Wishing You a Happy & Prosperous New Year!

To all readers of this blog,

Here's wishing you a fulfilling new year ahead and every success for your investment and finances.

Happy New Year 2010 card by BluePlanet

What is Personal Strategic Planning?

We all know what is Personal Financial Planning but have you heard of Personal Strategic Planning? No, it's not another fanciful name coined by the insurance industry for marketing purpose.

Personal strategic planning is a disciplined thought process, which produces fundamental decisions and actions that shape and guide who you are, where you are going, what you do, and how, when and why you do it. All of this is done with a focus on the future - I must admit that I don't know about it until I came across it at the GoalsGuy's Personal Strategic Plan website.

"What would your life be like if you had a plan that told you exactly what you wanted and how to get it."

This is what I always believe in - that everyone should find their purpose in life, or what the Christians refer to as "calling". It's like a mission statement for a company. With that single ultimate objective clearly spelt out, every decisions made will be aligned, every effort represents a step forward and life will  be more meaningful.

Of course, identifying the purposes in life and the goals that you want to achieve is the first step. The problem is that the majority of the people are not doing what they know they should be doing. Procrastination, self-doubts, distractions, fear of failure are some hindering factors.

With that in mind, Gary Ryan Blair, the strategic coach behind MNCs such as Google, IBM, Federal Express, devised a step-by-step methodology based on the business strategic planning system used by these highly successful global firms to help individuals achieve significant results in life.

The program consist of a Personal Balance Profile to help individuals understand themselves, followed by a complete audio series to walk them through the entire process of constructing their own ideal future.

Learn more about at the Personal Strategic Plan website.
Recommended for people who desire a breakthrough in career and in life.

Interest Earned in Oct - Time Deposit vs. Money Market Fund

Putting cash in the bank erodes wealth. However, I have a good portion of my cash in bank because I foresee liquidity needs in near term.

Anyway, here's a little emprical observation about money placed in Maybank time deposit vs. money in MMF with Phillip Capital over the last 3 months:

3 months time deposit of $10,000 placed in Maybank at the rate of 0.5%.
Interest = $12.50

According to Phillip Capital MMF, 3 months return = 0.2927%
That means, $10,000 will give a return of about $29.27
An excess of $16.67, or 132%, over 3-month time deposit.

From my own account, I received $17.45 for approximately the same amount of principal for the past 1.5 month. Ignoring any compounding effect and volatility in the returns, that means the same amount of prinicpal could possibly earn about $34.90 in 3 months.

If government guarantee is the reason for putting money in the bank, are you willing to take up more risk by forgoing the assurance for this excess return?

Buying a Used Car in Singapore? - Do Your Maths

(This is a sponsored blog post)

According to "The Millionaire Next Door" by Thomas Stanley and William Danko, half of the millionaires in the US buy used cars. Can I afford to buy a used car Singapore? Say, a used Chery QQ? Correct me if I am wrong, from what I know, Chery QQ is the cheapest car to own in Singapore.

A quick research on ST701 Cars, a reputable classified website for Singapore used cars, indicates that the price of Chery QQ ranges from $34,999 to $42,999 for a new car and $10,800 to $20,800 for a used car.

Let's assume I am interested in a used Chery QQ 0.8(A) that is listed on the website. By clicking on it, I get the following details:

Price = $20,800

Engine Capacity = 812 cc

OMV = $6,781

Depreciation $2,328 per year

Registration Date = 09/02/2007

COE = $11,489

Next, I need to work out the financing part. I think I am comfortable with 30% down payment and paying the balance over 5 years. Currently, UOB is charging an interest rate of 3.875% pa for used car for loan period of less than 5 years. Using the loan calculator provided on the website, my monthly payment amount works out to be $289.68. That is, $3,476.16 per year.

Using the road tax calculator, the road tax for 812 cc cars is $356 for 12 months.

Other expenses include insurance, fuel cost, ERP, parking, servicing and maintenance.
Here are my own estimates:

Insurance:
According to an article by The Business Times dated 3 June 2009, the average premium for private cars is about $1,050. I will assume that I pay this amount for the moment.

Petrol:
Chery QQ is relatively light in fuel consumption and I don't expect to travel much other than going to and from work. I will budget about $50 per month (i.e. $600 per year)

ERP:

There is only one ERP gantry from my home to my office and it's only $0.50. So total ERP charges will be about $20 per month ($240 per year).

Servicing and maintenance:
$100 per year sounds reasonable?

Parking:
About $250 per month ($3,000 per year)

All in all, estimated annual car-related expenses is about $8,822.16. That is, $735.18 per month.


No, I am not buying a car now. I am just doing my Maths. But if you are, it is advisable to do your own maths. You may wish to visit ST701 Cars for some useful information since it is one of Singapore's largest classified website for Singapore cars. Remember to compare prices, download the latest guide on car cost and check out the latest car promotion events.

Investing in Small Caps: A Buy Side Perspective

SGX is launching its new research scheme for listed companies in Singapore - SERI (SGX Equities Research Insights), on 20 October 2009. This scheme replaces the old research scheme. I attended SGX's SERI Pre-launch Luncheon Seminar, "Target Institutional Investors", on 14 October 2009. Here's my main take-away:

Investing in Small Caps: A Buy Side Perspective
by Mr. Christopher Wong, Investment Manager, Aberdeen Asset Management.

I was asked to attend the luncheon mainly because Mr. Chris Wong was going to be there. From my personal understanding, Mr. Chris Wong is a well-respected veteran in the industry. Aberdeen Asset Management is one of the fund managers that really do its homework in understanding the companies that they invest in and they do it with a view of long-term investment perspective (You may be surprised that not all fund managers do that).

Here are some important key points in his brief presentation:

What do we look for in a company?
- Business prospects / strategies
- Management team
- Financials
- Corporate transparency
- Commitment to shareholders' value.

Role of an Institutional Investor
A) Governance analysis as investment analysis

1. Who owns the company?
2. Transactions with related companies
3. Who are the independent directors
4. Financials and non-financial disclosures

B) Voting and AGMs
C) Shareholder engagement.


Disclaimer:
Nope, I am not, in any way, related to Aberdeen Asset Management or Mr. Christopher Wong

How to Become a Millionaire by Investing - 5 Investment Strategies of Warren Buffett

Here's another article from EzineArticles by the same person:

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How to Become a Millionaire by Investing - 5 Investment Strategies of Warren Buffett
By Darl Fuwong

Stock investment is one of the fastest ways to become a millionaire. Warren Buffett is a good example of a billion-dollar investor. To be a successful investor like Warren Buffet, you have to first understand his beliefs towards the market and his investment strategies.

1. The market is irrational

Warren Buffett believes the market is irrational. It is often driven by greed and fear. Do you know people who buy when the market has gone up and sell when the market came down. Or are you one of them? If you have done your research and understand the true value of the stocks you have bought, you will feel secured and will no longer be worried when the prices go up and down.

2. No one can predict the market consistently

Take a moment to recall, have you heard stories about someone who spend money to buy mysterious trading systems, hoping to make good profits but only to be disappointed? Average investors try to predict the market's next move. When they cannot predict, they give money to the so-called experts who claim they can. Warren Buffett believes that successful investment has nothing to do with the ability to predict. Master investors know that no one can predict the market consistently.

3. Huge returns with little risk

While many people talk about "high risk, high return", Warren Buffett believes in huge returns with little risk. In fact, Warren Buffett is a very risk adverse investor. His first rule for investment is "Never lose money" and his second rule is "Never forget the first rule". People think of investment as high risk because they have not learnt how to do it properly. Just like driving, don't you think it is risky to drive on the road if you haven't learnt how to drive properly? If you know the right way to do it, you can reduce the risk significantly.

4. Invest in few great companies

Most investors are taught to "diversify, diversify, diversify". Therefore, they bought into many mutual funds and keep small holdings in many stocks. Warren Buffett thinks diversification is for people who don't know better. By investing across the market, you will go up and down with the market. The key to outperform the market is to identify great companies and focus your investments in them.

5. Make decisions base on strict criteria

Many investors make decisions based on emotions. They are tempted when they learn of hot tips or see their friends making quick profits. Then they sell immediately when they see stock price tumble the next day. Successful investors follow a set of strict criteria to determine when to buy and sell. Investment criteria are rules that you follow to decide what stocks to buy, when to buy and after buying, when to sell. Here are some examples: the company must have increasing sales and profit for the last 5 years, return of equity must be more than 15%, long-term debt must be less then 3 times of net profit, etc.

Do you base your decisions on investment criteria like the successful investors? If you have not set your investment criteria, it is the most urgent thing you must do before your next move. Learning the proper way to invest can help you avoid the pain of losing your hard-earned money and saves you from worrying when the market crashes again. Check out http://secretsofselfmademillionaires.info/. Not only will you learn how to become a millionaire by investing, you will also discover how to create multiple income streams and build a million-dollar net worth, starting from scratch.

Article Source:

http://EzineArticles.com/?expert=Darl_Fuwong

http://EzineArticles.com/?How-to-Become-a-Millionaire-by-Investing---5-Investment-Strategies-of-Warren-Buffett&id=2901646

How to Be a Self-Made Millionaire - 3 Important Steps That All Wealth and Abundance Creators Follow

Here's an article from EzineArticles:

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How to Be a Self-Made Millionaire - 3 Important Steps That All Wealth and Abundance Creators Follow

By Darl Fuwong

Before you read this article, let me ask you: Why do you want to be a self-made millionaire?

Are you feeling fed up and unappreciated at work? Is your demanding job depriving you of the time you wish to spend with your loved ones? Or do you simply wish to provide a more comfortable home for your newborn baby? You need to know why you want to be a self made millionaire if you are serious about it. People who don't even bother to understand themselves are not going to succeed.

Now, take a moment to think about what you are going to do if you are a millionaire. Do you have a dream of traveling around the world freely without worrying about money? Are you thinking of helping your favorite charity or fight for the cause you passionately believe in? Maybe you hope to empower the people you care about, show them that they too, can live a better life like you?

If you are ready with your answers, here are the 3 most important steps that all wealth and abundance creators follow to gain true financial freedom:

1. Develop the Millionaire Mindset

All self made millionaires know they have the potentials to create wealth. If you don't think you have what it takes to be a wealth creator, you are wasting your time reading this article now. Self made millionaires do not hesitate when opportunity knocks and never let self doubts get into their way. Once you have the millionaire mindset, you will begin to see money making opportunities everywhere.

2. Set your Financial Goals

Instead of going after money blindly, determine how much you need to be financially free and set a date to achieve it. Do not be afraid to do so. Studies show that people who set goals are more likely to succeed than those who don't. The strategies to achieve $1,000,000 within 1 year are very different from if you give yourself 10 years. Only with clear financial goals in mind, you will have better ideas where to focus your time and effort.

3. Understand the Rules of Money

Money is the most important subject in life. The schools taught us how to work for money but never teach us how to make money work for us. When you understand the rules of money, you can create multiple streams of income and grow your money at phenomenal returns. Whether you decide to work for others or set up your own business, you can leverage on your time and value to increase your earning power. At the same time, you have to manage your money wisely and keep an eye on your expenses. Continue to invest in your net worth. Accumulate money-generating assets and reduce money-sucking liabilities.

Now, the essential steps to true financial freedom are really no secrets. Many people know them but not everyone is a millionaire. The real secret lies in knowing how to carry out these steps.

How to develop the millionaire mindset? What are the rules of money? How to leverage on time and value to increase earning power? If you have these burning questions, take a peek at the secrets of self made millionaires. A real life multi-millionaire who started from scratch and achieved financial abundance at age 26 is sharing his experience and showing the step-by-step to financial success at http://www.secretsofselfmademillionaires.info. How can you afford not to learn his secrets?

Article Source: http://EzineArticles.com/?expert=Darl_Fuwong
http://EzineArticles.com/?How-to-Be-a-Self-Made-Millionaire---3-Important-Steps-That-All-Wealth-and-Abundance-Creators-Follow&id=2889345

You Have Only 100 Days to Achieve Your Goals By 2009

Have you set your goals at the begining of the year? It is September 2009 now. 8 months has passed. We have approximately 100 days left. Did you...

1. achieve your goals and exceed your expectations?

2. barely accomplish what you have set to out to achieve?

3. fall below your desired outcome?

Simply look at the results of your action to date will tell you if you have been successful in achieving the goals you set earlier this year. Regardless of the positions you are in, you can take the remaining 100 days in 2009 as a "now or never" opportunity to end the year with a high note. If you have fallen short of expectations, use it as a final chance at redemption.

Are You Up For the Challenge?

Here's short video clip that will help you resolve to make the last quarter of the year, the best ever.



The best time to make changes is NOW... not tomorrow, not next week, not next month.
Take up the "100 Day Challenge" to achieve your best goals for 2009.

Click on the icon below to register for the 100 Day Challenge.




[Update: 16 September]:

Here's an article that provides more details on "100 Day Challenge - Start Fast Finish Strong" and the coach for the program, Gary Ryan Blair.

Selling in a Tough Economy - 10 Characteristics of Super Sales Representatives

A useful article by Michael Jefferys, President of Seminars On DVD and The Yes! Network, one of America’s leading seminar training companies.

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When the economy goes into a slump, most salespeople follow. They allow the negativity of the media, other sales reps, friends and family members to affect their performance. Yet, in almost every organization, there are always one or two people who are really making things happen. They don't believe the down economy is negatively affecting their business, and as a result, they act and think quite differently than the masses.

Here are 10 key characteristics of those Super-Representatives:

1. They understand that their thinking affects their results, and therefore refuse to dwell on the down economy, or be negatively influenced by people complaining about how bad things are.
   
   
2. They make time to work on themselves. From books and audio learning, to sales training seminars on video, top sales professionals make time for self-improvement.
   
   
3. They network with everyone, everywhere. Even in a tough economy, people are still doing business, and a referral is always better than cold prospecting. Join a morning networking group, or attend chamber of commerce functions. Anything you can do to raise your visibility will help you in a down economy.
   
   
4. They know what they want. They have clearly defined goals, with deadlines to achieve them. The most organized people actually define their goals in terms of a 5 year plan. Long term perspective creates clarity of focus in life.
   
   
5. They value their time. Rarely will you see a top performer chatting around the water cooler, or wasting time on non-productive activities. Remember, in sales, the only time you're really working is when you are prospecting, presenting, or closing.
   
   
6. They eat for energy. Instead of donuts, they choose oatmeal. Instead of burgers and fries, they choose salads and healthy sandwiches. Instead of eating to the point of feeling stuffed, they take in just enough to feel satisfied.
   
   
7. They welcome change. They know that change creates opportunity, so they are good at anticipating, preparing for, and positioning themselves for change. There's always a small percentage of representatives who do well, no matter what is going on around them.
   
   
8. They treat their body like a Temple. They exercise regularly because they know it makes them feel better, they have more energy for their sales activities, and they are protecting themselves against disease. They don't wait for a doctor to tell them they have to ...
   
   
9. They tap the power of their mind through meditation, visualization, and mental rehearsal. They understand the Law of Attraction, and how their thinking affects their attitudes, interactions, and results.
   
   
10. They commit to being the best! They don't settle for mediocrity or good enough. They continuously strive for greatness, not to impress others, but for their own self-satisfaction in knowing that they are tapping their full potential.
    

If your sales are not where you need or want them to be, review this list daily, and ask yourself, "How can I implement these ideas in my life right now?" If you make the commitment to transforming yourself in any or all of these areas of your life, you are virtually guaranteed to enjoy greater success in your sales career, and in your life.

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Check this out on Seminars On DVD =)
Outselling Your Competition - How to Double Your Sales & Double Your Income

Attempt to Delist E&E Blocked

Read announcement:
JOINT ANNOUNCEMENT - PROPOSED VOLUNTARY DELISTING OF ELEC & ELTEK INTERNATIONAL COMPANY LIMITED - THE SGX-ST’S DECISION ON THE DELISTING PROPOSAL & WITHDRAWAL OF EXIT OFFER

If you are too lazy, here's the essence:

SGX-ST rejected E&E delisting application because the terms of the offer are neither fair nor reasonable under current market conditions.

Thanks to the independent financial adviser, DMG & Partner Securities Pte Ltd.

As such, Kingboard Chemical withdraws the exit offer.


Side note 1:
Due to the pending proposal on delisting, interim dividend was not declared although results are good. It will definitely be a good investor relations act if the Board recommends a higher special dividend to compensate the interim dividend missed.

Side note 2:
Stock price of E&E went up to US$1.46 in early August. People could have come to know about the IFA's recommendation to SGX before the announcement. I am not complaining, I think the current price is still good for long term accumulation if dividend payment continues to be generous.

Side note 3:
The attempt by Kingboard Laminates to delist Kingboard Copper Foil did not go through as well. The majority required to vote in favour of the delisting was not obtained.


My personal take on the delisting saga:
As a minority shareholder of E&E, Cheung's attempts to delist Kingboard Copper Foil and E&E reminded me of a Chinese idiom, 趁火打劫 (literally translated: robbing when there's a fire). Even though I am unhappy with the proposal, I applaud Cheung's shrewdness. I am happy that my company is in good hands.

In my opinion, the most critical reasons for the failures is the faster than expected market recovery and the low offer prices. If the market volatility and uncertainty had lasted longer, both proposals might have been approved due to prevailing extreme fear. The deals would have been more desirable, or even irresistable and "market-proof", had the offer terms been more generous (say, somewhere closer to the NAV). By offering a fairer exit price, the deal would come across as more sincere and less of an exploitation which creates grievances among minority shareholders.

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E&E Basic Share Data
Share price as at 21 Aug 2009: US$1.35
12-month price range: US$0.810 - US$1.67
Market cap as at 21 Aug 2009: US$242.4
P/E (historical): 5.7
P/B (as at 30 June 09): 0.7

Financial year-end: 31 Dec
Reuters code: EELT.SP
Bloomberg code: ELEC:SP

Major shareholders (as at 24 March 2009):
Cheung Kwok Wing : 71.71%
Value Partners Limited: 8.98%
Estimated free float : 19.31% (ie. US$46.8m or S$67.3m @S$1.4382/US$)

Baby Step into Internet Marketing - Joining Wealthy Affiliate University

I haven't updated this blog for a month! For the last two months, I have been actively learning about internet marketing. The online market is huge and there are many success stories around every corner. There is no reason why I should not participate.

However, I am not jumping into the bangwagon blindly. As with any investment decision, I spend time doing research and learning about the market, the industry, the options available, proven methods, who are the gurus, etc.

To improve my chances of success, I want to learn from the best players. I want to connect with people who are already doing it successfully so that I can constantly benefit from their experiences. After two months of researching and reviewing, I finally signed up with Wealthy Affiliate University (WA). Essentially, WA is the No. 1 internet online marketing community with highly valued resources available to aspiring, intermediate and expert internet marketers.

Now, my target is to double my current income by 11 Aug 2010. I will be using this blog as a motivation by documenting my progress. If you are already doing internet marketing, feel free to drop me a note so that we can share our knowledge and experience.

Invest For Cash Flow

"Invest for cash flow, and you'll never worry about money. Invest for cash flow, and you will not be wiped out in boom and bust markets. Invest for cash flow, and you'll be a rich man."

"But," I began, "it's easier to make more money with capital gains. Real estate prices are skyrocketing. Finding investments that create cash flow is hard."

"I know," said rich dad. "Just hear what I am saying. Don't let greed and easy money interfere with becoming a rich and financially wise man. Never confuse capital gains with cash flow."

-- extracted from The Conspiracy of the Rich by Rober Kiyosaki

17 Wealth Files of Millionaire Mind

According to the book Secrets of the Millionaire Mind: Mastering the Inner Game of Wealth by T. Harv Eker, rich people have very different wealth files (programming) from the poor people. Hence, they have very different thoughts and feelings which leads to different actions and results.

The book is simple to read, the writing is straight to the point and offer excellent food for thoughts.

Wealth File #1:
Rich people believe "I create my life."
Poor people believe "Life happens to me."

Wealth File #2:
Rich people play the money game to win.
Poor people play the money game to not lose.

Wealth File #3:
Rich people are committed to being rich.
Poor people want to get rich.

Wealth File #4:
Rich people think big.
Poor people think small.

Wealth File #5:
Rich people focus on opportunities.
Poor people focus on obstacles.

Wealth File #6:
Rich people admire other rich and successful people.
Poor people resent rich and successful people.

Wealth File #7:
Rich people associate with positive, successful people.
Poor people associate with negative or unsuccessful people.

Wealth File #8:
Rich people are willing to promote themselves and their value.
Poor people think negatively about selling and promotion.

Wealth File #9:
Rich people are bigger than their problems.
Poor people are smaller than their problems.

Wealth File #10:
Rich people are excellent receivers.
Poor people are poor receivers.

Wealth File #11:
Rich people choose to get paid based on results.
Poor people choose to get paid based on time.

Wealth File #12:
Rich people think "both".
Poor people think "either/or".

Wealth File #13:
Rich people focus on their net worth.
Poor people focus on their working income.

Wealth File #14:
Rich people manage their money well.
Poor people mismanage their money well.

Wealth File #15:
Rich people have their money work hard for them.
Poor people work hard for their money.

Wealth File #16:
Rich people act in spite of fear.
Poor people let fear stop them.

Wealth File #17:
Rich people constantly learn and grow.
Poor people think they already know.


While typing the list, it gives me the idea of doing a series of blog posts to review and reflect on myself based on each wealth file. Hmmm...

Proposed Voluntary Delisting of E&E

E&E's parent company, Kingboard Chemical Holdings Limited (Kingboard), is seeking to privatise E&E for US$63.3million.

It will offer shareholders of E&E cash of US$1.20 per share or 0.45 new Kingboard shares at an issue price of HK$20.50 each. Shareholders can also choose to receive a combination of both.

For example, if you own 1 lot of E&E shares, you can choose to receive:
(1) US$1,200 in cash
or (2) 450 new Kingboard share
or (3) US$600 and 225 new Kingboard shares.

However, in the event of non-clearance by the Hong Kong Stock Exchange, E&E shareholders can only receive cash.

The proposal requires at least 75% approval from E&E shareholders during the EGM. Kingboard already owns 71.1% in E&E and major or controlling shareholders do not need to abstain from voting. The offer will not be conditional upon the minimum number of acceptances received.

Main reasons for the delisting include prolonged undervaluation of E&E shares, low trading volume and "no necessity to access the capital markets".

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Sigh... I can only say... major sianz...

Temasek-Linked Companies

Sources:
"Who will do a rights issue next" by Goola Warden from The Edge, dated March 16,2009 and Bloomberg.com

What to Expect of the Smaller Companies in the Next 2 Quarters?

One of the reports in Money section of The Straits Times (12 May 2009) says "Profit results put smile back on analysts' faces". The article talks about better-than-expected results from blue chips companies.

I think most of the small companies, especially those in the manufacturing sector, may see business bottomed in Q1 2009. Although many will hand-in dismal results during this reporting season but improvement can be anticipated in the next two quarters. However, this does not imply that the economy is out of the woods.

During the last quarter of 2008, the pessimism and panicky as a result of the series of unfortunate events had caused MNCs and big companies to drastically reduce orders and capital investment. As most of the transactions and agreements could not be cancelled immediately, the significant part of the adverse impact on suppliers was only evident in Q1 2009.

Now it seems that the situation does not turn out as bad as that predicted during the super-gloomy days in October 2008. Companies that had stopped or reduced purchases are likely to be running low in inventory, hence are slowly increasing orders. That is why the smaller companies may see a rebound in sales for the next few months.

Whether the improvement is sustainable, a lot will have to depend on what happens to the US economy in the next two quarters. Without additional systematic shocks, we could likely be on our way to recovery.

Why Develop My Own System? Isn't it Easier to Just Go Buy A System with Proven Results?

By Van Tharp

There are hundreds, if not thousands, of trading systems that work. But most people, after purchasing a pre-existing system, will not follow the system and trade it exactly as it was intended. Why not? Because the system doesn’t fit them or their style of trading.

One of the biggest secrets of successful trading is finding a trading system that fits you. In fact, Jack Schwager, after interviewing enough “market wizards” to write two books, concluded that the most important characteristic of all good traders was that they had found a system of methodology that was right for them.

When someone else develops a system for you, you don't know what biases they might have. Developing your own system allows for compatibility with your own beliefs, objectives, personality and edges.

Furthermore, most of the system development software for sale really encourages some of the trading biases that I see as detrimental to overall trading success.

For example, give a system developer enough leeway and that person will have a system that perfectly predicts the moves in the market and makes thousands of dollars on paper with certain historical markets. Most software allows people to optimize to their heart's content. Eventually, they will end up with a meaningless system that makes a fortune on the data from which it was obtained, but performs miserably in real trading.

Most system development software is designed because people want to know the perfect answer to the markets. They want to be able to predict the markets perfectly. As a result, you can buy software now for a few hundred dollars that will allow you to overlay numerous studies over past market data. Within a few minutes, you can begin to think that the markets are perfectly predictable. And that belief will stay with you until you attempt to trade the real market instead of the historically optimized market. Many trading accounts have plummeted from this very thinking. One “sure-thing” trade placed without proper position sizing can wipe some traders completely out of the game.

...

You must concentrate on the most important task of system development. If you do it properly, it will take at least half of your time during the development process. When you learn what it is, you’ll say, "Of course, it’s important," but you’ll still probably spend very little time on it.

That critical task is developing sound objectives.

Jack Schwager, after writing two Market Wizard books, concluded that the most important characteristic of the top traders and investors he interviewed was that they had adopted a trading system to fit them. But to develop a system that fits you, you need to really think about what you want. There are at least 30 questions you need to address when you develop a trading system. It’s not a trivial task.

What is an objective?

Your objective is your goal, your target. It is the things that you want your system to accomplish.

Objectives set the roadmap for the entire system development process. How would one know how to get someplace if they didn’t know where they were going first? It is easy enough to see that if one trader had an objective such as “I want a system that trades long-term stocks, that requires my attention only once each week and makes 20% per year” compared to a trader’s objectives of “I want to actively trade my mother’s retirement account for four hours each day, without holding overnight positions” – two completely different systems would be required. The objectives or goals are very different. There are endless configurations of objectives. The point is, you need to specifically know what it is that you are trying to attain and only then can you develop a trading system that will help you attain it.

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The above is actually a marketing article to promote a course on developing your own trading system.

I think the general idea of setting your own system to suit your personality applies to investment in general. Basically, I view "system" as a set of criteria to be fulfilled before implementing a decision.

My previous posts on "Strategies for Defensive Investors" are essentially evaluating different "systems" for defensive investing (in Singapore market using STI ETF).

Besides Mr. Chen Yi's "Stock Selection Criteria", the SGDividends team has also identified a set of "Minimum Considerations" for a DIY Equity Investor". I find these interesting and useful resources for a beginner in investment to start with.

Do you know of other investment "systems" for value- or defensive investors?
Would appreciate if you care to share.



P/s: As for the bolded and underlined part in the above article "you need to really think about what you want", I really think it applies to LIFE actually.

Healthcare Stocks - Singapore Companies

The swine flu seems to have fueled interest in the healthcare-related stocks recently. Some of those usually "quiet" ones saw sudden surge in volume this week.

Companies	Price as at 29/04/09 (S$)	Market Cap (S$ m)	P/E (times)
AsiaMed	0.080	26.8	20.2
HMI	0.105	50.5	10.4
Healthway	0.085	115.2	8.0
Medtecs	0.110	47.8	32.0
PacificHC	0.090	25.3	NA
Parkway	1.190	1,345.2	38.6
Raffles	0.900	466.4	14.8
Thomson	0.430	125.6	11.2

Asiamedic Limited
The Group provides ambulatory healthcare services in radiology, diagnostic imaging, ophthalmology, cosmetic surgery and health screening.

Health Management International Ltd
Healthcare division of the Group owns and manages 2 hospitals in Malaysia, the Mahkota Medical Centre in Malacca and the Regency Specialist Hospital in Johor. Its education division owns and manages the HMI Institute of Health Sciences in Singapore.

Healthway Medical Corp Ltd
One of Singapore's private outpatient medical service providers with a network of more than 80 clinics. The Group operates 11 medical practice groups, offering healthcare services such as family medice, dentistry, paediatrics, orthopaedics, sports medicine, aesthetic medicine, TCM and healthcare benefits management.

Medtecs International Corporation Limited
The Group is an integrated healthcare services provider and original product manufacturer (OPM) of a wide range of medical consumables for large multinational healthcare distributors, pharmaceutical companies and hospital groups in the US and Europe. Major product lines include linen, hospital apparel, hospitality apparel and bandages. The Group also acts as agent to distribute other branded medical devices in Asia Pacific, including medical supplies and equipment such as wheel chairs, syringes, gauzes, digital thermometers, nebulizers, blood pressure monitors, etc.

Pacific Healthcare Holdings Ltd
An integrated healthcare provider offering a comprehensive range of healthcare services under Special Healthcare Division (clinical services and facilities management) and Primary Healthcare Division (general practice medicine, dentistry, eldercare and wellness services).

Parkway Holdings
The Group operates Gleneagles Hospital, Mount Elizabeth Hospital, East Shore Hospital and Shenton Medical Group. The Gleneagles chain of hospitals are now in Singapore, Jarkarta, Surabaya, Medan, Kuala Lumpur, Penang, Calcutta and Colombo. It has a specialist Heart Hospital in London.

Raffles Medical Group Ltd
One of Singapore's leading private integrated healthcare providers with a network of 65 private clinics, offering general practice (GP), dental and specialist healthcare services, X-ray and diagnostic services, healthscreening and laboratory testings. The Group also owns and operates a tertiary care private hospital, insurance services and a consumer healthcare division.

Thomson Medical Centre Limited
The Group's principal activities include that of hospital operations and ancillary services. The hospital operations provide primary, secondary and tertiary healthcare with focus in the areas of O&G and paediatric services. Its ancillary services include fetal assessment services, diagnostic laboratory services, disgnostic imaging services, anti-aging services, healthcare screening services and parentcraft services.

= = = = =

Edit:
15 June 2009

Mel has done further analysis on credit control of the above companies based on data found in the companies' FY2008 Annual Report.

Here are her results:

Ranking :
1) Thomson Medical Centre - 3.9
2) Healthway Medical Group - 6.2
3) Raffles Medical Group - 6.5
4) AsiaMedic Ltd - 7.1
5) Parkway Holdings - 7.6
6) Pacific Healthcare - 10.9
7) Medtec International - 11.5
8) Health Management International (HMI) - 21.4

For further details, please refer to her blog entry:
http://bealovecat.blogspot.com/2009/06/healthcare-stocks-finance-analysis-1.html

Strategies for Defensive Investors - Part 2

This entry is to related my previous post.

Table 2: Investment Schedule for Stategies (3) - (8)

Table 3 shows the amount of money the investor put into the market every year under different strategies. The figures in red is the amount of money taken out from the market.

Figure 2: Return on Investment

In Figure 2, "Total Investment" show the cost of the equity portion of each portfolio at the end of 2008 and 2007. When total investment is negative (red), it means total sale proceeds (money taken out from the market) has exceeded the total cost of the equities in the portfolio (money put into the market), ie. the investor has net realized profits.

Using IRR method, we can see that (3) and (4) has the lowest internal rate of return in both 2007 and 2008. On the other hand, (6) has the highest IRR in both years.

[Useful tips:
Formula for calulating IRR in Excel: "=IRR(Values)"

"Values" is the range of cells that contain the numbers for which you want to calculate the internal rate of returns. Eg. =IRR(A1:A10) will give you the IRR for the values in cell Al, A2, A3... A10.
Do note that in order to calculate IRR, there must be at least 1 negative number and 1 positive number.]

I am not sure if this makes sense, this is how I interprete: Although DCA [dollar cost averaging ie. (3) and (4)] is a good strategy to increase wealth, the efficiency of the invested capital under this strategy is quite low. The large portfolio size (see Table 1 and Figure 1 in my previous post) is the result of high yearly investment amounts rather than high return on per dollar invested.

Now, suppose our investor is actually the fund manager of unit trusts that employ these strategies. This will be how the historical fund prices look like.

Table 3: Historical Performance of the Various Unit Trusts

Risk of the unit trusts is measured by standard deviations. Very clearly, (6) offers the least volatility. Hence it may be the best strategy for risk-adverse investors, protecting them from hefty decrease in their investment during market meltdown.

My conclusion is: practise DCA if you wish to increase your wealth. Do not sell the investment regardless of market condition. Contrary to what many believe, market timing, or rather, attempts to "buy low sell high", may not necessarily enhance your wealth. However, it may be useful to more risk-averse investors who cannot withstand the stress of seeing the value of their wealth dwindle during bear market.

Strategies for Defensive Investors

Since the end of last year, I told myself I want to be a defensive investor, ie. investing a fixed amount in STI ETF at the end of every month.

However, when the market advanced more than 20% from its low of 1,456.95 (9 March 09) in less than a month, I sold 50% of my investment in STI ETF, thinking such rapid advancement in a bear market was likely to be corrected. After my sale, the market did correct but disappointingly, negligibly little. After which, it proceeded to rally on. *roll eyes*

Benjamin Graham proposed that an investor should only sell his investments when he needs the money or when rebalancing his portfolio. Frankly, I am quite puzzled. Should a defensive investor not make any attempt to time the market AT ALL? Hold on to his investment through the peak in 2007 and stomach its dwindle in 2008? Somehow, I am more inclined to think that one should take some profit off the table every now and then, especially after steep market rally.

Anyway, I thought of a few strategies for defensive investors and did a comparison of their results by back-testing using STI historical data. I was quite surprised with some of the findings.

Assumptions:
Assuming we have a defensive investor who has an additional $5,000 available for investment (after setting aside adequate funds for emergency and liquidity needs) at the end of every year. He can choose to invest the money, partially or in full, in equities or save it in the bank.

For equity investment, we assume there is a STI ETF since 1987 and its price is exactly 1/1000 of the STI Index. We further assume his equity investment provides him with a steady dividend yield of 4% and his savings in the bank compound annually at an interest rate of 2%. For simplicity, theses rate stay the same throughout the 21 years from 1987 to 2008.

On the last trading day of every year, the investor reviews his portfolio: investment in equities (mark-to-market) and cash (cash in bank + additional $5,000 + dividend and interest for that year) and execute his investment decision at the closing price. We also assume that transaction fee is negligible.

The Strategies:
(1) Hide all money under the pillow
This is not an investment strategy but is included for comparison purpose.

(2) Put all money in the bank
Same as (1), this is not an investment strategy but is included for comparison purpose.

(3) Invest $5,000 yearly
The investor invest $5,000 at the end of every year but keeps his cash dividends in bank.

(4) Invest $5,000 + dividends yearly
In addition to $5,000 of new investment, the investor reinvest all his dividends, leaving no cash in his portfolio.

(5) Rebalance portfolio: 50% cash: 50% equities
The investor maintains a fixed allocation of 50% equities and 50% cash in his portfolio.
This strategy allows the investor to "buy low sell high" as the investment loss (mark-to-market) during bear market will cause the proportion of his equity investment to fall below 50%, thus requires him to invest more in order to maintain the desired allocation. Similarly, during a bull market, his investment gain would inflat the proportion of his equity investment and thereby prompt him to sell in order to maintain the desired allocation.

(6) When market is up by X%, sell X% of investment; when market is down by Y%, invest Y% of cash
Eg. when the market goes up by 30%, the investor will sell 30% of his investment. However, when the market drops by, say, 45%, he will invest 45% of his cash. Like strategy (5), this allows the investor to "buy low sell high". The faster the market accelerates, the greater reduction of his market exposure will be, therefore reducing the chances of the investor getting caught in a bubble. Conversely, the harder the market falls, the more he invest, at deeply discounted price.

(7) Sell 50% of investment when market is up by >20%, invest 50% of cash when market is down by >20%, otherwise, invest $5,000
This is a modification of strategy (6). Intuitively, strategy (6) will not be very efficient if the market fluctuates only mildly every year for a long period of time (imagine buying and selling less than 1% of portfolio, especially when the portfolio is small). Compared to (6), strategy (7) only sells or increase the investment amount when the market moves in a significant way. Otherwise, the investors invest $5,000 dilligently like in strategy (3).

(8) Sell 50% of investment when TA = sell signal; invest 50% of cash when TA = buy signal
This strategy involves simple technical analysis. For this illustration, the indicator is the 200 days moving average. No special reason for choosing this indicator other than it is simple and supposedly more suitable for longer term investment.
Buy signal = price closes above 200MA
Sell signal = price closes below 200MA
As moving averages are trend indicators, this strategy suggests that the investor reduces his market exposure when the market is on a downtrend, so as to avoid further deterioting of his investment and increase his investment to ride on the market's uptrend. However, as moving averages are lagging indicators, that means the investors are reacting to the market: selling when market is already moving down and buying when market is already moving up.


[The following section is updated on 17 April 2009]

The Results:

Figure 1: Different results during bull and bear market

Table 1: Portfolio sizes under different strategies over the years

The numbers under the columns entitled (1) - (8) in Table 1 are total values of all assets (equities + cash) achieved using the respective strategies at the given year. The largest porfolio size in every year is highlighted in blue. (Not to worry about the figures, the pattern of the blue highlights are more important.)

My Analysis
If the investor hides all his money under the pillow, he would have saved a total of $110,000.00 after the 21 years. However, by putting all those money in a savings account which gives an annual interest rate of 2%, his wealth would have grown to $136,494.92 at the end of 2008, an increase of 24.1%

Nevertheless, he will end up an even wealthier man if he adopts any of the investment strategies, ie. (3) to (8). At the end of 2008, (8) yields the best results with a portfolio size of $228,168.19. This is 107.4% more than the ending portfolio under (1) and 67.2% over that of (2). Strategy (4) is next, with a portfolio size of $194.067.70, ie. 76.4% and 42.2% above that of (1) and (2) respectively.

From the Table 1, the pattern of the blue highlights seems to indicate that (4) is the dominant strategy most of the time. If we were to end the above exercise in 2007, (4) is clearly the most superior strategy, outperforming (1) by 229.9%.

Apparently, (4) is most favoured by the bull because it is the most aggressive strategy, requiring the investor to be fully invested at all times. With 100% market exposure, the strategy will flourish / perish with the market. Table 1, also seems to suggest that (8) may be the best insurance against market downturn.

To gain more insight, I ran the numbers at different starting points (with minimum investment horizon of 10 years) to see if the timing of commencement of investment affects the results. Interestingly, similar pattern prevails, suggesting that no matter when (bull or bear) the investor starts investing, (4) will usually result in the highest amount of assets, i.e. until the bear strikes.

However this time, although (8) still ended up with the best portfolio in 2008, the blue highlights are distributed across (6), (7) and (8) during market downturns. So, maybe (8) is not be the best insurance against the loss of wealth after all. In fact, if we were to compare the annual % change in wealth (as oppose to the absolute amount), (6) seems to offer better insurance (least %decrease) more often than (8).

(to be continued... see part 2)

What Happens If You Own an ETF That Gets Closed?

I got the following article in an email. Not sure if the same applies to all ETFs.

...

What Happens If You Own an ETF That Gets Closed?
byKen Long

Reader Question: I am concerned about the information you provided regarding the rate at which ETFs are being shut down. I've been trying to find the answer to the question you raised, "What happens if you own an ETF that gets closed?" Have you found an answer? I've been unable to so far.

Answer: Once it is announced that an ETF will close, there is a period of time (3-4 weeks) that it is still traded. This is currently the case with the Ameristock Treasury bond ETFs, which will cease trading today.

In this time period, investors can buy or sell shares as they normally would. On the day that the ETF closes, all trading stops. The provider then has a period of time (about 2 weeks) to sell the underlying securities within the ETF.

The proceeds are then distributed to the owner of record. The owner will get the value of the securities from when they were sold, not when the ETF stopped trading. So, if you’re holding the ETF when it closes, you’re running the risk that the underlying securities could go down (or up) in value in that time frame.

If you want to know the value you are getting from your ETF, it might be better to sell the shares before the ETF stops trading. Otherwise, you’re left cooling your heels and won’t know what you’re going to get until the securities are sold and proceeds are distributed. It’s up to your risk tolerance.

But the closing of an ETF is an orderly process, and investors are given plenty of warning so they can plan accordingly.

— Ken Long

Cost of Healthcare in Singapore 2007

Some observations:

It is noted that the more expensive the hospital bill, the shorter the stay. I wonder if there is a causual effect - Does higher hospital bill comes with better services rendered? Or patients choose to shorten the length of stay in view of the high expenses? Or patients who need longer-term hospital care opt for cheaper wards?

Alexandra Hospital and East Shore Hospital seem to offer the most affordable healthcare services among their respective peers. Does location/accessibility has something to do with it? Or is it because of the range of their services available?

Note:
1. Medical Specialties include Cardiology, General Medicine, Geriatric Medicine, Paediatrics Medicine, Neonatology, Neurology, Rehabilitation Medicine, etc
2.Surgical Specialties include Cardiothoracic Surgery, ENT, General Surgery, Neurosurgery, Gynaecology, Obstetrics, Orthopaedic Surgery, Paediatrics Surgery, Plastic Surgery, etc
3. The above list is not a comprehensive list of hospitals in Singapore. For a comprehensive list, see here.
4. The data is extracted from Ministry of Health website. However, I have excluded KK Women's & Children's Hospital, National Heart Centre and Thomson Medical Centre as I think they are closer to Specialist Centres.

33 Financial Ratios - Part 3

From "Magic Numbers: The 33 Key Ratios That Every Investor Should Know" by Peter Temple.
See Part 1 and Part 2

Cash flow statement ratios

23. Free Cash Flow (FCF)
= Operating cash flow - interest - tax - maintenance capital spending
FCF subtracts those items that a company cannot avoid paying if it wants to maintain its fixed assets. It represents the amount of cash left over after all essential deductions have been made. How a company spends its free cash flow can be revealing about its view of future events.

24. Fixed asset spending / depreciation
= gross spending on fixed assets / annual depreciation charge
An indicator of the degree to which a company is investing for the long term health of business. Amortization of goodwill is excluded. Examine the company's depreciation policies at the same time and compare with those of its peer. More meaningful to compare over time or with ROCE or ROE.

There are companies to which this ratio does not apply, specifically those operating "people business" that run with relatively low fixed assets relative to their turnover (eg. advertising agencies, consultany companies, software businesses, any business involved in licensing rather than manufacturing, etc).

25. Operating cash flow / operating profit
= operating cash flow / operating profit
Shows how changes in working capital and the size of depreciation charge produce the difference between operating profit and operating cash flow. Measures the efficiency with which profits are converted to cash. As depreciation and other non-cash charges are added back to operating cash flow, the ratio should be greater than 1. Otherwise, it usually means there has been deteriorating in working capital ratios. The more this ratio exceed 100%, the more "hidden profits".

This ratio works for all types of companies. It is also good to compare the ratio over time to make sure that the figures are consistent and not simply showing an unsustainable one-off improvement.

26. Price to free cash flow ratio (P/CF)
= share price / (free cash flow / weighted average shares in issue)
A more objective measure of worth of company than P/E as it is less likely to be "fudged" or "smoothed". It enables companies to be compared irrespective of their size.

Risk, return and volatility ratios

27. Redemption yield / risk-free rate of return
= running yield + interest-on-interest + gain or loss on maturity
Running yield is the price of the bond expressed as a percentage of the market price.
Redemption yield is sometimes called "yield to maturity" (YTM), is to be calculated with a financial calculator due to its complexity in calculation.

3 major uses for redemption yield on government bonds :
1. As an indicator of economic health (inverse yield curve is usually considered a sign of imminent recession.)
2. As a measure of the risk-free rate of return
3. As a measure of credit quality

28. Internal rate of return (IRR)
Calculates the overall annual percentage rate of return on an investment. IRR is normally used to express the return required to equate the cost of an investment with the proceeds when it is sold.

29. Weighted average cost of capital (WACC)
= (cost of equity * market cap/EV) + (cost of debt * debt/EV)
Cost of equity is the risk-free rate of return plus equity risk premium adjusted for the systematic risk (beta) involved in equity.

This ratio is usually compared with the actual return on capital earned by the company to work out how much value the management is adding for shareholders.

30. Discounted cash flow (DCF)
= free cash flow year 1 * (d year 1) + ... + free cash flow year n * (d year n) + PV of perpetuity
d = discount factor for each year as determined by the chosen discount rate.
This ratio is useful in comparing valuations across companies in a relatively stable sector where underlying growth rates can be reasonably confidently assumed. It works less well with cyclical stocks, recovery situations, or companies that do not have a particularly predictable pattern of sales growth.

31. Reinvested ROE
Average ROE is calculated and adjusted to reflect the proportion of profits retained. This is used to calculate year 5 value for the company, based on profits implied from the growth generated in shareholders' equity. A market multiple (capitalization rate) is then applied to year 5 profits to arrive at the year 5 company value. After factoring in the value of dividends over the period, this is compared with the current market cap. A compound rate of return is calculated that equates the two. For a sufficient margin of safety, this return should probably be at least 25% p.a.

This approach gives due weight to the importance of ROE in generating value for shareholders. It rewards companies that retain high proportion of profits for reinvestment in the business and allows market-tested yields to be incorporated into the valuation. However, it works well only with companies that have relatively straightforward balance sheets and steadily growing business.

32. Volatility
= standard deviation of the stock price
Quick way to estimate: [(period high - period low) / 2] * (100 / current share price)
The greater volatility a particular share, the more likely it is that a move will occur that will result in showing a loss.

33. Sharpe ratio
= (annualized return on investment - risk-free rate of return) / volatility
To calculate the true risk-adjusted return on an investment.

33 Financial Ratios - Part 2

From "Magic Numbers: The 33 Key Ratios That Every Investor Should Know" by Peter Temple.
See Part 1

Balance sheet ratios

13. Current ratio and acid ratio
Current ratio = current assets / current liabilites
Acid ratio = (current assets - stocks) / current liabilities
An exception to general rule about liquid balance sheets is in the case of companies that operate in cash businesses and are in a position to dominate their suppliers (eg. UK supermarket groups which take cash from customers on a daily basis but enjoy credit terms from suppliers).

14. Debtor Days and Creditor Days
Debtor days = trade debtors * 365 / sales
Creditor days = trade creditors * 365 / cost of sales
Deterioration in credit control over time is a worrying trend.
Asset-based companies and those with long-term contracts may not be suitable cases for analysis.

15. Stock days and stockturn
Stock days = stocks * 365 / sales
Stockturn = sales / stocks
Debtor days, creditor days and stock days or stockturn are also known as working capital ratios. They measure the efficiency with which management is minimizing the amount of day-to-day capital tied up in the form of unsold stocks, uncollected invoices or unpaid bills. As different industries have different stock cycles, the trend in the ratios matter more than its absolute level.

16. Gearing
= (total borrowings - cash) / shareholders' equity
Companies with a stable and reliable cash flow can support higher levels of gearing than those in more volatile business. Overvalued assets can cause gearing to be understated.

17. Price/cash ratio
= maket cap / (cash + short-term investments)
Unlisted investments are harder to sell and should not be counted unless it is obvious that their value is substantially in excess of the value included in the balance sheet. Measuring price to cash ratio over a number of years can demonstrate whether or not the company is generating cash on a regular basis.

For certain types of companies (eg. banks, insurance companies), one important extension of the ratio is to include the balance sheet value of all investments. In the case of insurance companies, it often happens that investors focus unduly on shorter-term underwriting result and ignore the fact that the real value of companies like this lies in the investment portfolio they manage. Because of this myopia, it has sometimes been possible to buy insurance companies shares at a substantial discount to the underlying value of their investments.

Cash per share can be a useful screening mechanism to identify "shell" companies (small listed companies with substantial cash and few other assets) which are often the subjects of "reverse takeovers", where the shell will issue shares to acquire a larger private company, the shareholders of which then control the combine listed company, gaining access to its cash resources and its listing.

18. Burn rate
= Net cash / net cash operating expenses per month
Number of months before a loss-making company's cash resources run out (months to zero cash). In addition to bank cash, it is sometimes acceptable to include short-term investments that are easily saleable and not subject to anything other than very small movement in value. Less liquid investments have no place in the calculation. All borrowings should be deducted to arrive at the net cash figure. Net cash operating expenses excludes those that are solely book entry items such as depreciation of fixed assets.

Calculating burn rates on a half-yearly basis shows how well companies are progressing at generating profits, or reducing losses and controlling their expenses. Companies caught between a high burn rate, dwindling cash, and an unreceptive market face oblivion and are best avoided.

19. Return on Capital Employed (ROCE)
= profit before interest and tax (PBIT) * 100/(net capital employed at prior year-end + net capital employed at latest year-end)
Net capital employed = total assets - current liabilities
Current liabilities are excluded because they are not permanently available capital.
ROCE does not distinguish between the different types of capital on which the return is earned. The figure needs to be set against the companies' respective cost of capital to make a definitive comparison. Unless a company makes a return over and above its cost of capital, it is in effect gradually destroying the capital base of the business.

20. Return on Average Equity (ROE)
= Net profit attributable to shareholders * 100/(equity at prior year-end + equity at latest year-end)
In contrast to P/B, all intangible assets should be included. This is particularly true of any accumulated goodwill that is not recognized on the balance sheet, irrespective of whether it has been written off. If necessary, this should be added back to enlarge shareholders' equity. It is important to include in the deminator all of the capital that has been spent by management, not just what it has chosen to recognize in balance sheet. Thinking of goodwill as extra cash spent on past acquisitions makes it easier to see why it should be included.

The return can be either distributed in dividends or retained within the company. Provided management can produce consistent returns, the higher proportion retained, the more future growth is underpinned.

21. Net tangible asset value (NTA)
= (equity shareholders' fund - goodwill) / year-end shares in issue
Regardless of the different names used (eg. "shareholders' equity", "net assets", "book value" etc.), NTA represents the tangible fixed assets plus current assets less current liabilities, long term creditors and provisions. The difference between these numbers represents the residual assets that are "owned" by shareholders. Goodwill is excluded.

Try to identify any difference between market value of assets and their value as stated in the balance sheet and take note of the valuation dates of assets such as property. These differences can be a source of substantial price appreciation. All that is needed is a reasonable chance for the market to recognize the anomaly at some future date, either via a takeover or through break-ups and spin-offs. Change of management can often be a catalyst for changes in strategy to unlock value. Companies with controlling shareholdings in the hands of a family or individuals are less susceptible to market pressure to unlock value.

22. Premium/(Discount) to NAV
= (Share price * 100/NAV) - 100

If share price > per share NAV: premium, otherwise, discount

Premium or discount to NAV is more frequently used as a yardstick for property investment companies and investment trusts. Whether the shares stand on a premium or discount to NAV depends on how successful or otherwise mangement is at generating consistent growth in assets.

This Was Written 15 Years Ago

It can actually be funny if it wasn't so true...

SGD Fixed Deposit Rates Comparison

My fixed deposit has just matured. It's time to shop for the best deal in town.

Here is a list of interest rates offered by the various financial institutions in Singapore for 12-month SGD time deposit of under $50,000:

Financial Institution	Interest Rates	Website
DBS/POSB	0.825%	here
OCBC	0.825%	here
UOB	0.650%	here
Citibank	0.500%	here
Hong Leong Finance	0.825%	here
Maybank	0.875%	here
RHB	1.055%	here
Sing Investments	0.850%	here
Singapura Finance	1.055%	here
Standard Chartered	0.4188%*	here
*This rate is quoted by a customer service assistant from Standard Chartered Bank's call centre. The rate quoted on the website is 0.275%, calculated on a daily basis and credited on a monthly basis. I don't know what this means.

DIY Financial Planning

Insurance Coverage
If I were to die now, my greatest concern will be my parents. My parents are in their 60s now. Should I meet a mishap, I hope to provide them with a monthly income of $3,000 for the next 20 years.

Assuming inflation rate at 3% and 0% investment return, I need a sum assured of $967.333.
Tool used: Excel spreadsheet or financial calculator

If I really have a term policy of $1m sum assured in place, my parents will be financially better off when I am dead. Currently, I am not able to comfortably provide them with a monthly income of $3,000... unless, somehow, my disposable income increases by 100%. I do not know how to achieve that yet.

= = = = =

Retirement
If I were to retire at 62 and desire a monthly income of $2,500 after that for the next 25 years, I need $1,625,093 upon retirement. This amount is equivalent to $669,517 in today's dollar. To reach this retirement goal, I need to save $20,076 per year.

Assumptions: inflation rate of 3% and return on investment at 4%.
Tool used: Retirement savings interactive calculator on CPF Board website

= = = = =

Home Affordability
If my boyfriend and I decide to buy a new HDB flat now and allocate 20% of our combined income for loan repayment, taking into account the reduction in contributions to CPF-OA over the years, the maximum repayment period for our housing loan is 21 years if we wish to fund the entire loan with CPF-OA.

Assumption: combined income and CPF-OA interest rate of 3.5% remain constant over time.
Tool used: Excel spreadsheet

With a 20-year home loan, our maximum housing loan amount is $234,404.
Assumption: home loan interest rate of 3.0% p.a.
Tool used: Home Loan Interactive Calculator on CPF website

Based on the above, we can afford a new HDB flat of up to $325,629.
Tool used: calculator

33 Financial Ratios - Part 1

From "Magic Numbers: The 33 Key Ratios That Every Investor Should Know" by Peter Temple.

Market-based ratios

1. Market capitalization (market cap)
= issued shares (common stock) outstanding * share price
"Fully diluted" issued shares outstanding includes any additional shares that may be issued in the future (eg. exercise of share options).

2. Enterprise value (EV)
= market cap + total debt + total cash
Allows comparison of companies with radically different capital structures.

3. Price-earning ratio (PE)
= share price/earnings per share (EPS)
EPS = net income/issued shares outstanding
EPS calculation normally use "weighted average" shares in issue. Extraordinary items are excluded from EPS calculation.
PE enable comparison of companies irrespective of their size.

4. Dividend yield (%)
= gross dividend per share/share price
High yield may indicate a danger of the dividend being cut.
Yields of slow-growth companies tend to be higher as the scope for growth is more limited. High growth companies tend to have low yields.

5. PEG factor
= PE (times)/earnings growth (%)
A guide as to whether what you are paying for growth is reasonable. Lower PEG indicates cheaper share price for the company's earning growth. Works best for high growth companies.

The PEG calculation must be pair up appropriate PE with the comparable growth rate: historical PE with historical growth, or prospective PE with prospective growth.

6. Price-to-sales ratio
=market cap/annual sales
or = share price/sales per share
For companies with no with no foreseeable outlook of making a profit.

7. EV/EBITDA
= (market cap + net debt)/(pre-tax profit + interest paid + depreciation + amortization)
For valuing companies with different capital structure. Useful for comparing companies with high level of debts or lots of cash, or those making net losses but positive operating profit.

The reason for adding back depreciation and amortization to operating is that they do not involve actual cash expense. Using pre-tax figure eliminate the problem of international differences in company tax rate.

8. Price/book value
= share price/(shareholders' equity/number of outstanding shares
In some cases, book value is also known as net tangible assets.
While it works well for companies that are rich in tangible assets, it is less meaningful for those that have substantial elements of goodwill or intellectual property in their balance sheet.

Income statement ratios

9. Margins
Gross margin = gross profit/sales
Operating margin = operating profit/sales
Pre-tax margin = pre-tax profit/sales
Margins are important indicators of the health of a business. Falling margins can be a sign of problems, especially if the company or the industry is not cyclical, as it shows the extent to which the company is able to pass on brought-in costs in its prices to customers (gross margin) and the extent to which it has its own internal costs under control (pre-tax margin).

Gross margins are also an indicator of value-added - the higher the gross margin, the more value the company itself is adding to raw materials and bought-in inputs.

10. Interest cover
= (pre-tax profit + net interest paid)/net interest paid
Net interest paid = interest paid - interest earned
A measure of the financial soundness of a company.
Interest can sometimes be capitalized when paid on financing a project that has yet to be completed but that is expected to have a long-term value once completed (eg. constructing property such as retail stores). Capitalizing interest payments does not alter the fact that cash amount of interest due still has to be paid.

Interest cover has little practical significance if a company is in net cash position. It can be important when its bond or loans contains clauses (convenants) that provide for penalties if interest cover drops below a certain level. It can also be a proxy for how sensitive the business is to changes in interest rates.

11. Earnings per share (EPS)
= Net profit attributable to shareholders / Weighted average shares in issue
Taking earning figures at face value can be a mistake as profits can be subjected to manipulation by the management and different accounting policies between companies and country will affect EPS. Make sure that all of the calculations are carried out on the same basis.

12. Dividend cover
= EPS / Dividend per share
To assess whether it is likely that dividend payment might be cut in the immediate future.

Singapore Inflation and Real GDP Growth Rate - A Graphical Presentation

Historical

Historical	Inflation	GDP growth
High	22.3% (1974)	13.7% (1790)
Low	-1.9% (1976)	-3.8% (1964)
Average	2.7%	7.7%

10-year

10-year average for inflation rate: 1.4%
10-year average for GDP growth rate: 5.6%

Forecast for 2009 (by Ministry of Trade and Industry)
Inflation rate: -1.0 to 0.0%
GDP growth: -5.0% to -2.0%

= = = = =

Consumer Price Index

measures the average change in the price of a fixed basket of goods and services consumed by the households over time.

Weightage for Singapore CPI in 2008
(Base year 2004)
23% - Food
22% - Transport and communication
21% - Housing
17% - Recreation & Others
8% - Education & stationery
5% - Healthcare
4% - Clothing & footwear

According to the latest press release (dated 21 January 2009) from Singapore Department of Statistics, the weights for CPI were compiled based on the results of the Household Expenditure Survey (HES) conducted from October 2002 to September 2003 and updated to 2004. It covers the expenditure records of some 5,400 households and includes a total of 5,170 brands and varieties.

The index is compiled on a monthly basis and the full-year CPI is calculated by taking the simple average of the 12 months' indices for the year.

Source: Singapore Department of Statistics
Infation rate data: http://www.singstat.gov.sg/stats/themes/economy/hist/cpi.html
GDP growth rate date: http://www.singstat.gov.sg/stats/themes/economy/hist/gdp1.html

Forecast figures: http://www.singstat.gov.sg/news/news/pregdp4q2008.pdf
CPI weightage: http://www.singstat.gov.sg/news/news/cpidec2008.pdf