Now's not the time to bury your head in the sand
What is one thing all good companies (and countries) do in times of crisis and uncertainty? It isn't to run away screeming, and it is also not to continue doing business in the same way as during the good times. It is first and foremost to survive the upheaval, as well as to reflect and regroup, while positioning for a return of the good times. And that's precisely why the Asia Trader and Investor Convention (ATIC) at the Suntec City Convention Centre this weekend is so crucial.
Now, I'm not going to quote that famous (but unfortunately, wrong and expertly debunked) line about finding crisis in opportunity. Fact is, there is opportunity emerging but it's probably unwise to rush out and think opportunity is everywhere.
But at the same time, to stop thinking about the market just because we've had a setback is to acknowledge you've fallen into the fear-and-greed trap which probably got you into a mess in the first place.
The best investment you could probably make right now is in knowledge. Acquire new perspectives and skills. It's precisely now – at a lull in the market – that you should smarten up about your trading and investing strategy. Reflect on what has worked in the past, why it may not work in the future, and what the new way forward is. Position yourself, as I've mentioned, to be able to benefit when the bull market inevitably returns.
The problem is, the next bull market will be different from the one we have just left. While I see a return to the good times, they will be good for slightly or maybe even significantly different reasons for why they were good during 2003-2007. Unless you acquire new skills, you may not be able to recognise the new opportunities when they arise.
So, whatever you do, even if you are not in the market for stocks don't leave the market for knowledge. Don't shut yourself from the market, just because you are currently not invested (or invested and suffering).
Mark Laudi, who will be at ATIC. Come and say hello.
To comment on this blog, go to the Investor Central blog.
Now, I'm not going to quote that famous (but unfortunately, wrong and expertly debunked) line about finding crisis in opportunity. Fact is, there is opportunity emerging but it's probably unwise to rush out and think opportunity is everywhere.
But at the same time, to stop thinking about the market just because we've had a setback is to acknowledge you've fallen into the fear-and-greed trap which probably got you into a mess in the first place.
The best investment you could probably make right now is in knowledge. Acquire new perspectives and skills. It's precisely now – at a lull in the market – that you should smarten up about your trading and investing strategy. Reflect on what has worked in the past, why it may not work in the future, and what the new way forward is. Position yourself, as I've mentioned, to be able to benefit when the bull market inevitably returns.
The problem is, the next bull market will be different from the one we have just left. While I see a return to the good times, they will be good for slightly or maybe even significantly different reasons for why they were good during 2003-2007. Unless you acquire new skills, you may not be able to recognise the new opportunities when they arise.
So, whatever you do, even if you are not in the market for stocks don't leave the market for knowledge. Don't shut yourself from the market, just because you are currently not invested (or invested and suffering).
Mark Laudi, who will be at ATIC. Come and say hello.
To comment on this blog, go to the Investor Central blog.
Labels: Asia Trader Investor Convention, ATIC, bear market, jihui, weiji
IPOs: We're issuing demerit points
Please excuse our cynicism, but we've grown a little tired of the way issue managers push up the issue prices of companies they are bringing to market. The way they do this is entirely legal: allocate most of the issue to fund managers and others, the so-called placees, and reserve just a tiny number of stocks for the public. Invariably, the demand for the public tranche far outweighs supply, which assures the company and issue managers that there's plenty of demand left over for listing day. As a result, the share price goes up and there's good reason to sip champagne by the close of trade.
But we think this common practice distorts the market by creating the false impression there is huge demand for a stock, when actually there is just huge demand for the tiny number of shares reserved for the investing public. The rising tide lifts the price of all the shares of that company.
Some examples:
Dynamic Colours
Issue: 64.5 mln shares
Public: 3.3 mln shares
That's 5.1% of the total issue. Given that 91 mln shares were bid for by the public, there was clearly huge surplus demand.
The stock hasn't held onto its 21.5 cent issue price, instead falling to around 15 cents.
The issue manager was UOB Asia.
Yongmao Holdings
Issue: 111.55 mln shares
Public: 3.8 mln shares
That's just 3.4% of the total issue.
The issue manager was CIMB-GK Securities.
Centraland Ltd.
Issue: 245 mln shares
Public: 5 mln shares
That's a ratio of just 2%.
The stock is a good ten cents above its issue price of 35 cents.
First Resources
Issue: 225 mln shares
Public: 3 mln shares
That's just 1.3% of the total issue.
There were applications (=demand) for 244 mln shares from the public, but only 3 mln were on offer to them.
The issue manager was Citigroup Global Markets Singapore Pte Ltd.
Surprise, surprise, the stock debuted above S$1.20 and has been riding on the wave of demand eversince.
So, henceforth in our IPO Briefings, we're going to allocate demerit points to those companies where the public tranche is so amazingly tiny it has a capillary effect on the listing - where the stockprice is magically pushed up by huge demand chasing a tiny fraction of the overall issue, thereby raising "all boats".
Our rating scale will be as follows:
But that's fine.
This index is for the rest of us, who usually miss out.
Mark Laudi, who is unlikely to subscribe to shares under these circumstances.
But we think this common practice distorts the market by creating the false impression there is huge demand for a stock, when actually there is just huge demand for the tiny number of shares reserved for the investing public. The rising tide lifts the price of all the shares of that company.
Some examples:
Dynamic Colours
Issue: 64.5 mln shares
Public: 3.3 mln shares
That's 5.1% of the total issue. Given that 91 mln shares were bid for by the public, there was clearly huge surplus demand.
The stock hasn't held onto its 21.5 cent issue price, instead falling to around 15 cents.
The issue manager was UOB Asia.
Yongmao Holdings
Issue: 111.55 mln shares
Public: 3.8 mln shares
That's just 3.4% of the total issue.
The issue manager was CIMB-GK Securities.
Centraland Ltd.
Issue: 245 mln shares
Public: 5 mln shares
That's a ratio of just 2%.
The stock is a good ten cents above its issue price of 35 cents.
First Resources
Issue: 225 mln shares
Public: 3 mln shares
That's just 1.3% of the total issue.
There were applications (=demand) for 244 mln shares from the public, but only 3 mln were on offer to them.
The issue manager was Citigroup Global Markets Singapore Pte Ltd.
Surprise, surprise, the stock debuted above S$1.20 and has been riding on the wave of demand eversince.
So, henceforth in our IPO Briefings, we're going to allocate demerit points to those companies where the public tranche is so amazingly tiny it has a capillary effect on the listing - where the stockprice is magically pushed up by huge demand chasing a tiny fraction of the overall issue, thereby raising "all boats".
Our rating scale will be as follows:
<2% = 5 demerit pointsThe only problem, of course, is that neither companies, nor issue managers, and a fair few "early birds" who secure shares during the IPO and watch the price rise, aren't really going to care.
2%-3% = 4 demerit points
3%-4% = 3 demerit points
4%-5% = 2 demerit points
5%-6% = 1 demerit point
According to this system:
Dynamic Colours would receive 1 demerit point
Yongmao = 3 demerit points
Centraland = 4 demerit points, and
First Resources = a full 5 demerit points
But that's fine.
This index is for the rest of us, who usually miss out.
Mark Laudi, who is unlikely to subscribe to shares under these circumstances.
Labels: Centraland, Dynamic Colours, First Resources, Initial Public Offers, IPO, Yongmao
MAS tells banks: pull your socks up!
Is it a coincidence that the two financial services regulators announced reviews this week, whose endgame is for retail investors to be treated with more respect? The Singapore Exchange started the week with a review of fines for companies which don't do the right thing by investors. The Monetary Authority ended it by seeking "views on proposed Guidelines on Fair Dealing – Board and Senior Management Responsibility for Delivering Fair Dealing Outcomes to Consumers". If it is a coincidence, it is certainly a happy one.
This story may sound familiar: you go to the bank to make a transaction. The PYT (pretty young teller) offers you some sort of financial product, which her bank is currently promoting in order to collect a 5% sales charge. Like, a commodities unit trust (great timing, now that commodities prices have likely seen the best of the gains in the current cycle), or a capital-protected fund (to ride on the fears of consumers about the current economic uncertainty, just at a time when the markets have fallen so sharply that there is – in the longer term – more upside than downside). Nary a question about the three wise main points about your finances are asked: your investment objectives, your time horizon, your risk profile.
So when the MAS says that the fair dealing outcomes that Financial Institutions should strive to achieve are, among others…
We probably also all know about the get-lost attitudes most banks take when you have a complaint, so when the MAS asks "Financial institutions [to] handle consumer complaints promptly and in a consistent manner", it appears they have their work cut out for them in this aspect, too.
What is really scary about the MAS' proposed guidelines is that they are not rocket science. If anything, they are common sense, and it is utterly appaling that the MAS should even have to crack the whip on financial services institutions to get these basic tenets of decency right.
Moreover, the guidelines are targeted at the "board and senior management".
My god, if this relatively small group of people can't get it right, what the hell are they doing running multi-billion dollar companies? And if the people at the top need to be told these basics, what can we expect from the PYTs?!
Imagine if similar guidelines were written about hospitals:
Hospitals should offer treatment only to patients who actually need such treatment, and
Hospitals should appoint doctors who can give advice commensurate with the patients' condition.
We would be aghast if hospitals and doctors needed such guidelines.
Granted, while money is a very serious issue indeed it is not quite a life-and-death situation like doctors.
Further, banks are not charities. This is a mistake many people make, and the MAS is right to say consumers "need to take responsibility for their financial decisions, and acquire basic financial know-how before they invest".
But only to protect themselves from the banks!
Banks have a special place in the economy because the economy cannot function without them. It is simply impossible to go through life these days without being a customer of a bank. And that's why its incumbent on the banks – more than any other industry in the economy – to play fair.
Mark Laudi, who can't remember the last time he was surprised pleasantly by a bank's service.
To comment on this blog, go to the Investor Central blog.
This story may sound familiar: you go to the bank to make a transaction. The PYT (pretty young teller) offers you some sort of financial product, which her bank is currently promoting in order to collect a 5% sales charge. Like, a commodities unit trust (great timing, now that commodities prices have likely seen the best of the gains in the current cycle), or a capital-protected fund (to ride on the fears of consumers about the current economic uncertainty, just at a time when the markets have fallen so sharply that there is – in the longer term – more upside than downside). Nary a question about the three wise main points about your finances are asked: your investment objectives, your time horizon, your risk profile.
So when the MAS says that the fair dealing outcomes that Financial Institutions should strive to achieve are, among others…
Financial institutions offer products and services that are suitable for the consumer segments they target; and…it seems to me they have a lot of work ahead of them.
Financial institutions appoint competent representatives who provide consumers with advice that meet their financial objectives and suit their personal circumstances
We probably also all know about the get-lost attitudes most banks take when you have a complaint, so when the MAS asks "Financial institutions [to] handle consumer complaints promptly and in a consistent manner", it appears they have their work cut out for them in this aspect, too.
What is really scary about the MAS' proposed guidelines is that they are not rocket science. If anything, they are common sense, and it is utterly appaling that the MAS should even have to crack the whip on financial services institutions to get these basic tenets of decency right.
Moreover, the guidelines are targeted at the "board and senior management".
My god, if this relatively small group of people can't get it right, what the hell are they doing running multi-billion dollar companies? And if the people at the top need to be told these basics, what can we expect from the PYTs?!
Imagine if similar guidelines were written about hospitals:
Hospitals should offer treatment only to patients who actually need such treatment, and
Hospitals should appoint doctors who can give advice commensurate with the patients' condition.
We would be aghast if hospitals and doctors needed such guidelines.
Granted, while money is a very serious issue indeed it is not quite a life-and-death situation like doctors.
Further, banks are not charities. This is a mistake many people make, and the MAS is right to say consumers "need to take responsibility for their financial decisions, and acquire basic financial know-how before they invest".
But only to protect themselves from the banks!
Banks have a special place in the economy because the economy cannot function without them. It is simply impossible to go through life these days without being a customer of a bank. And that's why its incumbent on the banks – more than any other industry in the economy – to play fair.
Mark Laudi, who can't remember the last time he was surprised pleasantly by a bank's service.
To comment on this blog, go to the Investor Central blog.
Labels: banks, fair trading, MAS, Monetary Authority of Singapore
SGX's review of fines: our contribution
We are delighted the Singapore Exchange is inviting comment on penalties for companies which flout exchange rules. Our own list of what actions should be classified as misdemeanours is not terribly scientific, but it is based on the common gripes retail shareholders voice about the stockmarket.
1. Perceptions of insider trading. We are not making any specific allegations, nor are we saying the SGX hasn't been doing a good enough job on enforcement. But I'm fed up to the teeth with stocks which have an out-of-the-ordinary day on the market, but the market-moving announcement doesn't come until after the market closes. And no one is held accountable for it. Fortunately, this doesn't happen often. But it happens often enough for us to roll our eyes, groan, and curse the fact that we're just retail investors who are left out in the cold.
2. Barring unforeseen circumstances… According to the template companies must complete when announcing earnings, they have to give an outlook:
Come on, if that's truly the depth of insight management has into the future of the company they're probably not worth investing in (from the crop of earnings stories tonight, kudos to Baker Tech, MAP Technology, Natural Cool and Showy International among others for being significantly more detailed in their statements, even if they had negative news to announce).
3. Press releases that only tell half the story. Listed companies probably know all too well that too many so-called business journalists just re-write press releases for a living. Hence, they often leave out the juicy bits from the press release and leave it to the statutory announcements, which fewer people read. We would promote a "truth-in press releases" goal. In the meantime, we would encourage shareholders to shun companies which don't have the courage to deal candidly and honestly with bad news in press releases, and we would encourage readers and viewers to shun journalists who don't read the statutory announcements and only re-write the press release.
What are your bug-bears?
Mark Laudi, who could rave all night about these issues.
To comment on this blog, go to the Investor Central blog.
1. Perceptions of insider trading. We are not making any specific allegations, nor are we saying the SGX hasn't been doing a good enough job on enforcement. But I'm fed up to the teeth with stocks which have an out-of-the-ordinary day on the market, but the market-moving announcement doesn't come until after the market closes. And no one is held accountable for it. Fortunately, this doesn't happen often. But it happens often enough for us to roll our eyes, groan, and curse the fact that we're just retail investors who are left out in the cold.
2. Barring unforeseen circumstances… According to the template companies must complete when announcing earnings, they have to give an outlook:
A commentary at the date of the announcement of the significant trends and competitive conditions of the industry in which the group operates and any known factors or events that may affect the group in the next reporting period and the next 12 months.We wish fines upon companies which merely write:
Barring any unforeseen circumstances, the Directors of the Company expect the Group to be profitable for FY2008.This may be a statement of fact and meet the requirements, but it is nowhere near sufficient to contribute meaningfully to an investment decision. It's like saying, "unless something happens to us, we expect to still be around next year".
Come on, if that's truly the depth of insight management has into the future of the company they're probably not worth investing in (from the crop of earnings stories tonight, kudos to Baker Tech, MAP Technology, Natural Cool and Showy International among others for being significantly more detailed in their statements, even if they had negative news to announce).
3. Press releases that only tell half the story. Listed companies probably know all too well that too many so-called business journalists just re-write press releases for a living. Hence, they often leave out the juicy bits from the press release and leave it to the statutory announcements, which fewer people read. We would promote a "truth-in press releases" goal. In the meantime, we would encourage shareholders to shun companies which don't have the courage to deal candidly and honestly with bad news in press releases, and we would encourage readers and viewers to shun journalists who don't read the statutory announcements and only re-write the press release.
What are your bug-bears?
Mark Laudi, who could rave all night about these issues.
To comment on this blog, go to the Investor Central blog.
Labels: barring unforeseen circumstances, earnings statements, fines, insider trading, outlook, SGX, Singapore Exchange
Singaporean spending habits revealed: Paying more but buying less
The latest economic statistics say this about you and your spending: you're paying more but buying less. And if you're like most Singaporeans, you're spending more on things that make you feel good about yourself, and less on things you really need.
Now, I'm not a fan of using economic statistics as investment guides but I have to say this morning's mundane-sounding release of Monthly Retail Sales and Catering Trade Indices for Dec 2007 was full of juicy news. This pulse-check of local consumer sentiment showed two things: first, just how much prices have risen (surprise, surprise), and second just how much this has impacted on spending and therefore potentially on the sales and profits of local companies. It's also exposed what Singaporeans will continue to buy, no matter what.
Here is the evidence:
If there's one silver lining it's that excluding car sales, total expenditure was up 3.9% if prices had remained steady. It seems Singaporeans are buying fewer cars (probably a good thing), but more clothes, shoes, phones, computers and fast food.
Hmm… now what does that say about the priorities of our society?!
Mark Laudi, who's watching the budget being released at time of writing, with a keen eye on how inflation will be mitigated through non-inflationary actions.
To comment on this blog, go to the Investor Central blog.
Now, I'm not a fan of using economic statistics as investment guides but I have to say this morning's mundane-sounding release of Monthly Retail Sales and Catering Trade Indices for Dec 2007 was full of juicy news. This pulse-check of local consumer sentiment showed two things: first, just how much prices have risen (surprise, surprise), and second just how much this has impacted on spending and therefore potentially on the sales and profits of local companies. It's also exposed what Singaporeans will continue to buy, no matter what.
Here is the evidence:
Total retail sales and catering: up 2.5%, but if prices had remained steady they would have fallen 2.6%.In short, inflation is crimping demand (=we're paying more but buying less as a result), and that's not good for local companies selling in the local market. In addition, these stores may well be absorbing some price increases from their suppliers. That's not good for profit margins.
Provision & sundry shops: up 5.3%, but on a same-price basis down 1.4%
Food & beverages: flat, but down 5.3% if prices had remained steady
Petrol stations: up 33.9%, but only up 1.3% if prices were steady. The oil price obviously played a big factor here
Watches & Jewellery: up 6.4% but down 3.8% if prices were steady. The rising price of gold and strengthening Singapore Dollar may have played a role
If there's one silver lining it's that excluding car sales, total expenditure was up 3.9% if prices had remained steady. It seems Singaporeans are buying fewer cars (probably a good thing), but more clothes, shoes, phones, computers and fast food.
Hmm… now what does that say about the priorities of our society?!
Mark Laudi, who's watching the budget being released at time of writing, with a keen eye on how inflation will be mitigated through non-inflationary actions.
To comment on this blog, go to the Investor Central blog.
Labels: inflation, Monthly Retail Sales and Catering Trade Indices, Singapore Economy
GDP figures: the reality check
There has to be a more accurate way for investors to measure the strength of the economy than by the GDP figures - the percentage increase in the value of goods and services sold last quarter. It's not that the numbers are wrong. Quite the contrary - a lot of effort goes into researching and publishing them. But most investors have no idea what to do with the GDP numbers, to the extent that they generally have very little impact on the stock market.
The Ministry of Trade & Industry published a 13-page release announcing the downgrade of the economic outlook to 4%-6% growth, from 4.5%-6.5% earlier. The document used phrases like:
If the US slips into a more severe recession … the effects on Singapore will … be stronger, particularly in the sentiment-sensitive and external oriented sectors like electronics, wholesale trade and financial services.
In theory, the worrying outlook should have sparked a fall in the Straits Times Index. Instead, the market climbed 86 points, with the value of shares traded exceeding yesterday's. Perhaps it was because investors read the rest of the document which showed strong growth in some areas like construction.
But I doubt it. First, because the only really interesting part is the forward-looking statement, not the review of what happened. That's in the past. We invest for the future. Second, because of the peculiar way the numbers are dissected. Not only do we get to see how the economy fared in Q4 2007 compared to Q4 2006. We're also presented with a baffling annualised quarter-on-quarter number, whose usefulness is perhaps the most questionable: Considering how volatile quarterly growth is, what sense is there in extrapolate a full-year number by saying "assuming every quarter in the past year was like this quarter…". Because, invariably, it never is.
But back to the stockmarket. What are you to do with these GDP figures?
In short, nothing. Your time is better spent looking at individual companies:
Cashflow. Is the companies you're investing in generating cash? Simple question, simply answered. In a sense, the GDP numbers already measure this, but not on an investible company level.
Dividends. How much of the cashflow is finding its way into your pocket? Again, simple question, simply answered.
Until the SGX launches a futures contract with GDP growth as the underlying, this micro view of the world serves you far better than macro econo-babble.
Mark Laudi, forever indebted to my good friend Bernard Lo for inventing that word, and to all the economists who make it so entertaining.
To comment on this blog, go to the Investor Central blog.
The Ministry of Trade & Industry published a 13-page release announcing the downgrade of the economic outlook to 4%-6% growth, from 4.5%-6.5% earlier. The document used phrases like:
If the US slips into a more severe recession … the effects on Singapore will … be stronger, particularly in the sentiment-sensitive and external oriented sectors like electronics, wholesale trade and financial services.
In theory, the worrying outlook should have sparked a fall in the Straits Times Index. Instead, the market climbed 86 points, with the value of shares traded exceeding yesterday's. Perhaps it was because investors read the rest of the document which showed strong growth in some areas like construction.
But I doubt it. First, because the only really interesting part is the forward-looking statement, not the review of what happened. That's in the past. We invest for the future. Second, because of the peculiar way the numbers are dissected. Not only do we get to see how the economy fared in Q4 2007 compared to Q4 2006. We're also presented with a baffling annualised quarter-on-quarter number, whose usefulness is perhaps the most questionable: Considering how volatile quarterly growth is, what sense is there in extrapolate a full-year number by saying "assuming every quarter in the past year was like this quarter…". Because, invariably, it never is.
But back to the stockmarket. What are you to do with these GDP figures?
In short, nothing. Your time is better spent looking at individual companies:
Cashflow. Is the companies you're investing in generating cash? Simple question, simply answered. In a sense, the GDP numbers already measure this, but not on an investible company level.
Dividends. How much of the cashflow is finding its way into your pocket? Again, simple question, simply answered.
Until the SGX launches a futures contract with GDP growth as the underlying, this micro view of the world serves you far better than macro econo-babble.
Mark Laudi, forever indebted to my good friend Bernard Lo for inventing that word, and to all the economists who make it so entertaining.
To comment on this blog, go to the Investor Central blog.
Labels: gdp, Singapore Economy
SGX.com: a better gauge of future earnings?
Here is an interesting if unorthodox way of forecasting future earnings of the Singapore Exchange Limited. While most financial analysts focus their attention on trading volumes and the market outlook, you might like to ask the SGX's customers: investors and traders. And, it seems, they are voting with their feet.
Tens of thousands of people visit the SGX website each day for price data and information about companies. It is hugely popular (and largely not monetised). But when you look at the number of people visiting the SGX website, you see some startling results. This chart illustrates that interest is much lower now than in recent years. In fact, it's falling off a cliff.
Given the volatility in the market and concerns about recession it's perhaps not surprising that investors are staying on the sidelines. My concern is, they're not just staying on the sidelines. They're not even watching the game!
Measuring web traffic is unorthodox, as I've said. It is also unscientific. The chart doesn't show absolute numbers of visitors. It just shows the percentage of visitors to their website, compared to total internet traffic. Conceivably, the reason why the SGX website garners a lower percentage of total web traffic is that there are many more people who've logged on but are visiting other websites. But even this would indicate that while interest in other areas of the internet is growing, not so the SGX website.
But just as economists count employment ads and pages of advertisements in newspapers to gain a pulse-check on that country's economy, perhaps financial analysts would do well to track website visits as well as the usual round of financial information.
Mark Laudi, who is still watching the game, very closely
To comment on this blog, go to the Investor Central blog.
Tens of thousands of people visit the SGX website each day for price data and information about companies. It is hugely popular (and largely not monetised). But when you look at the number of people visiting the SGX website, you see some startling results. This chart illustrates that interest is much lower now than in recent years. In fact, it's falling off a cliff.
Given the volatility in the market and concerns about recession it's perhaps not surprising that investors are staying on the sidelines. My concern is, they're not just staying on the sidelines. They're not even watching the game!
Measuring web traffic is unorthodox, as I've said. It is also unscientific. The chart doesn't show absolute numbers of visitors. It just shows the percentage of visitors to their website, compared to total internet traffic. Conceivably, the reason why the SGX website garners a lower percentage of total web traffic is that there are many more people who've logged on but are visiting other websites. But even this would indicate that while interest in other areas of the internet is growing, not so the SGX website.
But just as economists count employment ads and pages of advertisements in newspapers to gain a pulse-check on that country's economy, perhaps financial analysts would do well to track website visits as well as the usual round of financial information.
Mark Laudi, who is still watching the game, very closely
To comment on this blog, go to the Investor Central blog.
Labels: Alexa, SGX, Singapore Exchange
Are these stocks really cheap?
The Business Times front page headline this morning was mundane enough: "Blue chips hover close to lows in jittery market". But what was written underneath in the subheading was far more interesting: "Price-earnings ratio of ST Index stocks just 11 times; some sense buying opportunities". Our contention is not that the Business Times got it wrong. By P/E ratio these stocks may be cheap - and at 11x, it is cheap! But it is not the only measurement to use. Let's investigate this further.
Price-earnings multiples measure how many years must pass for a company to earn per share what it costs per share. But while that tells us something about how much of future earnings have been priced into the stock, it tells us nothing about whether we are getting value for money. And that has to be the ultimate measurement of any purchase, including stocks. The price-book ratio does this, and according to Reuters there are lots of expensive stocks around:
If we are looking for an understanding of performance, there is another measurement better than price-earnings: Yield. It answers the question of how much we get paid to simply own the stock. According to the DBS website, you get 0.825% interest (in other words, pittance) for every S$10,000 you invest for 12 months. So, only stocks that pay more than this are of interest. And according to Reuters, the yield also leaves to be desired. High yielding stocks are often problematic ones.
There is an even better way to measure performance, and that is the price-free cash flow ratio. How much cash is the company generating per share, compared to what it costs per share. And using this measurement, there are many many stocks which come up with zero or negative numbers. In other words, they are not throwing off excess cash. But there are also some good performers:
Having now gone through this exercise, our broad sweeping statement that's not to be taken as investment advice is this: stocks are indeed historically cheap. They are not a steal, but they are at levels where one might now say, when will these stocks ever get cheaper?
Mark Laudi, who owns SIA shares.
Price-earnings multiples measure how many years must pass for a company to earn per share what it costs per share. But while that tells us something about how much of future earnings have been priced into the stock, it tells us nothing about whether we are getting value for money. And that has to be the ultimate measurement of any purchase, including stocks. The price-book ratio does this, and according to Reuters there are lots of expensive stocks around:
DBS: 1.24xEven to buy S$1 worth of value in DBS, you have to pay S$1.24 for it.
SIA: 1.25x
Jardine Cycle & Carriage: 2.1x
Comfort Delgro: 2.2x
SingTel: 2.9x
Dairy Farm: 17.8x
StarHub: 72.3x
If we are looking for an understanding of performance, there is another measurement better than price-earnings: Yield. It answers the question of how much we get paid to simply own the stock. According to the DBS website, you get 0.825% interest (in other words, pittance) for every S$10,000 you invest for 12 months. So, only stocks that pay more than this are of interest. And according to Reuters, the yield also leaves to be desired. High yielding stocks are often problematic ones.
There is an even better way to measure performance, and that is the price-free cash flow ratio. How much cash is the company generating per share, compared to what it costs per share. And using this measurement, there are many many stocks which come up with zero or negative numbers. In other words, they are not throwing off excess cash. But there are also some good performers:
UOB: 7.39 cents per shareIn short, stocks may be cheap on a P/E basis, but you have to look at other measurements to gain an accurate picture.
Jardine Matheson: 3.9 cents
Singapore Airlines: 2.57 cents
Having now gone through this exercise, our broad sweeping statement that's not to be taken as investment advice is this: stocks are indeed historically cheap. They are not a steal, but they are at levels where one might now say, when will these stocks ever get cheaper?
Mark Laudi, who owns SIA shares.
Labels: comfortdelgro, Dairy Farm, DBS, Jardine, Jardine Matheson, Singapore Airlines, SingTel, StarHub, UOB
The Year of… Rats!
Indiana Jones crawled through catacombs in Venice in The Last Crusade when he suddenly shouted: "Rats!" The ambiguity of the scene, as a frequently-used figurative exclamation as well as a literal description of the teeming vermin before him, takes on extra significance in the lunar Year of the Rat. At this stage, we think it's more likely to be the year of "Rats!" than a joyous hallowing of the humble rodent.
We'll be shouting "Rats!" when the statistics show the US economy is in recession. And contrary to the assertions of the great Crusader himself, George W. Bush, the indications according to a BBC report earlier this morning seem to be that the 'R' word - that is, recession (not rat) - will be used frequently this year.
We'll be shouting "Rats!" when the US$168 bln aid package passed by Congress fails to kickstart the spluttering economy. Treasury Secretary Henry Paulson probably wished he had his old job as Chairman of Goldman Sachs back when he told a congressional committee that recession might be averted if the Democrats kindly approved the package. Which they did. Chicken feed, given the billions the Americans have wasted on finding the phantom weapons of mass destructions.
We'll also be shouting "Rats!" when rising prices become a big problem and, combined with a declining economy, brings about the unhappy confluence of inflation and stagnation (stagflation).
Go to the Singapore Zoo or Jurong Bird Park to see white rats running along string hung up above visitors' heads. Some threaten to fall off as they scurry along. Whether they'll fall on the side of recession or growth only the Year of the Rat will tell.
Mark Laudi, who has developed an unusual fondness for rats after watching Ratatouille
To comment on this blog, go to the Investor Central blog.
We'll be shouting "Rats!" when the statistics show the US economy is in recession. And contrary to the assertions of the great Crusader himself, George W. Bush, the indications according to a BBC report earlier this morning seem to be that the 'R' word - that is, recession (not rat) - will be used frequently this year.
We'll be shouting "Rats!" when the US$168 bln aid package passed by Congress fails to kickstart the spluttering economy. Treasury Secretary Henry Paulson probably wished he had his old job as Chairman of Goldman Sachs back when he told a congressional committee that recession might be averted if the Democrats kindly approved the package. Which they did. Chicken feed, given the billions the Americans have wasted on finding the phantom weapons of mass destructions.
We'll also be shouting "Rats!" when rising prices become a big problem and, combined with a declining economy, brings about the unhappy confluence of inflation and stagnation (stagflation).
Go to the Singapore Zoo or Jurong Bird Park to see white rats running along string hung up above visitors' heads. Some threaten to fall off as they scurry along. Whether they'll fall on the side of recession or growth only the Year of the Rat will tell.
Mark Laudi, who has developed an unusual fondness for rats after watching Ratatouille
To comment on this blog, go to the Investor Central blog.
Labels: Henry Paulson, Indiana Jones, Last Crusade, Rats, recession, year of the rat
Starbucks: What it shows about Singapore & Malaysia
Starbucks may be a global franchise, but the difference between Starbucks in Singapore and in Malaysia is an interesting microcosm of the competitive nature of the two countries. In short, I get the sense increasingly that Singaporeans have no room for complacency. If the experience at Starbucks in Malaysia is anything to go by, we'd better pull our socks up.
Next time you're in Kuala Lumpur, go to Starbucks with your laptop and try to plug in your power cord. You'll be pleasantly surprised. Not only will your little green "power" light come on. The cafe even supplies an extension cord with a multiple adaptor to make it easier for several customers to plug in at once (if there is a café in Singapore that offers the same customer service, please let me know!)
I remarked about this phenomenon to a Malaysian friend, and offered a comparison with cafes in Singapore (not necessarily Starbucks). Here, the wall sockets are usually switched off to ensure customers who dare to plug in don't draw on the store's electricity. The staff flick the fuse on only long enough to to zip around the store with the vaccuum cleaner, before flicking it off again. Further, the staff often frown at you if you do find a wall plug that gives you power to your laptop. Or scold you outright for contributing to the electricity bill.
My Malaysian friend said: the folks in Singapore are smarter!
This brings me to the crux of the issue. Sure enough, the Singapore store owners may be smarter to save electricity. But this attitude is penny-wise, pound-foolish. The Malaysian store owners have realised that even though their electricity bills may be higher, customers will sit - and consume drink after drink - if they are able to keep their laptops powered on (laptops actually don't draw a lot of power compared to, say, the store's hotwater heater, cappuccino maker or toaster). They take a longer term view and, in my opinion, not just keep existing customers drinking more beverages, but keep them coming back.
So while Singaporeans may be smarter to keep costs down, the Malaysians are more business savy to take higher electricity costs into account in order to attract and retain customers.
I must confess: I am well and truly on the Singapore side of the argument when it comes to CIQ, railway land, access to treated water, sea boundaries and many of the other arguments the two countries have from time to time. But having traveled to Malaysia practically every month since October 2006 my view has changed somewhat. Previously I was impressed with the efficiency of the Singapore system. Having now dealt extensively with Malaysians I am finding they are hungrier, think out of the box more readily, and are quicker to make decisions. They are willing to make short-term concessions for long-term benefit.
For investors, the implications are potentially that:
1. Malaysian companies are more innovative, and could become more profitable as a result than Singaporean companies
2. Bursa Malaysia is becoming more innovative, and could become tougher competition for international capital
These points should not be news to anyone. The government has been telling us this for a long time. But it really gets you thinking when you experience it yourself.
Mark Laudi, who is among probably a small group of ang mohs who knows all the words to "Majulah Singapura".
To comment on this blog, go to the Investor Central blog.
Next time you're in Kuala Lumpur, go to Starbucks with your laptop and try to plug in your power cord. You'll be pleasantly surprised. Not only will your little green "power" light come on. The cafe even supplies an extension cord with a multiple adaptor to make it easier for several customers to plug in at once (if there is a café in Singapore that offers the same customer service, please let me know!)
I remarked about this phenomenon to a Malaysian friend, and offered a comparison with cafes in Singapore (not necessarily Starbucks). Here, the wall sockets are usually switched off to ensure customers who dare to plug in don't draw on the store's electricity. The staff flick the fuse on only long enough to to zip around the store with the vaccuum cleaner, before flicking it off again. Further, the staff often frown at you if you do find a wall plug that gives you power to your laptop. Or scold you outright for contributing to the electricity bill.
My Malaysian friend said: the folks in Singapore are smarter!
This brings me to the crux of the issue. Sure enough, the Singapore store owners may be smarter to save electricity. But this attitude is penny-wise, pound-foolish. The Malaysian store owners have realised that even though their electricity bills may be higher, customers will sit - and consume drink after drink - if they are able to keep their laptops powered on (laptops actually don't draw a lot of power compared to, say, the store's hotwater heater, cappuccino maker or toaster). They take a longer term view and, in my opinion, not just keep existing customers drinking more beverages, but keep them coming back.
So while Singaporeans may be smarter to keep costs down, the Malaysians are more business savy to take higher electricity costs into account in order to attract and retain customers.
I must confess: I am well and truly on the Singapore side of the argument when it comes to CIQ, railway land, access to treated water, sea boundaries and many of the other arguments the two countries have from time to time. But having traveled to Malaysia practically every month since October 2006 my view has changed somewhat. Previously I was impressed with the efficiency of the Singapore system. Having now dealt extensively with Malaysians I am finding they are hungrier, think out of the box more readily, and are quicker to make decisions. They are willing to make short-term concessions for long-term benefit.
For investors, the implications are potentially that:
1. Malaysian companies are more innovative, and could become more profitable as a result than Singaporean companies
2. Bursa Malaysia is becoming more innovative, and could become tougher competition for international capital
These points should not be news to anyone. The government has been telling us this for a long time. But it really gets you thinking when you experience it yourself.
Mark Laudi, who is among probably a small group of ang mohs who knows all the words to "Majulah Singapura".
To comment on this blog, go to the Investor Central blog.
Labels: Bursa Malaysia, Singapore Exchange, Starbucks
Addiction to unit trusts must end
The Singapore Exchange's announcement last Friday, that trading in Exchange Traded Funds are at records, was heartening, but still pathetic. According to the media release, the value of SGX-listed Exchange Traded Funds set new weekly and monthly records in January: S$293.6 mln in the month, with S$128.9 mln in the week ending January 25. While records, these are tiny volumes. My critique isn't so much of the SGX, which has come a long way in introducing numerous new ETFs. My concern is more that Singapore investors are still largely ignorant suckers for the mutual trust industry and, more specifically, the banks which distribute their products.
The numbers announced by the SGX are certainly a big improvement, and is a credible counter to a rather pessimistic story in The Edge some months ago which pointed out that unsophisticated investors don't invest in ETFs, and sophisticated investors would turn to US-listed ETFs for their liquidity and the greater range available.
But look at the comparison: in the first two hours of trade today alone, more than S$600 mln worth of securities were traded on the SGX. So, the value of ETFs traded each month is less than roughly the total value of all securities traded each hour.
Clearly, not everyone who buys into unit trusts is unsophisticated. They are a valuable tool to diversify, and to have someone else look after your money if you have neither the time nor expertise.
But here's a typical scenario of the average Singaporean who buys unit trusts: they get glitzy marketing material from their bank proffering a unit trust which may or may not meet their investment needs. Not knowing any better, they go and sign up and pay 5% upfront fees and a 2% annual management fee for the priviledge.
Can you imagine how much better off they would be and how much greater the volumes of ETFs on the SGX would be if:
1. Singaporeans at large didn't hand over their cash and, in large parts, their responsibility for their investments to a bank teller who sold them a product over-the-counter
2. Singaporeans understood that the 5% sales fee goes to the bank, not the fund manager who relies on the bank to "distribute" (ie, sell) their fund
3. The SGX and ETF issuers understood how to market funds as expertly as the mutual fund industry
Unit trusts certainly have a place in the investment portfolios of most investors. But they should be purchased as part of a larger financial plan, not on spec from a bank teller.
Mark Laudi, who bought unit trusts through a financial planner for a lot less than a 5% upfront fee
To comment on this blog, go to the Investor Central blog.
The numbers announced by the SGX are certainly a big improvement, and is a credible counter to a rather pessimistic story in The Edge some months ago which pointed out that unsophisticated investors don't invest in ETFs, and sophisticated investors would turn to US-listed ETFs for their liquidity and the greater range available.
But look at the comparison: in the first two hours of trade today alone, more than S$600 mln worth of securities were traded on the SGX. So, the value of ETFs traded each month is less than roughly the total value of all securities traded each hour.
Clearly, not everyone who buys into unit trusts is unsophisticated. They are a valuable tool to diversify, and to have someone else look after your money if you have neither the time nor expertise.
But here's a typical scenario of the average Singaporean who buys unit trusts: they get glitzy marketing material from their bank proffering a unit trust which may or may not meet their investment needs. Not knowing any better, they go and sign up and pay 5% upfront fees and a 2% annual management fee for the priviledge.
Can you imagine how much better off they would be and how much greater the volumes of ETFs on the SGX would be if:
1. Singaporeans at large didn't hand over their cash and, in large parts, their responsibility for their investments to a bank teller who sold them a product over-the-counter
2. Singaporeans understood that the 5% sales fee goes to the bank, not the fund manager who relies on the bank to "distribute" (ie, sell) their fund
3. The SGX and ETF issuers understood how to market funds as expertly as the mutual fund industry
Unit trusts certainly have a place in the investment portfolios of most investors. But they should be purchased as part of a larger financial plan, not on spec from a bank teller.
Mark Laudi, who bought unit trusts through a financial planner for a lot less than a 5% upfront fee
To comment on this blog, go to the Investor Central blog.
Labels: ETFs, Exchange Trade, mutual funds, unit trusts
Chartered Semi: Blinding Me With Numbers
I have been an armchair critic of Chartered Semiconductor for many years. But it's been a while since I looked at the stock in great detail, so when they released 2007 earnings this morning I wanted to check on how things had improved. If at all.
From the outset I want to point out that I don't have an inherent bias against the company. On the contrary. Their transparency and disclosure have improved markedly since the PR disaster of a rights issue a few years ago. Recall, the company had denied for weeks rumours it was going to have a steeply-discounted rights issue, only to then announce one. It took a visit to the offices of the Securities Investors' Association (Singapore) to straighten that one out.
Conducting an interview with CEO Chia Soon Hwee for CNBC more than two years ago, I witnessed an incredible fighting spirit in a sector where the profit margins are so thin one could measure them in microns, just like the silicon wafers it produces. When I visited their headquarters in Ang Mo Kio I got a real sense this company was going places. They ought to be congratulated for sticking it out against all odds and commercial sense.
So, should I stop being an armchair critic?
Let's look at the evidence:
1. Candid assessment of the situation. I like that Chartered calls a spade a spade. No sugar coating of difficult times. Top marks for telling it like it is.
2. Specific guidance. Most SGX-listed companies could learn a lot from the very specific guidance Chartered gives. Clearly this is because Chartered is also Nasdaq listed, and US investors expect this. But whatever the motivation, their fairly precise guidance is a huge improvement on the lame-duck "barring unforeseen circumstances, we expect to still be breathing next year"-type of guidance most SGX-listed companies provide.
3. Lots of numbers, but what do they mean? You can see the numbers for yourself – revenue down 4.2%, profit boosted substantially by a tax credit. But to what extent are they a true reflection of the company's financial health?
4. The numbers that really matter. You have to turn to the last page of the earnings document to get those: page 17.
• Cash from business operations: positive cashflow of US$521 mln compared to US$479 mln last year.
• Cash from buying and selling equipment (investing): negative cashflow of US$420 mln compared to cash outflow of US$845 mln.
• Cash from going to the bank to get and repay loans (financing): negative cashflow of US$205 mln compared to positive cashflow of US$386 mln last year.
Bottom line: they had US$100.8 mln more cash flow out of the company than they had coming in.
Their cash and equivalents (=loans, overdrafts, term deposits, etc) balance dropped to US$719 mln. In other words, the company has a pulse, but it's still bleeding.
And yet, among Average Selling Prices, Capacity Utilisation and all those other metrics, there's nary a mention of cashflow in the rest of the document. While blinding me with all sorts of details, there is not enough emphasis on the numbers that really matter.
I think I will remain an armchair critic a little longer.
Mark Laudi, who would really like to see them generate more cash than they have to spend or invest, so their profitability promises don't ring so hollow.
To comment on this blog, go to the Investor Central blog.
ArchivesFrom the outset I want to point out that I don't have an inherent bias against the company. On the contrary. Their transparency and disclosure have improved markedly since the PR disaster of a rights issue a few years ago. Recall, the company had denied for weeks rumours it was going to have a steeply-discounted rights issue, only to then announce one. It took a visit to the offices of the Securities Investors' Association (Singapore) to straighten that one out.
Conducting an interview with CEO Chia Soon Hwee for CNBC more than two years ago, I witnessed an incredible fighting spirit in a sector where the profit margins are so thin one could measure them in microns, just like the silicon wafers it produces. When I visited their headquarters in Ang Mo Kio I got a real sense this company was going places. They ought to be congratulated for sticking it out against all odds and commercial sense.
So, should I stop being an armchair critic?
Let's look at the evidence:
1. Candid assessment of the situation. I like that Chartered calls a spade a spade. No sugar coating of difficult times. Top marks for telling it like it is.
2. Specific guidance. Most SGX-listed companies could learn a lot from the very specific guidance Chartered gives. Clearly this is because Chartered is also Nasdaq listed, and US investors expect this. But whatever the motivation, their fairly precise guidance is a huge improvement on the lame-duck "barring unforeseen circumstances, we expect to still be breathing next year"-type of guidance most SGX-listed companies provide.
3. Lots of numbers, but what do they mean? You can see the numbers for yourself – revenue down 4.2%, profit boosted substantially by a tax credit. But to what extent are they a true reflection of the company's financial health?
4. The numbers that really matter. You have to turn to the last page of the earnings document to get those: page 17.
• Cash from business operations: positive cashflow of US$521 mln compared to US$479 mln last year.
• Cash from buying and selling equipment (investing): negative cashflow of US$420 mln compared to cash outflow of US$845 mln.
• Cash from going to the bank to get and repay loans (financing): negative cashflow of US$205 mln compared to positive cashflow of US$386 mln last year.
Bottom line: they had US$100.8 mln more cash flow out of the company than they had coming in.
Their cash and equivalents (=loans, overdrafts, term deposits, etc) balance dropped to US$719 mln. In other words, the company has a pulse, but it's still bleeding.
And yet, among Average Selling Prices, Capacity Utilisation and all those other metrics, there's nary a mention of cashflow in the rest of the document. While blinding me with all sorts of details, there is not enough emphasis on the numbers that really matter.
I think I will remain an armchair critic a little longer.
Mark Laudi, who would really like to see them generate more cash than they have to spend or invest, so their profitability promises don't ring so hollow.
To comment on this blog, go to the Investor Central blog.
Labels: cashflow, Chartered Semiconductor
January 2006 February 2006 March 2006 April 2006 May 2006 June 2006 July 2006 August 2006 September 2006 October 2006 November 2006 December 2006 January 2007 February 2007 March 2007 April 2007 May 2007 June 2007 July 2007 August 2007 September 2007 October 2007 November 2007 December 2007 January 2008 February 2008 March 2008 April 2008 May 2008 August 2008 September 2008 October 2008 November 2008 January 2009
