Nov 2015 Outlook

U.S. interest rates. A common news headline. Interest rates should not be of any major concern for good companies with stable interest coverages and good business models. 

Historically, government do not make deliberate moves that is against the interest of economic growth. Since the Great Depression (1930), the U.S. government has very much used Keynesian economic theories (gov intervention) among others that have benefitted stocks tremendously; from below 70 on the Dow Jones Average (DJIA) to above 17000!

U.S. Banks should benefit from the rise in interest rates (whenever it comes) as the banks will be able to charge more on their loans net of deposit rates. This is assuming:

1. There is no panic amongst investors regarding any new bank scandal
2. Average defaults (no massive oil related, large size defaults)
3. Stable loan growth environment ahead

Note: Investors might still be jittery in investing in banks due to the losses the financial crisis caused. A sudden bear market might hit the banking sector. However, the reverse could happen should sentiment built on a margin expansion storyline.

Besides banks (our repetitive theme in 2015), one might want to explore companies that provide parts for larger industries as quoted by Mario Gabelli of GAMCO, $40bil AUM. Among mentioned: O’Reilly Auto Parts (search for interview with Gabelli on CNBC:The Halftime Report, 30/10/2015). 

Precision Castparts, a parts manufacturing company, a Buffett (Top 3 richest man) linked deal and Gabelli’s stock picks might suggest despite the acclaimed global slowdown by news sources, businesses will keep chugging along.

In conclusion, our recommendations are stocks we’ve mentioned since 2014. In September,

[ https://iliveidreamitranscend.blogspot.my/2015/09/volatility-and-china.html ]

we advised purchases of beaten down stocks. October has been a good month for numerous U.S. stocks. However, it is opined, most of our Malaysian recommended stocks (besides IBM) are still undervalued. 

Looking forward, we see some turbulence ahead. Our model portfolio has been constructed to withstand the next 5 years via China's strong consumption rise story and strong localised property development stories among others.

Stocks in View

Parkson Retail Group Ltd (3368.HK), Parkson Holdings Berhad (5657.KL)

Turnaround story

Perak Corporation Berhad (8346.KL), Majuperak Berhad (8141.KL)

A local-state development story.

Twitter
NOT a recommended investment stock. A trading stock, noting a generally high interest in technology stocks and a recent new large shareholder, a Prince of Saudi.


Happy investing until next time.

[DISCLOSURE: The writer currently owns minority stake in Parkson Retail Group Ltd, Parkson Holdings Bhd, Majuperak Berhad, Perak Corporation Berhad among the mentioned stocks as of 30/09/2015 under his personal account. JR Capital LLP does NOT have any interest in mentioned stocks as of mentioned date.] 

[DISCLAIMER: Everything stated in this blog is purely the opinion of the writer and any decision taken should be based on sound judgement with risks fully born by the decision maker. The writer shall bear no responsibility for any losses due to adherence of advices blogged by the writer or any commenters.  Informational discrepancies are possible and will be corrected if any.]

Volatility and China

September 2015 has been a volatile month for stocks globally. 

Many investors might be panicking or forced into selling off good assets, overvalued assets or undervalued assets. Looking at a few markets globally;

China: Shanghai Index (mainland)

- is up 31.16% in the past 1 year (1YR) and down 5.62% Year To Date (YTD)

U.S.: DJIA 

- is down 3.53% 1YR and down 9.95% YTD

Malaysia: KLSE

- is down 9.62% 1YR and down 7.96% YTD

[Data: bloomberg.com 30/09/2015]

Other markets: Japan (Nikkei index) and Hong Kong (Hang Seng index) have also been on the slump as of late.

For simplicity sake, Volatility is defined as the up & down movements of stocks in markets. Stocks naturally go up and down, re-estimating the value of businesses based on their latest earnings and balance sheets whilst forecasting their future opportunities. Should a business stock be going down as of late, it is recommended to revalue your stocks (should you be unsure of your past valuation). 

For fundamentalist (non traders), check whether are your businesses;

1) still to continue operations under normal conditions ?

2) will they still be able to churn out average returns ?

3) are their balance sheets unaffected materially by any recent interest rate/exchange rate/policy fluctuations ?

4) have you paid a reasonable price for future growth ?

Should all your answers be positive ones, then stick with your stocks. Inactivity during volatility is your friend unless currently you have decided to reposition your stocks intelligently. 

Further, if you have purchased undervalued stocks and they are selling at lower prices with growth in sight, unaffected by global sentiments and factors, this could be the time to invest a part of your cash that you have been withholding as we suggested in January 2015;

[ http://iliveidreamitranscend.blogspot.my/2015/01/2015-outlook-and-growth-stocks.html ]

[Note: A contrasted Global Investment Managers’ Outlook:

Kenneth Fisher of Fisher Investments is of the view that U.S. is in the late cycle of a bull market hence better returns for large cap stocks in the nearby future.

Tan Teng Boo of Icapital.biz/Capital Dynamics is of the view that stocks are to go down a lot more before recovering i.e. in the U.S. and Hong Kong.]

However, be aware of the country you are invested/investing as markets do react to governmental factors i.e. its stability, as such currently in Malaysia that have suffered a >20% devaluation of currency and a stock market slump, currently, to be/being propped by a RM20bil government initiated stock boost via ValueCap Sdn Bhd. Malaysia’s stock market slump is also a reflection of fundamentals i.e. oil prices and others (more in our July 2015 write up, last 3 paragraphs prior “Stocks In View” section;

[ http://iliveidreamitranscend.blogspot.my/2015/07/global-stocks-mixed-china-down-malaysia.html ]

Overall, the writer opines the best way forward is investing in a market/country that have conducive shareholder centric policies and regulations (U.S.). With that, market volatility will be partially circumvented by regulators. Further, investing in businesses of stable natures (Berkshire Hathaway), that are business and shareholder oriented should circumvent global economy volatility. Apportioning part of your portfolio for growth stocks is also recommended. 
[Note: Investing in stocks of businesses operating in markets/countries that you understand sufficiently is a good way of overcoming structural shortcomings (volatility/risks affected by policies/laws) to an extent]

CHINA SLOWING DOWN HOW MUCH?

Most likely all stock market participants have been observing China’s economy and the world economy which according to many experts have been slowing down. No doubt China is slowing down whilst affecting business globally across industries. However, we still suggest a slowdown of the Top 2 largest economy growing at about TRIPLE the rate of the United States, having at least THREE times the consumers, have much more room to benefit long term shareholders, as long as prices paid for stocks were sufficiently low and not overvalued.

Investing in China is different from investing in U.S. or Malaysia due to many regulatory and legal differences among others. Assuming China’s government moves to a free market system gradually wherein businesses are allowed to dictate the overall economy alike U.S., shareholders should see tremendous returns assuming corporate governance is upheld at all times.

Alternatively, should China continue to successfully develop a mixed economy system, companies with superb management that are able to constantly adapt to government regulations and uphold shareholder centrism, should be very rewarding for shareholders. Global conflicts between China and the world however might distort this suggestion. However, president Xi Jin Ping’s visit to the U.S. recently might suggest China’s future path is to continue moving towards business based policies.
[Not to mention numerous other steps that have been taken by China to enhance their global business standing; i.e the silk road plans, AIIB, internationalisation of the renminbi]

Despite the recent slowdown in China, retail sales continue to be robust. On a separate note, on a relative comparative basis, the middle class in China is opined to be wealthier than the middle class in Malaysia in terms of their spending power domestically. Moving forward, all consumer stocks and consumption based stocks that have superior management and corporate governance would be suggested as good stocks. 
[ NO stock suggestions are given besides retail stocks previously mentioned (Parkson Retail Group) as there are much more factors that requires scrutiny i.e. stock market regulations and business regulations ]


Stocks In View

Parkson Retail Group & Stocks from previous months


Happy investing until next time.

[DISCLOSURE: The writer currently owns minority stake in Parkson Retail Group among the mentioned stocks as of 30/09/2015 under his personal account. JR Capital LLP does NOT have any interest in mentioned stocks as of mentioned date.] 

[DISCLAIMER: Everything stated in this blog is purely the opinion of the writer and any decision taken should be based on sound judgement with risks fully born by the decision maker. The writer shall bear no responsibility for any losses due to adherence of advices blogged by the writer or any commenters.  Informational discrepancies are possible and will be corrected if any.]

Rocky Markets, “Bersih” Rally, Thought Processes

U.S. market alongside other Asian stock exchanges recently underwent a Correction. 
Malaysia’s KLSE is down 10.87% 1YR and down 6.64% YTD (28/08/2015 Bloomberg) on Friday and there were no negative surprise events over the weekend “Bersih” rally. 

Such statements should be present in abundance in the media. The following is a brief reasoning why headlines as such should not deter critical investment decisions.

The stock market is not alive. That would seem rather obvious however media always gets the best of investors by using words that portray the liveliness of the stock market. Daily, you will read words that spell out doom or boom in most media coverages. Subconsciously, these may effect your decisions unless you have already developed a rigid investment philosophy that you stick by at all times.

In a recent Bloomberg interview, Tan Teng Boo of Icapital.biz Bhd mentioned the “sell off” began as soon as the July FOMC minutes 2015 meeting minutes were released for public viewing. 

[ Bloomberg TV Live, 27/08/2015,
http://www.bloomberg.com/news/videos/2015-08-27/is-another-global-financial-crisis-on-the-horizon- ]

[ July FOMC minutes:
http://www.federalreserve.gov/monetarypolicy/fomcminutes20150729.htm ]

This form of observation is much more warranted than random media explanations when stocks decline in value. 

However, the writer is NOT biased towards any recommendation by others. The example(s) given is to show the "Thought Processes" that guide fund managers.

[For newer investors; a Correction/Sell Off takes place when fund managers and investors as a group sell more securities than they buy]

For a sharper look at stock markets, read Kenneth Fisher’s 11th book "Beat The Crowd”. 

In regards to media, Mr. Fisher blatantly says CNBC is NOT for serious investors (not his exact words). The point to be made is that the media have their own business which is reporting news daily to gain more viewers and advertisers for more revenue dollars to benefit their stakeholders.

All media companies have a business to run. Assuming routinely the media gave you the break down of companies’ true long term potential and all you had to do was buy and hold those stocks, they’d run out of news, out of viewers, out of advertisement dollars, out of revenues and finally out of business. Possibly a reporter with such skills may find it more rewarding to become a fund manager. The point to be made is don't be easily persuaded by news but always stick to logical, rational and workable investment philosophy(s)/strategy(s).

[Note: Media nevertheless plays an important role in maintaining efficient markets and in dissemination of information]

Warren Buffett’s Berkshire Hathaway recently announced a purchase of Precision Castparts at a price above $30 billion. (As a background story, Mr. Buffett have advised investors before NOT to buy airline companies in the past.) A simple reasoning to his recent mega purchase could be that this company makes important parts for the airline industry in large quantities and that Mr Buffett views the airline industry to continuously grow. In the nearby future, it can be opined that the life spans of aircrafts alongside economic growth in Asia and other emerging nations will lead to new aircraft orders and consequently higher parts sales by Precision Castparts (cheaper parts from competitors is less probable to be consumed by the airplane industry due to high safety standards requirements). In addition, Mr Buffett also acquired a car dealership, Van-Tuyl Group in April, 2015. 

The main point to be seen is the thought process of Mr Buffett’s acquisitions. It is opined that his bet is on the long term returns in 2 major industries in 2 companies that play large and important roles within those industries. He once mentioned in a talk he gave, that the auto industry of US in the 20th century had 2000 companies but eventually only 3 of them survived. How do you choose the winner? By betting on more or less, sure bets: which are as long as the auto industry and the aviation industry prosper, services/sales/parts will be required. Companies fulfilling this increasing requirement of sufficient size and quality will prosper. As long as a company maintains its competitive position & shareholders interest among others, all shareholders will share in the benefits of that company’s prosperity. An added note; Mario Gabelli of GAMCO also uses similar thought processes in his stock purchases.

[ The talk by Warren Buffet : https://www.youtube.com/watch?v=2a9Lx9J8uSs ]

Back to the U.S., Malaysia, and Asian stock market Correction. Look for long term prospects. Holding long term investments saves you numerous costs that compounds over time i.e. capital gains taxes (not present in Malaysia) and brokerage costs. 

Besides below, many investors in Malaysia might be piling into Oil&Gas (O&G) stocks. 

A word of caution: These stocks have been sold as numerous KLSE listed O&G stocks are dependant on PETRONAS for their contracts. These contracts have high probability of revision clauses allowing PETRONAS to change terms during unfavourable events (i.e. current drop in commodity prices). For definite confirmation, ask investor relations of your O&G shareholding company for major O&G contract documents that should be available to all shareholders from respective company head offices. This is to ensure your stocks of contract-dependant companies are secured in times of low oil prices. Some companies may have already be forthright in disclosing their exposure to recent oil selldown.

Solar related and renewable-energy-based Companies might present an opportunity looking at advancements in technology, reduction in production costs comparable to non-renewables sources and the increasing necessary awareness in global pollution. Identifying winning companies is still in progress as cheaper non-renewable natural resources (e.g. oil) tend to depress solar stocks and vice versa.  

Stocks in View

MajuPerak Holdings Bhd 

• Receivables from sale of land not yet realised in 2Q.
• Long Term: Joint Venture (JV) businesses still in progress. They should provide sufficient investment returns in coming years. Realisation of JVs depend on project speed, quality, etc (check for any negative development as company has a history of negative earnings).

Perak Corp Bhd

• Have recently pared down debts and booked gains from disposal of securities held (Integrax Bhd stock) for first half ,H1 2015

IBM (U.S.)

• Have substantial return on equity policy and strong and large client/customer base
• Despite declining revenues, efforts are continuously taken to remain competitive. 
• Have a complex network of businesses that require extensive research for full business comprehension. 

Happy investing until next time. 

[DISCLOSURE: The writer currently owns minority stake in MajuPerak Holdings Bhd and Perak Corp Bhd among the mentioned stocks as of 31/08/2015 under his personal account. JR Capital LLP does NOT have any interest in mentioned stocks as of mentioned date.] 

[DISCLAIMER: Everything stated in this blog is purely the opinion of the writer and any decision taken should be based on sound judgement with risks fully born by the decision maker. The writer shall bear no responsibility for any losses due to adherence of advices blogged by the writer or any commenters.  Informational discrepancies are possible and will be corrected if any.]

Global Stocks mixed, China down, Malaysia 1MDB

China: Shanghai Index (mainland)

- is up 67.77% in the past 1 year (1YR) and up 13.83% Year To Date (YTD)

U.S.: DJIA

- is up 9.69% 1YR and up 0.87% YTD

Malaysia: KLSE

- is down 5.09% 1YR and down 0.69% YTD 

[Data: Bloomber.com 31/07/2015]

China economic data & the showing of slowdown, is of global consequence. China consumes a large part of many country’s output. However;

Shanghai stock index have been depressed for a few years when economic data was good (high digits GDP growth) (e.g. 2011-2014). Hence, a major movement upwards was due sooner or later especially with the introduction of Hong Kong-Shanghai stock connect late 2014. 

[https://en.wikipedia.org/wiki/Shanghai-Hong_Kong_Stock_Connect]

Despite this, the move upwards in 2014 was extremely rapid (more than a 100% increase). The recent correction is opined as healthy. Moving forward, growth in GDP though low accounts for a large population base. Total Consumption should be healthy in many years to come. Risks would extend to sudden government policy changes and low visibility of actual economic data (the latter being a common problem for many countries and companies).

Moving on;

DJIA’s valuation can be considered as high, taking into account the present low interest rate environment. This is as companies are all paying a very low interest rates on capital employed i.e. loans (refinanced) and new bonds. When rates go up, companies with lower margins will register lower net profits if they had not fixed in low interest rates (costs). If rates remain low, then stocks can be viewed as cheap (Mr. Buffet agrees on camera on the last point). 

Timing stocks?

Election year is coming up in the States (U.S.). Making moves (as such increasing interest rates) that may affect election outcome can be argued as a viable point. However, Michael Moore’s documentary Capitalism: A Love Story around 1:28:00 might suggest timing of Crisis (2008) may develop close to Election Time. 

[For an interesting analysis on Political history Versus Wall Street returns, read Kenneth Fisher (Investment Manager/Billionaire/Forbes Columnist); 

http://www.forbes.com/sites/kenfisher/2015/06/17/hillary-clinton-stock-market-bets/]

Regardless, if you do purchase stocks that are ugly in price or from a trading Point of View but have great balance sheets and good viable business models, then timing becomes redundant. Probability of getting timing right Versus getting fundamentals right: most likely fundamentalists win in the long run. Regardless, timing is definitely possible with much profits to be made. 

KLSE is having trouble as;

Numerous scandals have risen in Malaysia (1MDB). Oil and Gas sector that makes up about 1/5 of Malaysia's GDP is suffering from the drop in oil prices, alongside, their lenders (banks) should companies begin to default under stress of prolonged lower oil prices. Costs of living of consumers have risen with subsidy cuts and GST implementation among others. Currency (MYR) has plunged to asian financial crises levels (USD1=RM3.82). 

Overall, it is opined Malaysia will strive in the longer term due to rich natural resources, diverse capable manpower and improving business opportunities among others. Companies that are reliant on government contracts (GLCs) are likely to suffer in the unlikely event the leading political party loses out in the next election. Probable rallies might affect investor sentiments. Moreover, it is opined KLSE (displaying 30 Malaysian companies) has rich valuations unless in the unlikely event interest rates are reduced or those 30 companies are replaced by upcoming cheaper valued companies.

Thus, buying opportunities will arise should there be a market correction. KLSE stocks nevertheless do not prioritise shareholders as much as American companies do. Hence, selection of stocks should always take into account management quality, identity of major shareholders and history of Shareholderism among others. 

Stocks in View

MajuPerak Holdings Bhd

• Upcoming receivables from sale of land. 
• Long Term: JV businesses in Bamboo project, solar projects, housing projects.
• However, company has bad history of earnings but losses are usually very low comparatively to non-revalued Net Asset Value.

Parkson Holdings Bhd

• Selling at 10 year lows with numerous long term strategies being put into action to ramp net profits back up.
• Gross margins have been maintained. In China, net profits have been affected by closed down stores, increasing retail competition with increasing retail demand, anti-graft measures. New stores and refurbished stores profit/loss for about the past year and a half is yet to be reflected in Parkson Retail Group's profit & loss statement.
• Recent restructuring of Parson Retail Asia Ltd (Singapore) to be acquired by Parkson Retail Group Ltd (Hong Kong) will see an incoming cash of up to RM600,000,000 into Parkson Bhd’s coffers to be used for business expansions etc (Overall Parkson cash level not affected).

Oldtown Bhd

• Long Term Branding profits. Short Term expansion opportunities in Australia wherein first outlet has begun operation.

Happy investing until next time. 

[DISCLOSURE: The writer currently owns minority stake in MajuPerak Holdings Bhd, Parkson Holdings Bhd and Oldtown Bhd among the mentioned stocks as of 31/07/2015 under his personal account. JR Capital LLP does NOT have any interest in mentioned stocks as of mentioned date.] 

[DISCLAIMER: Everything stated in this blog is purely the opinion of the writer and any decision taken should be based on sound judgement with risks fully born by the decision maker. The writer shall bear no responsibility for any losses due to adherence of advices blogged by the writer or any commenters.  Informational discrepancies are possible and will be corrected if any.]

PERAK CORPORATION BHD Simple Research Report

Shares Outstanding	100,000,000
Market Capitalisation (at RM3.30)	330,000,000
Total Assets	827,975,444
Total Liabilities	176,551,875
Net Asset Value	651,423,569
NAV per share	6.51
NAV (discounted ~30%)	4.56
Gross Margin - 5 YR. Avg.  Source - Reuters	63,090,000
Net Profit Margin - 5 YR. Avg. Source - Reuters	33,640,000

Value per Share Today

Total Cash (subject to >RM12m reserves/trust/pledge/etc): approx. RM158,618,895

The above does NOT include sale of Integrax Bhd shares recently completed at approx. RM150,310,000 completed on 17 April 2015.

Hence, Total Cash, after disposal of Integrax (which should be booked in the next quarterly report) should increase to approx. RM308,928,895 sufficient to settle all debts leaving each share with an estimated minimum worth per share of RM4.56. Duly note that Total Assets already encompasses mentioned Integrax stake, which upon sale, the proceeds is merely transformed into liquid cash plus additional profit earned from sale minus cost of investment.

[Perak Corp. shares NAV is discounted at 30%, taking into account probable value adjustments, suitable in calculating possible underpriced take over value]

In addition, 5 year income averages can be considered stable and high relative to servicing debt expenses and dividend payouts.

Business Nature

Perak Corp. Bhd (henceforth the company) is a property and investment holding company, which engages in real property development and provision of management services. It operates through the following segments: Infrastructure, Township Development, Hotel and Tourism, and Management Services and Others. The Infrastructure segment provides maritime services in respect of the development of an integrated privatized project and encompassing operations of multipurpose port facilities, operation and maintenance of a bulk terminal, sales and rental of port related land and other ancillary activities. The Township Development segment deals with the development of real property and ancillary services. The Hotel and Tourism segment focuses on hotelier and restaurateur activities. The Management Services and Others segment includes property investment and distribution, and provision of management services. The company was founded on January 11, 1991 and is headquartered in Ipoh, Malaysia. (Source: WSJ.com)

Note: The company has almost fully utilised its land banks (>94%) for Bandar Maju Jaya development and land banks from its port land. 

More land (1002.939 acres) is in the process (since 28/02/2012) of being acquired in exchange of debt owed to company. More info can be found in the company’s Annual Audited Accounts 2014 part 2, page 115-124; 
[http://www.bursamalaysia.com/market/listed-companies/company-announcements/4725485].

Future

In line with Perak Corp’s Township Development & Hotel and Tourism segments, a joint venture with Sanderson Group worth more than the entire Market Capitalisation(at RM3.30 per share) of Perak Corp is the RM450,000,000 project, estimated to be completed in 2016. This humongous project is known as MAPS or The Movie Animation Park Studios will include a Dreamworks-dedicated zone, featuring characters from animated movies such as Mr Peabody and Sherman, The Croods, Megamind and Casper the Friendly Ghost as reported by theStar on 30/3/2014 and subsequent articles.

Conclusion

This state linked company for years has been run with consistent income performance (and debt management) with number of shares outstanding unchanged and a steady trend of increasing NAV among the points bearing shareholder centricity. With the price paid per share, the value you receive far exceeds cost. Looking ahead, income stream from upcoming and ongoing operations should translate into the continuity in NAV growth (asset value) and sufficient cash for future dividend payouts which may increase with business prosperity to benefit shareholders, state and country.

As always, investment (a longer time frame) is recommended, trading is NOT recommended. There are much more elements to scrutinise in company valuation prior investing. All aspects analysed and mentioned is from more detailed analysis, simplified. It is opined Perak Corporation Bhd to be undervalued currently and a good long term investment should management maintain their rigour, past trends are followed, more land is strategically acquired and sold & MAPS is successfully launched. 

Until next time, happy investing.

[DISCLOSURE: 

The writer has interest in the company analysed.

[DISCLAIMER: Everything stated in this blog is purely the opinion of the writer and any decision taken should be based on sound judgement with risks fully born by the decision maker. The writer shall bear no responsibility for any losses due to adherence of advices blogged by the writer or any commenters.  Informational discrepancies are possible and will be corrected if any.]

JR Capital PLT / LLP

JR Capital is a limited liability partnership that was recently formed in Malaysia by the writer to enhance private partners' wealth. 

The formation is due to the believe that there is presently lack of transparent & focused investment funds. We’ve also come across many individual stories regarding funds that have; 

• high management fees + performance fees + other fees (that eats away investor returns), 
• lack of disclosure as to the true nature of capital markets and business (educating clients adequately), 
• short term focused funds (historically, long term funds outperform), 
• low disclosure of manager turnover rates (how often the person managing your money changes), 

among others. 

To overcome mentioned obstacles, the partnership was formed based on knowledge stemming from one Benjamin Graham who is also commonly known as the father of value investing and notably his famous student Warren Buffett. Additional input was acquired from Columbia Business School (publicly available materials), that still propagates Graham’s approach to investing (contrasted from speculation) with added lines of thought from Yale and IESE Business School via online courses. All of these were then assimilated with principles and philosophies from the likes of Phillip A. Fisher, Kenneth Fisher, Jack Bogle, Peter Lynch and other notable pragmatic investors. Ongoing self conducted research (bottoms up approach) is our key in decision making.

The basic principles and philosophies that are practised within the partnership is what we share in this blog. The reason is to encourage new investors to invest their money wisely into any channel that they understand and trust to enhance wealth, in particular investment in securities/stocks/capital markets. Hence, do spend some time reading our past articles to get a more firm grasp of the ideas and the way we look at investments. 

Hopefully with each write up, someone manages to learn more about finance and gain in their financial well being.

[DISCLOSURE: JR Capital is NOT a mutual fund/unit trust/publicly accessible fund. Under NO circumstance are we promoting/recruiting new partners via this blog for we only accept partners whom we know personally and that share similar investment principles among others.]

Why Invest Your Money

Why invest your money?

Everyone works to make money to buy our daily necessities and to fulfil our wants.

Investing your money that your have earned may be difficult for those whom are constantly worrying about rising costs of living. Hence, if you are in this category, you should first manage your finance. Budgeting is necessary to reach a better investment standing. For example;

Table 1 : Monthly income of RM3000

Monthly Expenditures	Rough Amount Spent	Percentage of Expenditures
Food	600	20%
Lodging/Rent	600	20%
Travel/Fuel	510	17%
Loans	780	26%
Miscellaneous	510	17%
Total	3000	100%

If you were earning RM3000 monthly and had expenditures as in Table 1, assuming you could save RM300 out of your RM510 allocated for your miscellaneous expenditures, that would come up to a savings of RM300 x 12months = RM3600 each year.

After 5 years, your total savings would be RM19,774.15.

However, calculating RM3600 x 5 = RM18,000.00. So, where did the additional RM1774.15 come from? Well, that is the 3.15% interest you got if you had kept your monthly savings in an FD account. This 3.15% is added to your yearly savings which compounds over time. Compounding just means your actual savings of RM3600 does not merely add RM3600 yearly but it adds 3.15% yearly on your collective savings for the year.

CORRECT

1st year RM3600 + 3.15% = RM3713.40

2nd year (RM3713.40 + RM3600) + 3.15% = RM7543.77

versus

WRONG

1st year RM3600 + 3.15% = RM3713.40

2nd year RM3713.40 + RM3600 = RM7313.40

[All calculations uses a 1 month FD rate of 3.15% and 2014 inflation rate from Bank Negara Malaysia's website]

Well, if you aren't a maths junky, all you have to know is that your savings if kept at a certain rate (%) over time multiplies into a nice big sum. Hence, if your savings is small, the best way to compensate is to get a higher rate (%). This is called investment.

Anything that you put money into that gives a return is investment. Investments are vital as money if kept at 3.15% in a 1month FD account in Malaysia last year,2014, would have given you a real return of -0.05%. Yes, negative 0.05%!

What is a real return? That is how much your savings can buy you today. Real return is also known as your purchasing power. For example, your returns for 2014 if you kept your RM3600 in a 1 month FD account would have come to RM3713.40 no doubt.

BUT, your actual purchasing power is only RM3420.

The calculation is simple;

Inflation for 2014 was 3.2%, your FD was giving 3.15%,

 Inflation - FD Interest  

  3.20%   -    3.15%         = -0.05% (your real return / purchasing power)

If you feel that things are more expensive today with a similar pay from last year, the above is the explanation why. Inflation has eaten off your returns at 3.2% in 2014.

Back to your savings. The more you save the more you will have IF inflation doesn't undercut your returns. Keeping your savings by investing them is an effort to grow your money. The higher the return (%) the more your savings will be after many years.

Below is a Compound Table. Assuming you have saved RM100,000, the below table indicates the compounded value of RM100,000 invested at 5%, 10% and 15% for 10, 20 and 30 years.

Table 2 - Compound table

	5%	10%	15%
10 Years	RM162,889	RM259,374	RM404,553
20 Years	RM265,382	RM672,748	RM1,636,640
30 Years	RM432,191	RM1,744,930	RM6,621,140

Notice, the difference of every 5% makes a whole lot of difference when kept over longer periods of 10, 20 and 30 years.

Thus, we conclude that investing is the best way to go forward when it comes to savings and managing your money AFTER you have gotten your BUDGET right.

The better you budget your expenses, the more you will have in the future with the help of compounding interest.

Finally, WHERE TO INVEST?  Well, that is basically explained in every other post in this blog. Browse through should you be interested in growing your wealth.

In brief, this blog recommends investing in stocks/shares/business/public companies as when you buy a stock of a company, you become a part owner of that company. Should that company be a company like Nestle, you can be rest assured it'll continue to do well over the next many years & so will your shares that would be worth a lot more than what you paid for.

I hope this post simplifies the First post of this blog entitled;

"Why Invest?" - http://iliveidreamitranscend.blogspot.com/2014/03/investment-malaysia-shares-why-invest.html

This current post "Why Invest Your Money" was at the request of someone who wanted a more simple explanation on investments. As an effort to better upcoming posts, everything will be explained in a more lay and informal manner.

As for the month of April, the stocks in view are,

Oldtown Bhd
- for the longer term,

Bank of Greece (Athens:TELL)
- for the longer term,

Sime Darby Bhd & Air Asia Bhd
- should new listing plans come true.

Until next time, happy budgeting, saving and investing.


[DISCLOSURE: The writer currently owns minority stake in Parkson Holdings Bhd and Oldtown Bhd among the mentioned stocks as of 18/05/2015 under his personal account. JR Capital LLP does NOT own any interest in mentioned stocks as of mentioned date.]