two major categories: income funds and growth funds.

·Income funds usually are characterised as providing consistent income to the investors. These funds invest in income-producing stocks or bonds or a combination of both. Bond funds, equity income funds and money market funds are included in this category.

·Growth funds generally are more aggressive than income funds but have the possibility of earning higher returns by focusing on the objective of long-term capital appreciation rather than income producing or short-term gain. Examples of growth funds are small-cap funds, commodity funds, index funds and gold funds.

Before we start evaluating the funds to invest in, there are two main considerations which are our investment objectives and risk tolerance level.

Every investor invests for his own purpose. If you are investing for your retirement and are already close to retirement age, you should look for income funds that are more predictable.

However, if you are still young and want to save for your children’s higher education, which will be 10 or 15 more years, you may want to look for growth funds that generate higher return but with higher level of risk.

Once we are clear on what we are looking for in the investment, we can narrow down our selection to either income or growth category and move to the next step of identifying the most suitable funds within the selected category.

Here are a few key factors to look into when evaluating unit trust funds:

·Investment strategy, policy and holdings: Every fund has its own investment profile. Investors should have a clear understanding of the investment strategy taken in each fund that they are considering to ensure it is consistent with their personal investment objective and risk tolerance level.

Even the funds within the same category may have significant differences in risk exposure due to the difference in the investment holdings.

For example, the risk exposure in large-cap growth companies is definitely much lower than for penny stock funds.

·Past performance: Investors may look into the past performance trend of the fund to gauge its future performance.

However, do bear in mind that good past performance may not be repeated in the future and we should not be overly excited to see one year of good results if the fund is only newly established.

A good fund should be the one that has been consistently out-performing its peers, be it during good or bad times.

·Cost: Investors must be aware that when they buy or sell the funds, there are fees and expenses embedded in every transaction.

For example, the expense ratio of a small fund tends to be higher than a large fund while a regional or global fund usually will carry higher costs compared with a domestic fund.

·Fund management: The fund management is very important to ensure continuity and consistent performance.

If a fund changes management too frequently, it will be very difficult for us to gauge the performance of the fund as different managers will have different styles which may affect the performance of the fund.

For example, if the manager tends to have higher portfolio turnover, then the expense ratio of the fund may increase even though the nature of the fund holdings remains the same.

By having good understanding of the above factors, we may be able to make meaningful comparisons among funds that we are interested in to identify the ones that suit us most.

Ooi Kok Hwa is an investment adviser and managing partner of MRR Consulting.


Wednesday, March 10, 2010

Sniffing for market opportunities

THE year of the Ox, which ends on Feb 13, has turned out to be a robust period for the global stock market.

But after ten months of almost straight gains fuelled by the abundance of cheap money, the Year of the Tiger, according to consensus, is likely to be a more challenging time for bullish investors.

According to RHB Research Institute, the recent market pull back suggests investors’ have turned cautious, while at the same time sustained market volume indicates higher churn rate as investors’ investment horizon gets shorter.

The research house advocates investing in healthy companies with sound fundamentals to ride through the volatility.

CLSA Asia Pacific Markets sees the year being fought out in a tug-of-war between liquidity and fundamental factors.

This, it said, will result in choppier market conditions. To ensure outperformance, CLSA Malaysia head of research Clare Chin says investors should buy on dips.

OSK Research, in its outlook for the year, also foresees a bumpy ride ahead for investors. It is of the view that the optimism on corporate earnings and the equity market in the past few months as somewhat “misplaced.”

However, the firm’s head of research Chris Eng believes that the tide of liquidity will continue to support the market.

While investors continue to fret over the risk of tighter monetary policy in 2010, JP Morgan opines that Malaysia is unlikely to raise rates or curb asset growth anytime soon.

It says conditions are still conducive for domestic funds to remain invested in riskier asset like equities rather than sitting idle on cash. Trawling through recent strategy reports by local and foreign brokerages, the consensus view is that equity prices, both at home and abroad, are no longer cheap on historical basis. The overall uptrend for the market, however, is still intact.

StarBizWeek has selected 10 stocks representing diverse sectors polled from various analysts and fund managers (we have avoided the 25 stocks picked out by Standard & Poor’s as they have been published in an earlier article).

While reputable blue chip stocks will continue to hog investors’ radar, we see value in under appreciated smaller sized firms.

Stocks such as Malayan Banking Bhd and Malaysian Pacific Industries Bhd, which have turned a corner, have yet to fully convince the market about their recovery prospects, while Hartalega Holdings Bhd and SapuraCrest Petroleum Bhd have the making of a global champion.

Malayan Banking Bhd

The country’s largest banking group was a laggard compared to its rivals in the past 10 months. But after two consecutive quarters of solid performances that wowed the market, Maybank is set to roar in the Year of the Tiger.

“With strong organic growth from domestic operations, Singapore and especially PT Bank Internasional Indonesia (BII), the negative impact from the expensive acquisitions (of BII and Pakistan’s MCB) would be more than nullified as financial year ending June 30, 2011 (FY11) earnings per share (EPS) is expected to exceed pre-acqusition levels,” says RHB Research Institute.

Consensus estimate put Maybank’s earnings at 44.4 sen per share for FY10, and assuming that it would return half of the profits as dividends, current yield for the stock stands at above 3%.

Malaysian Resources Corp Bhd

Seven out of 10 analysts who track MRCB have a “buy” call on the stock, despite concerns over earnings dilution arising from the sale of rights shares to raise RM508mil in fresh capital.

MRCB has earmarked RM300mil from the total proceeds for future acquisition and landbank expansion. It has been linked to several potential land deals in the Klang Valley, but details are scanty at this juncture.

Analysts say MRCB’s “irresistible angle” will keep investors glued to the stock. MRCB is recent years has completed its restructuring and streamlining initiatives, putting itself in a stronger position to take on new projects.

Malaysia Airports Holdings Bhd

MAHB is a lower risk proxy to its biggest customer AirAsia Bhd, which contributed 44% of its total passenger traffic last year, and as a proxy play of Malaysian Airline System Bhd’s recovery.

The airport operator has also discovered how profitable retail business can be, having retro-fitted KLIA to boost retail space by 60% and the refurbished Subang Airport looks like a shopping mall.

MAHB, the cheapest airport operator in the world, is trading at just 11 times its projected EPS for this year versus the global average of 18 times, according to Credit Suisse.

With its concession agreement with the Government sorted out, significant risk to earnings has been removed. A re-rating catalyst would come from a possible further sell-down from Khazanah Nasional Bhd, which currently owns 67.7% of MAHB.

SapuraCrest Petroleum Bhd

SapuraCrest is fast becoming a major player in the region’s oil and gas industry’s deepwater pipe-laying segment.

Through various joint ventures, SapuraCrest has build up an orderbook in excess of RM15bil to keep it busy over the next five years. The company is eyeing for new jobs in India and Australia, where capital spending on new oil and gas projects are on the rise.

SapuraCrest reported a record net profit of RM115mil for the year ended Jan 31, 2009 (FY09). CIMB Research projects that SapuraCrest’s net profit will continue to rise over the next three years at a compounded annual growth rate of 30%, which is the highest in the sector.

Deputy executive chairman Datuk Shahril Shamsuddin, through his family holdings, controls 40.3% of SapuraCrest, followed by Norwegian Seadrill Ltd (23.6%) and the Employees Provident Fund(8.25%).

CSC Steel Holdings Bhd

The outlook for steel miller CSC Steel is favourable over the next few quarters underpinned by rising flat steel product prices that will sustain inventory replenishing activities by steel stockist.

The group’s balance sheet is healthy, with a net cash position of RM303mil as at Dec 31, 2009 against RM145mil recorded a year ago. Trading at about seven times to its trailing 12-month EPS of 24.4 sen, the stock valuations are attractive compared to the broader market.

The company has proposed a final dividend of 13 sen per share and a special payout of 7 sen for year ended Dec 31.

This translates to gross dividend yield of 12.5%.

Daibochi Plastic and Packaging Industry Bhd

Daibochi is the biggest listed plastic flexible packaging (PFP) maker in the country with a 30% market share.

In the past, earnings for PFP makers had been erratic due to swings in raw material cost.

Since last year, PFP makers like Daibochi have put in a “cost plus” arrangement in contracts with customers to smoothen out the volatility. This allows Daibochi to sustain its current pre-tax margin, and the group’s net profit has been inching up from RM5mil in the first three months of 2009 to RM6mil in the last quarter of the year.

Hartalega Holdings Bhd

Hartalega is the global market leader in the nitrile glove business, which gives the company some pricing advantage over its rivals. With 10 new high capacity production lines to come on stream in stages over the next 12 months, Hartalega’s production is expected to reach 9 billion pieces per annum by March 31, 2011 (FY11) from 6.5 billion pieces currently. A healthy cash pile of RM43mil, or 18 sen per share, gives the company flexibility to fund expansion, or pay shareholders higher dividends.

Analysts say that local glove makers have proven to be “recession proof” businesses, with demand expected to reach 150 billion a year in 2010.

IJM Land Bhd

The company was established following the merger of IJM Corp Bhd’s premium brand and Roadbuilder’s extensive landbank. Analysts estimate that IJM Land’s current 5,300 acres landbank, located in key areas in the Klang Valley, Penang and Johor.

Current unbilled portion amounts to about RM1bil, which is around consensus turnover projection for this year.

IJM Land’s potential to become a major property player is somewhat under appreciated by overseas investors given that foreign shareholding in the company stands at around 13% compared with parent company IJM Corp’s 32% and rival SP Setia Bhd’s 26%.

Malaysian Pacific Industries Bhd

MPI plans to triple its capital expenditure (capex) to around RM300mil for financial year ending June 30, 2010 to boost capacity and enhance test capabilities.

The capex, acording to CIMB Research, will result in a RM170mil rise in annual revenue, as well as improved margins.

MPI’s strong balance sheet places the company in a good position to ride the current upturn in the semiconductor industry, although questions remain on whether the global recovery is sustainable.

CI Holdings Bhd

CI Holdings derives 92% of its turnover from beverage sales, with current revenue split of 65% from carbonated drinks and 35% from the non carbonated segment. The company made a net profit of RM21mil in finacial year ended June 30, 2009 (FY09), up from RM14.5mil in FY08.

Half year earnings in FY10 has already reached RM15.9mil. At 8 times its trailing 12-month EPS, CI Holdings is valued at half price compared to rival Fraser & Neave Holdings Bhd.

Tight stock liquidity means CI Holdings will probably continue to trade at a discount to its bigger rival, but its prospective dividend yield of about 6% is above average.


给孩子买保险 10个小技巧




















































须加快步入职场 大马女性财务要自主




国际女性就业率的标准水平是80%,美国以86%高居榜首。根据联合国 “2007年亚太经济与社会” 的调查报告显示,亚太区两性就业率的鸿沟高达30至40%,而女性就业率最低的地区领包括了马来西亚,印尼和印度。








根据人力资源调查公司Manpower Staffing Services (马)私人有限公司所做的调查报告显示,我国不论是公共领域还是私人界,都出现同工不同酬的男女性别歧视问题,而且女性担任决策成员的比例一直无法取得突破。










黄培美:赚钱要趁早 女性自主精明理财













亚太女性 收入显著增加












中国的万事达女性进步平均指数从去年的93.44降低到了 90.88,虽然大陆女性接受高等教育的指数较去年有所上升,但自认为收入超过平均值的大陆女性的指数从去年的68.41降到了65.68,远低于2007年的80.44,显示出中国女性与男性经济地位的差距在拉大。

家庭财务支配权 女性自主权加大







调查,亚太女性在劳动参与率上已逐渐追上男性 ,接受高等教育的程度更是超越男性。






How to pay less personal tax

THE 2009 tax-filing season for individuals has arrived. For many of us, April 30 will be just another day (perhaps accompanied by scrambling for our just-in-time filing) to settle our dues with the Inland Revenue Board by submitting the Form e-BE and paying any balance tax.

Before clicking the button to complete the e-filing, take a second look at the figures keyed in. Is the amount of tax calculated the lowest it can be? Here are some tips on saving tax that would not get you in trouble with the law.

1. Know your income: What is taxable and what is not.

Gone are the days when you agonise over the delay in receiving your Form EA from your employer. It is now a law for employers to issue the Form EA to their employees no later than the end of February. The key point to note is not all income in your Form EA is taxable! Scrutinise all the items in Form EA to see if there is any which should be tax-free. For example:

Travelling allowances

If you receive travelling allowance, up to RM2,400 for your travels from home to office is tax-free. What this means is if you receive an allowance of RM12,000 for such travel, you can deduct RM2,400 and only RM9,600 is taxable. Further, travelling allowance of up to RM6,000 for official duties is tax-exempt.

Meal, parking and childcare allowances

Many employees receive these allowances, do you? You would be happy to know that you can enjoy such perks with no worries about paying tax thereon (up to RM2,400 in the case of childcare allowance).

2. Make the most of all tax-free benefits.

Medical benefits

Medical benefits for traditional medicine including ayurvedic, plus maternity benefits are also tax-free.

Interest subsidies

Your employer may have subsidised interest on your housing, car and education loans. In the past, these subsidies would be taxable on you. Now you would be glad to know such interest subsidies are tax-exempt (so long as the total loans do not exceed RM300,000).

Broadband and telephone benefits

Who can leave home without the iPhone, Blackberry or PDAs nowadays? Getting such a device from your employer plus reimbursement for broadband and telephone bills are tax-free. So take advantage and enjoy the latest gadgets and services.

3. Know your limits.

Just as in drinking and driving, stay within the limits to avoid any trouble or triggering tax.

If you have enjoyed any staff benefits like discounts on your company’s goods or services and kept within the RM1,000 a year limit, you should enjoy tax exemption thereon.

Did you receive a small token from your employer on your achievements in service excellence, innovation or productivity which brought on a smile? Don’t blame your employer if they kept the awards below RM2,000 as no tax should be levied on you. Neither is the award for your long service with the company (for more than 10 years) forgotten. As long as your employer kept the value of all awards to you within the RM2,000 limit, the smile should remain on you.

4. Look for more tax-free income.

Bank interest income

You will note a subtle difference in your bank statement nowadays as it no longer shows the amount of tax withheld. Bank interest income is now tax-exempt.


Dividends need not be entirely taxable. Have a good look at the dividend voucher. If it states that the dividend is “tax-exempt”, then it is not taxable anymore.

5. Gain more deductions.

Purchase of sports equipment

If the slimming fad has caught on with you, keep the receipts of your purchases of any sports equipment. A claim of up to RM300 is a small incentive to shape those curves and muscles in a big way!

Have receipts or evidence to support more deductions

Medical expenses for your parents certified by a medical practitioner (restricted to RM5,000);

Medical expenses for serious diseases for self, spouse or child (up to RM5,000), including a complete medical examination for self, spouse or child limited to RM500;

Basic supporting equipment for disabled self, spouse, child or parents (ceiling of RM5,000);

Disabled person (self) (RM6,000);

Disabled husband/wife (RM3,500);

Education fee (self) up to tertiary level for the purpose of acquiring law, accounting, Islamic financing, technical, vocational, industrial, scientific or technological skills or qualifications for a masters or doctorate level, undertaken for the purpose of acquiring any skill or qualification (limited to RM5,000);

Purchase of books/journals/magazines/similar publications for self, spouse or child (up to RM1,000);

Net deposit in National Education Savings Scheme (ceiling of RM3,000);

Purchase of personal computer for individual (maximum deduction of RM3,000 allowed once every three years);

Premiums on life insurance plus EPF and other approved fund contributions (subject to RM6,000 restriction);

Premiums for education or medical insurance (restricted to RM3,000);

Relief of up to RM10,000 on the housing loan interest paid (conditions apply);

Payment of alimony to former wife (maximum total deduction for wife and alimony payment is RM3,000);

Zakat other than monthly zakat deduction from salary; and

Fees/levy paid by a holder of an employment pass, visit pass (temporary employment) or work pass.

The rule of the “game” of keeping your tax liability to the minimum when preparing your tax return Form e-BE is to do it right within the law. For a start, make the website of the Inland Revenue Board,, one of your favourites from now until April 30 to access its easy to read guides. Happy e-filing!

Ang Weina is executive director and global employer services leader with the tax practice of Deloitte Malaysia.


Should one invest in bonds?

MOST retail investors in Malaysia may not be familiar with bond investing. We may have come across bond funds in our unit trust funds investment, but, not many really understand why and how to invest in bonds.

A bond is basically a loan to government units or corporations that issue the bond. When you invest in bonds, you become the lender to the issuers. In return, you will periodically be repaid a pre-specified percentage of interest for the use of your money and when the bond reaches the maturity date, the principal that you invested earlier will be paid back to you.

For example, if you have invested in Bank Negara’s Bond Simpanan Merdeka 2009, which has three-year tenure and pays 5% of interest per year, you will receive a stream of interest income on a monthly basis and at the end of the third year, you will also get your principal back.

However, bond funds differ from individual bonds in many ways. While the interest income from the fund changes over time, the interest payments from individual bonds are usually fixed.

As a bond fund is made up from a pool of bonds, it usually does not have a fixed maturity and its yield is based on current income relative to its net asset value (NAV) while individual bonds are quoted in current yield or yield-to-maturity. In addition, bond funds normally make interest distributions monthly or quarterly, whereas individual bonds pay interest semi-annually.

The main purpose of investing in bonds or bond funds is to provide portfolio diversification, which in effect, helps lower your overall investment portfolio risk.

In general, bond funds have lower risk compared with equity investment and normally, bonds have low correlation with equity investment. While equity tends to perform well in high inflation rate and high interest rate environment, bond performance is unsatisfactory under such circumstances.

However, when the economy is bad and equity is not performing well, a lower interest rate tends to spur the economy, and at the same time, benefits bond returns. So, in most periods, it has negative correlation with equity interest.

The price movement of a bond is driven by a few factors. However, the main determinant is the interest rate. When the prevailing interest rate goes up, the price of the outstanding bonds will fall and vice versa. Therefore, the highest risk in bond investing is also the interest rate risk.

Duration is a measure of interest rate risk, which is defined as the weighted-average time it takes for a bond to pay back its interest and principal. By taking the duration of a bond or a bond fund times the change in interest rates, you will get the approximate percentage change in the bond’s price or the bond fund’s net asset value.

For example, if a bond fund’s duration is 10 and interest rates fall (or rise) by 0.5 of 1%, the fund’s NAV will increase (or decrease) by about 5%. As the duration of a bond is its average maturity, it measures interest rate risk.

When the inflation rate of a country increases, it will also result in higher interest rates to counter the inflationary pressure. Due to the recent global financial crisis, countries like China implemented stimulus packages, which in turn caused these countries to face potential inflationary pressure from higher asset prices.

Given that some economists have predicted that our interest rates may go up again, it is safer to buy bond funds with shorter duration because the bond funds will suffer a lower drop in prices with higher interest rates.

Other than interest rate risk, investors must also be aware of any potential credit risk of the bonds held by the bond funds, which is the possibility of the issuer failing to meet its obligations under the indenture or the risk of a bond being reclassified as a riskier security by credit rating agency.

It is a major problem during economic crisis or financial crisis, especially in the case of corporate bonds. However, given that our economy is currently at its recovery stage, credit risk may not a major issue.

As investors, before we invest in any bonds or bond funds, we must at least make the effort to understand the basic characteristics of the bonds that we are going to put our money in. Even though it is said to be safer than equity investments, there are still certain risks inherent in bonds investments that we must be aware of.

● Ooi Kok Hwa is an investment adviser and managing partner of MRR Consulting.


How to improve your investment skills

WE have been asked by many readers on ways to improve their investment skills. In fact, for all of us who invest, it is one of the essential skills that we need to acquire in our lifetime. Like it or not, we need to have it if we need to generate returns for our investment.

All investors want good returns from their investments. However, most of the times, instead of generating returns, retail investors are suffering from losses from their investments. We feel that one of the key differences between an intelligent investor versus a normal investor is that the intelligent investor will be aware that he may make mistakes in some of his investment decisions while a normal investor tend to overlook the fact that he will make wrong decisions no matter how good he thinks he is.

Despite extensive research on certain listed companies, due to some unforeseen changes in certain fundamental factors, even good value companies may suffer losses. Under such circumstances, an intelligent investor will admit that he had made a mistake in his investment decision and will cut losses fast.

However, the problem with most investors is that they refuse to face their mistakes; some are not willing to cut their losses even though they are aware of their mistakes.

Hence, rule number one in investing is that we must be fully aware that regardless of whether you are an investment guru or an average investor, everyone will make mistake in his investment decisions. That’s why some experts say: “When somebody mentions that they have more experience than you, they mean that they have incurred more losses than you in stock market.” The key is to learn from our mistakes.

In order to avoid incurring losses in stock market, we need to develop our own investing system that suit our needs, skills, knowledge and risk tolerance level. The investing system can be adopted from the fundamental analysis, technical analysis or combination of both. If we ask some remisiers, they will most likely tell you that they need two to three years to develop their own investing system that can help them to generate returns from stock market.

One of the fastest ways to acquire investing knowledge is through reading books relating to investment. There are many good investment books in the market. However, since every investor has different preferences, the best way is to visit bookstores and look for investment books that he or she can understand and can offer the skills needed. For beginners, always start with some basic investment books that explain well on key investment concepts.

Here are some good investment book titles for consideration: The Intelligent Investors (by Benjamin Graham), The Essays of Warren Buffett: Lessons for Corporate America (Warren Buffett and Lawrence A. Cunningham) and Rule #1 (Phil Town). For advanced investors, you may consider Security Analysis (by Benjamin Graham and David Dodd), which is still one of the best investment books in the world.

Apart from reading books, investors need to read more business news in newspapers and magazines to keep themselves updated on the latest happenings. In addition, many newspapers, magazines and websites also publish good articles for the purpose of educating general public on investment. For example, investors can get good investment knowledge from website like, by Securities Industry Development Corp.

Reading analysts’ research reports will enhance our understanding on some issues and factors in valuation as well as comments on some corporate strategies and developments. This knowledge is crucial in helping us making better investment decisions. Besides, for those serious fundamental investors, they may consider buying books like Stock Performance Guide (by Dynaquest Sdn Bhd) and Shares (Pioneers & Leaders (Publishers) Pte Ltd), which will provide all the essential investment information like companies’ background and some key critical investment information.

Another way to acquire investing knowledge is through attending investment training classes. There are many types of investment training classes, for example, classes on fundamental investment, technical analysis, currency trading or option trading. Given that a lot of these classes are quite expensive, we need to check whether investment training suits our needs. We believe some of those classes may be able to help investors generating returns, however, they require higher level of discipline and commitment.

Before we start investing with “real” money, one of the ways to gain experience and at the same time test out our skills is by building up a “virtual” portfolio and investing using “virtual” money. We can always try out our investment skills through playing a simulated investment game and monitor the investment returns before putting the real money into the stock market. Besides, we should also start young. If we acquire these investment skills at younger age, the losses that we may incur will be much lower than trying them when we are getting nearer to our retirement age.

Ooi Kok Hwa is an investment adviser and managing partner of MRR Consulting.


How do you measure a company’s financial health?

Altman’s Z-Score helps investors determine the bankruptcy risk of a firm

DESPITE the recent strong stock market rally as a result of the current tough economic environment, some investors may still doubt the financial health of some listed companies.

At present, apart from some common financial ratios such as debt-to-equity and interest coverage ratios, investors are looking for a ratio that can provide an indicator on the potential bankruptcy risk for any listed companies.

In this article, we will look into a method called Altman’s Z-Score, which can help us determine the bankruptcy risk of a company.

The Altman’s Z-Score Method was developed by Dr Edward I. Altman in 1968. It is a multivariate formula to measure the financial health of a company on whether it will enter into bankruptcy in the coming two years.

This method uses five common business ratios: earnings before interest and tax (ebit)/total assets ratio; sales/total assets ratio; market value of equity/market value of total liabilities; working capital/total asset ratio and retained earnings/total assets.

The Z-Score is computed using a weighted system based on the formula below:-

Z= 3.3X1 + X2 + 0.6X3 + 1.2X4 +1.4X5


X1 = ebit/total assets

X2 = sales/total assets

X3 = market value of equity/total liabilities

X4 = working capital/total assets

X5 = retained earnings/total assets

According to Altman, if the score is 3.0 or above, bankruptcy is not likely. If the score is 1.8 or less, potential financial embarrassment is very high.

A score between 1.8 and 3.0 is the grey area where the company has a high risk of going into bankruptcy within the next two years from the date of the given financial figures.

Hence, we can conclude that we should look for companies with higher Z-Scores for investing.

We have computed Z-Scores for two listed companies, Company A and Company E. Company A is consumer-based whereas Company E is property-based. We notice that Company A has a strong Z-Score value of 5.78 versus a very low 0.62 for Company E. Based on Z-Score, Company A is very unlikely to go bankrupt (5.78>3.00) whereas the chances of Company E going into bankruptcy is very high (0.62<1.80).

The reason behind the very low Z-Score value for Company E was because it had a very low market value over its total liabilities as compared to the high market value for Company A. In fact, Company E is currently having financial difficulties and is under PN17 (Practice Notes 17).

In short, companies with higher profit margins, sales, market value, working capital and retained earnings against their total assets will command a higher Z-Score.

This method is popular in the Western countries where some accountants found it quite reliable and accurate.

In the Malaysian context, according to a user manual published by Dynaquest Sdn Bhd, they found that the cut-off at around 1.5 is a better measurement of the likelihood of bankruptcy as compared to the 1.8 stated by Altman.

It may appear that companies selling at higher market value are safer than companies with lower market value. However, sometimes we may be tempted to nibble companies with lower stock prices.

We should be aware that the current very low stock prices for certain companies may indicate to us that the coming financial results of these companies might be quite disappointing.

However, we should be aware that Z-Score does not apply to every situation. We may want to use additional financial ratio like debt-to-equity ratio to complement this method.

Ooi Kok Hwa is an investment adviser and managing partner of MRR Consulting.


How to screen overseas stocks

Four criteria to look at when choosing counters that are suitable for long-term investment

LATELY, interest has grown in overseas stock investment. Given the foreign markets’ relatively high volatility of returns compared with the local market, a lot of retail investors find it more exciting to invest in overseas stocks.

However, a common problem most investors face is how to filter, from among all the listed companies in the respective markets, the right stocks that are suitable for long-term investment.

Market capitalisation

One of the most important selection criteria is buying stocks with big market capitalisation. The market cap of a listed company can be computed by multiplying the number of its outstanding shares with the current share price.

In general, we should buy stocks with big market cap because they are normally well-established blue-chip stocks with higher turnover and widely-accepted products and services.

Even though some academic research shows that buying into small market cap stocks can provide higher returns compared with big market cap companies, unless we are quite familiar with the stocks available in those overseas markets, it is safer to put our money into bigger market cap stocks.

It is not difficult to find out which companies have the largest market cap in any stock exchange.

Such information is available in most major newspapers in that particular country or the stock exchanges themselves.

For example, if we intend to buy some Singapore stocks, we should pay attention to companies that are ranked in the top 30 in terms of market cap. One can get the rankings by market cap for the Singapore Exchange in StarBiz monthly.

Price/earnings ratio

Once we have filtered out the blue-chip stocks, the next selection criteria is the price/earnings ratio (PER), which should be lower than the overall market PER. This is computed by dividing the current stock price by the earnings per share (EPS) of the company. It represents the number of years that we need to get back our money, assuming the company maintains identical earnings throughout the period.

Even though some published PER may use historical audited EPS compared with forecast EPS, given that our key objective is to do stock screening, the PER testing will provide us with a quick check on the top 30 companies – whether they are profitable and selling at reasonable PER compared with the overall market PER.

If we cannot get access to the overall market PER, we may want to consider Benjamin Graham’s suggestion of buying stocks with PER of lower than 15 times.

Dividend yield

A good company should pay dividends. We strongly believe that this is one of the most important ways for the investors to get any returns from the companies that they invest in.

Our rule of thumb is that a good company should have a dividend yield that at least equals or is higher than the risk-free return, which is usually based on the fixed deposit rates.

The dividend yield is computed by dividing the dividend per share by the current share price. In general, most blue-chip stocks do have a fixed dividend payout policy and reward investors with a consistent and growing dividend returns.

Based on our observation, most smaller companies may not be able to pay good dividends as they may need the capital for future expansion programmes.

Price-to-book ratio

Most investors would like to invest at a market price lower than the owners’ costs in the company. The book value of a company represents the owners’ costs invested in it.

In a normal business environment, unless the company has some problems that the general public may not be aware of, it is quite difficult to find stocks selling at a price lower than the book value of the company.

As a result, we may need to purchase at a market price higher than the book value. According to Graham, the maximum price one should pay for any stock is the price which gives a price-to-book ratio no greater than 1.5 times. This means that we should not pay more than 1.5 times the owners’ costs invested in the company.

Lastly, the above four selection criteria are merely a preliminary quick stock screening process. Even though investors may be able to find stocks that fit the criteria, we suggest investors check further the fundamentals of the company, such as the balance sheet strength, its gearing, future business prospects and the quality of the management before deciding to invest.

Ooi Kok Hwa is an investment adviser and managing partner of MRR Consulting.


Structured wisdom

“WHEN an old man dies, a library burns down.” A client, Mr C had attributed this to an old Kenyan saying. It refers to the wealth of experience, knowledge, skills and wisdom that is lost when an elder dies.

Of course, if the elder had been passing on his learning to the younger generation, then the death of his wisdom need not follow with his passing. Is this too idealistic? Perhaps, but many who have had the opportunity to learn from good mentors would agree that wisdom can be “inherited”.

Experience and learning can be imparted, but they have to be “updated” to be relevant with modern times. It is not about blind learning from the past, nor a total rejection of past experiences.

From the aches of the current financial crisis, many lessons will be learnt. One such important lesson is in the context of financial products – complex structured products.

Goldman Sachs chief executive Lloyd Blankfein said this recently – “The industry let the growth and complexity in new instrument outstrip their economic and social utility as well as the operational capacity to manage them.”

But are all structured products “bad”?

Let me share a personal experience, one which relates to learning from a mentor, about deriving a particular wisdom concerning structured investments.

Between 2003 and 2005, I was holding the appointment of head of investments and treasury business for a consumer bank in Singapore.

My mentor, who was my boss’ boss and the head of Global Investments Business, is a distinguished elderly gentleman, Kenneth Dowd Jr.

I remember distinctively on one occasion when we had a face-to-face meeting with about 6-8 persons.

The topic of CDO (Collateralised Debt Obligations) came up. In a sudden change of mood from relative cordial to one of suppressed anger, he uttered something along the lines of, “in Asia there are about a dozen people who truly understand the risks of CDOs, and half of them are in this room. I will never approve such a product for retail distribution, PERIOD!”

I am sure he was being sarcastic and definitely by exaggerating the situation, he was making an important point – never peddle or buy a product you cannot understand!

This wisdom goes beyond CDO, it covers all investments products.

In this crisis, structured products took a beating but the reality is, not all structured products are bad.

The lesson to be learnt is the need to identify and weed out bad apples, rather than throwing out a whole barrel of good ones because of a few rotten fruits!

Fundamentally, it is about fully understanding the products that we, the Bank, are approving for retail distribution, and also about the ability to educate clients so that they too understand the products.

This is the collective responsibility of our profession. His wisdom had been very clear to me, and has since been a guiding beacon in my professional life.

First and foremost, do we understand the risks of the products? If we don’t, then we have no business doing that business.

And even if we understood the risks, we must be able to explain it in equally comprehensive terms to the end investors.

I am proud that I have never supported or approved any CDO underlying structured investment products.

This, despite many investments bankers having put forth good strong arguments to support the CDO-backed products. I could not launch a product which, I felt, cannot be easily explained to the retail investors.

We should not let products’ complexity outstrip their economic and social utility.

With this statement, I support “going back to basic”, particularly on Structured Products.

It is not about more regulations, but about greater transparency and clarity.

The hallmark to a good structured product is to keep it as simple and concise as possible.

Below, a simple guide if you are investing in structured products:

> You must know exactly how you are going to get the returns. Generally, a structured product would have a transparent payout formula and your banker should explain how this is computed. If you are not clear or do not understand, seek clarification until you do.

> You must know exactly the risks and trade-offs. Structured products are about trade-offs and there is no free lunch. For example, where there is more principal protection, there will most likely be less exposure to the market and vice versa. Understand that there will be limitations; principal protection is usually provided if you hold till maturity but not during the tenure. There will also be costs including fees payable to the product manufacturers and distributors.

I do see reasonable value in structured products in the realm of wealth management.

Well-structured products do have the flexibility to achieve desired outcomes. In my personal investing, I too invest in a couple of structured products where they provide access to investments that I am unlikely to have direct access to such as Berkshire Hathaway and China-A Shares, while protecting my principals.

Just this week, we mark the first “death” anniversary of Lehman Brothers on Sept 15. With the 158-year-old organisation’s passing, we need to ensure its wisdom is kept alive. And we should also not forget Lehman Brothers’ cause of death and how it triggered a global crisis.

Tay is senior vice-president and senior head of UOB’s personal financial services division


Stocks that offer dividend yields higher than fixed deposits

DUE to the current low interest rate environment, a lot of investors may be wondering whether there are investments that can provide returns higher than fixed deposit (FD) rates.

Despite the current high stock prices on Bursa Malaysia, there are still many stocks providing dividend yields higher than the current FD rate of about 2% to 2.5%.

Based on our estimation, the average dividend yield for all stocks on Bursa Malaysia is about 3.5%, which is higher than the current 12-month FD rate of 2.5%.

Nevertheless, investors need to have critical financial information, adequate investment skills as well as be willing to spend time researching information.

There are many research companies providing information on Main Market companies on Bursa Malaysia based on their highest dividend yield, lowest price-earnings ratio (PER) as well as lowest price-to-book ratio (P/BV).

For serious investors, they need to familiarise themselves with these terms. In addition, investors need to know how to analyse the information.

In this article, we will explain how to use the dividend yield ranking. The table shows the top 10 Main Market companies according to highest prospective dividend yield.

Prospective dividend yield is calculated by taking the market price divided by the estimated current year dividend per share (DPS).

For example, Hektar Real Estate Investment Trust (Hektar REIT) shows a prospective dividend yield of 9.53%, which was computed based on the market price of RM1.07 (as at Oct 18) and estimated 2009 DPS of 10.2 sen.

The latest actual dividend yield of 10.01% for Hektar REIT was computed based on the same market price but divided by last year’s actual DPS of 10.71 sen.

Even though the dividend yield for 2009 is anticipated to decline slightly to 9.53% from 10.01% in the previous year, it is still much higher than the current FD rate of 2.5%.

However, investors need to be careful as some of the high dividend yields may be due to one-off special dividend payments.

The companies may not repeat these dividend payments in the following year. Besides, we need to make sure that the latest PER is lower than the overall market PER.

This is to prevent us from paying too high a price against its earnings level. For Hektar REIT, its latest actual PER of 9.45 times is lower than the current market PER of about 11 to 12 times.

This method does not require a lot of time to carry out research. Once we identify good fundamental companies that are paying high dividends every year, we only need to monitor them.

We may not even need to sell the stocks for a long period of time if the companies continue to reward good dividend yields that are higher than FD rates.

Ooi Kok Hwa is an investment adviser and managing partner of MRR Consulting.


How to analyse company statements and reports

Analysts usually judge the quality of a company’s management team by looking at the comprehensiveness and truthfulness shown in the management statements

FOR the next few weeks, investors will start to receive annual reports for companies that have their financial year ended Dec 31. Even though the majority of investors may not look at those reports in detail (in fact, some investors may not even open the envelope containing the annual reports), some people will still spend time analysing the whole report. One of the key sections that investors will analyse in detail is the chairman’s statement and management discussion or operations review. In this article, we will label the above statements as management statements.

Most of the management statements will explain the companies’ immediate past one-year financial performance, external environment, major corporate developments as well as the companies’ future prospects.

Based on our observations, the majority of companies will try to explain and highlight a lot of positive elements that happened in the companies. It is very rare to find negative issues that affect the companies’ performances being discussed in the statements. Even though we cannot conclude that those companies that are willing to highlight their financial problems as good companies, at least these companies show their effort in trying to be truthful to their investors. This will provide a lot of plus points to these listed companies.

Analysts usually judge the quality of a company’s management team by looking at the comprehensiveness and truthfulness shown in the management statements.

Nowadays, if there are areas that a company does not comply with the accounting standards, the external auditor will highlight those areas inside the auditor report. Hence, investors need to read the management statements and financial statements together with the auditor’s report.

The management statements will normally provide the reasons driving the companies’ overall performance, whether good or bad. However, there are certain companies that tend to focus on higher sales and avoid mentioning the profitability when ever they report lower profits during the year. They will try to avoid the reasons causing the reduction in profits, for example, higher operating costs, raw material costs or stiff price competition.

Some times, some companies will claim they have managed to maintain profits at the same level as the previous year. However, if we further analyse the financial statements, we will notice that the profit had included a lot of exceptional items, such as gains from the disposal of fixed assets as well as investments. Hence, we should not rely on the explanation given by the management in the chairman’s statement.

In fact, we need to investigate further the driving factors for the profitability of the company, especially if it had included some exceptional gains or losses, which are not part of the company’s normal operations. These details can be found in the notes to the accounts. Normally, most companies will list the key items that affect their profitability in the notes to the “profit before tax”.

We can get a summary of key corporate developments that happened in the company in the “corporate development” section. If you have been following the company’s corporate developments, this section may not provide you a lot of new information.

Nevertheless, certain companies may provide the latest status of their corporate developments, such as any new projects being initiated or certain approvals from relevant parties being granted for their critical projects.

As for the section on the company’s future prospects, investors should not place too much weight on it. Based on our experience, a lot of Malaysian companies have the same statement on future prospects by saying that “the company will perform better in the future”.

There are companies that have reported losses every year but the chairmen will still say the companies would perform better next year without the backing of solid grounds to improve profitability.

Hence, a good company statement should provide a fair account of the actual happening in the company. In reality, it is quite difficult for listed companies to hide their problems as the level of financial literacy of the general public has improved over years.

There are some mature investors and analysts who are able to detect the problems faced by the company by analysing the notes to the accounts in addition to making comparison of the current financial statements versus the statements or quarterly financial statements of past years.

Ooi Kok Hwa is an investment adviser and managing partner of MRR Consulting.


How to handle market uncertainty

AFTER the strong rally over the past seven months, the market is finally undertaking some corrections. Some investors may not fully comprehend why the stock market moved up when the companies reported bad financial results, but tumbled when the companies started to show better financial performance.

We need to understand that the market had discounted the good news. Some of those good financial results were already reflected in the stock prices. The stock market cycle always moves ahead of the economic cycle.

During the Great Depression in 1929, the stock market recovered eight months ahead of the real economic recovery. Even though some investment experts say the worst is far from over, we notice that a lot of economic indicators are pointing to an economic recovery.

However, the economic growth may not move as fast as the stock market. As a result, while the economy continues to recover, stock prices need to come down to reflect the fundamentals of the companies.

This explains why once investors started to realise that the stock prices could not be supported by the fundamentals of some companies, especially blue-chip stocks, the stock prices had to come down to reflect the true value of companies.

Nevertheless, based on our analysis, most listed companies in Malaysia showed great recovery in their second quarter of 2009 financial results against the results in the first quarter as well as the fourth quarter of 2008.

We need to understand that there are many disturbing factors that affect the stock prices, but not reflect the fundamentals of companies. From the perspective of behavioural finance, investors’ expectations and emotions have great influence on stock prices. Two factors influence investors’ expectations – past experience and new information.

In the absence of new information, investors will use past trends to extrapolate into the future. As a result, the stock prices may persist in trend for a while before the next market reversal. This may cause the market to overreact to good financial results as shown by some companies.

According to Fischer Black, some investors tend to be affected by noise that makes it difficult for them to act rationally. He defines noise as what makes our observations imperfect as well as keeps us from knowing the expected return on a stock.

Some investors, due to lack of self control and proper financial training, may misinterpret economic information and sometimes be carried away by the stock market emotion. Investors may feel uneasy over the recent strong market performance. However, they will still choose to follow the market trend even though they feel their judgment may be wrong. In behavioural finance, we label this as conformity in which we are inclined to follow the example of others even though we do not believe in the action.

The above phenomenon of stock prices being valued beyond the fundamentals of the companies is applicable to some selected blue-chip stocks. Nevertheless, Bursa Malaysia does have plenty of second- and third-liner stocks which are still selling at cheap valuations. Investors may want to take the current market corrections to accumulate them for the long-term.

We need to relate the current stock prices to the intrinsic value of the companies. Some investment tools like price-to-earnings ratio, dividend yield and price-to-book ratio will assist us in filtering out some good companies for investment.

Even though there are a lot of uncertainties along the way to full financial recovery, we feel that investors may view the recent corrections as good opportunities to build their long-term investment portfolios. For those who have been looking for investment returns higher than fixed deposit rates, there are still a lot of stocks that are paying handsome dividend yield of more than 4% and yet selling at cheap prices.

One of the most important investing principles is to have the discipline to hold long term. We should not pay too much attention to the fluctuation of stock prices; instead, we need to focus on the earning power of the companies as it is one of the most important drivers in deriving the intrinsic value of a company.

As a result of the financial crisis, even though a lot of companies are showing great recovery, their performance and prices are still lower than their peak level during the year in 2007. If the overall economy and the companies’ performance recover to 2007 level, their current stock prices may be a good entry level.

● Ooi Kok Hwa is an investment adviser and managing partner of MRR Consulting.


How to detect some early financial warnings in companies

Or how to smell a rat

TRADING volume on the stock market has recently been getting higher again. Some retail investors, who were absent from the recent rally, have started to get excited.

Over the past few months, investors were mainly focusing on good quality stocks, selling at a cheap level. However, attention has started to switch to poor quality stocks lately. Even though sometimes investors may be able to make money by betting on those stocks, we still need to be careful about the fundamentals of the companies. In this article, we will look at how to detect some early financial warnings.

A lot of companies like to make corporate announcements during the bull market. We agree that some of the announcements were genuine, but many corporate proposals were simply too good to be true.

If we analyse further, we will notice that the proposals might be way beyond the capabilities of the companies. Sometimes, the management’s projections of sales and profits were far beyond the past history. The capital expenditure requirements were well above the companies’ borrowing capacities.

Besides, the time required to turn the projects into profits might be too long. Nevertheless, as a result of the announcements, the stock prices would surge and normally, the main sellers behind might be the key owners.

We have also seen some proposals that turned out to be profitable. The companies did make profits in the first few years. However, the high growth in expansion stretched the capabilities of the top management, who might not have the experience and ability to run big businesses. They might have the experience to manage RM100mil turnover businesses. However, when the turnover surged beyond RM1bil per year, they might have problems. In fact, the main concerns to the companies were the top management team which lacked skills and experience to run big businesses.

We need to be careful if there are any changes to the key managers of the companies, auditors or accounting firms. The key managers are referred to the positions like chief executive officers and financial controllers. Besides, frequent changes in auditors provide serious financial warnings, especially the change from a reputable audit firm to an unknown one.

How to smell a rat or how to detect some early financial warnings in companies

Companies will soon start to report their financial results for the period ended Sept 30. In Malaysia, often good companies will try to announce their results before the deadline of Nov 30. However, if they are having difficulties in providing their financial statements, normally, we will expect some bad news to be announced. One of the possible explanations behind the delay is that the companies need more time to rectify certain financial problems.

Another potential sign of financial warning is when the companies venture into unrelated businesses. Previously, we saw many Bursa Malaysia second board companies going into financial distress in 1997/98 when they departed from their core businesses in manufacturing and ventured into property development activities.

We need to understand that when the company owners enter into areas that are not their core competencies, they might not be able to apply the knowledge and experiences accumulated previously. Instead, they would have to go through the entire learning curve again, which would result in the management taking a lot of time in managing those unrelated businesses.

In such situations, investors will need to pay attention and analyse whether those new ventures will be able to add value to the shareholders’ wealth. Some companies like to change their names after venturing into new businesses. Too frequent name changes may also imply that the companies have been shifting their core business focus and directions, which may not be good news to the shareholders.

Litigation is also another warning sign. We need to pay attention to companies that are involved in litigations, which may be either attributed to the companies being sued or they are suing someone else. These litigations may divert the management’s attention from day-to-day business operations. As a result, they may affect the companies’ performance as well.

One of the common questions asked by shareholders during any AGM is the directors’ fees. We need to analyse whether the fees paid are in proportion to the companies’ profitability. Sometimes, certain companies make excessive perks for owners as well as their employees or the lifestyle of the key owners is simply not consistent with the companies’ profitability.

The above are a few of the more common financial warnings that potential or existing shareholders must pay attention to when analysing the companies for investment. More importantly, we need to remain vigilant at all times and pay attention to the latest development of the companies.

● Ooi Kok Hwa is an investment adviser and managing partner of MRR Consulting.



























投机不能令人致富;致富需要的是投资不是投机。只有 “胆大心细”的人,才有资格作出投资;只有作出投资,我们才有成功致富的机会。