The Economy
Every investor typically and rightfully become pessimistic at news of latest numbers i.e. lower forecasted country growth rates, lower PMI, lower consumer spending and lower oil prices (to an extent), among others.
To fall back on solid investment principles and outlook, Warren Buffett’s (3rd richest man/investor) Letter to Shareholders released on 27/02/2016 has offered a brighter & as always a fundamentals-based outlook.
As such the letter reads that considering the current $56,000 GDP per capita, a 2% growth of U.S. should correspond to about a $19,000 increase in real GDP per capita for the next 25 years. A continuing excerpt: “Were that to be distributed equally, the gain would be $76,000 annually for a family of four.” In short, “Today’s politicians need not shed tears for tomorrow’s children”.
The letter goes on to describe past & present productivity benefits, climate issues, insurance business, interest rates affecting business, intrinsic value of Berkshire and much more.
Typically this blog continues to follow the top investors to businesses, to differentiate media opinion from probable facts to actual facts. A brief/complete reading of companies’s annual reports/letters/statements would give a much better view of business on the ground (unless an on-the-ground survey is possible). Hence, it is recommend to read these materials should there be much fear in one’s investment-ideas-generator. For layback investors, Chairman Statements of your stocks should be beneficial. Look for them either in your stock’s Annual Reports or Company Webpage(typically includes annual reports).
There are businesses that are suffering and will suffer with current economic conditions, but those with prudent cost control measures, great management and business dynamics will not only strife through hard times but flourish with time.
Our outlook is maintained as bumpy with a possibly positive or flat Presidential year for stocks.
For Malaysia, we suggest the recent approval Trans Pacific Partnership Agreement (TPPA) to be positive. Upon full implementation, the neutralisation of remainder trade barriers should provide better business access to other signatory countries namely Brunei, Chile, New Zealand, Singapore, Australia, Canada, Japan, Mexico, Peru, the United States and Vietnam. Local Malaysian business will remain protected as per the TPPA. The exact implications is a developing issue as local laws are to be amended to complement the TPPA. The United States, on a positive note will clearly stand to benefit much from this globalisation oriented trade pact i.e. from manufacturing to agriculture.
Save & Make Money
Saving money may be partly summed up in a quote:
“If you buy things you don't need, you will soon sell things you need.” - Buffett
The idea of making money that the writer is presenting is creation of an earning stream over and above that of inflation.
Similar natured ideas and concepts can be found in previous posts;
Hence, this is an update.
Fixed Deposits (FD)
Consider an FD promotion that is/are offered in local Malaysian bank(s). Some may promote a Step Up Rate of 4% that increases every 3 months. ALWAYS ask for the EFFECTIVE INTEREST rate. As sometimes, banks will credit your interest to your account and NOT to your principle. This greatly misrepresents the rates on “promotion”. Always ask for Credit To Principal (if relevant).
A simple e.g.
RM10,000 is deposited into 2 different type FD accounts:
(A) Credit to Account - Step Up Rate
4.0% 3months Returns:RM100.00
4.3% 6months Returns:RM107.50
4.6% 9months Returns:RM115.00
Total Return: RM322.50
(B) Credit to Principal
4.3% 9months Return:RM322.50
Total Return: RM322.50
If you notice, in both accounts, the effective rate is 4.3% p.a with a return of RM322.50.
Further Info:
(“ / “ means Divide)
To calculate your 9months Return, just take;
Interest/12 x Months x Sum;
(4.3%= 0.043)/12 x Months(9) x Sum(RM10,000) = RM322.50
To calculate your 9months Effective Rate, just take
Returns/Sum/Months x 12;
RM322.50/RM10,000/9 x 12 = 4.3%
Point to be made is, don’t be fancied away with the 4.6% on your last 3months. Focus on your Effective Rate.
[ Further Info: Step Up Rate: meaning first 3months interest given is at 4% per annum (p.a.), next 3months interest is 4.3% p.a., and last 3months interest at 4.6% p.a. ]
Finally, your “Returns” from an FD account is mostly to secure your money from inflation. Therefore, they should NOT be considered your Returns. A proper returns gauge should be your Real Returns generated when you invest in anything that generates MORE than your country’s inflation rate (or cost of capital).
[ More on real returns in above Link ]
Some people might however require the cash from FD interest which according to his/her investment strategy is beneficial. However, it is recommended to focus on increasing your earnings via better job/business prospect and then save a portion with FDs/short term securities and the rest in value Stocks/Shares/Saham(part ownership of businesses).
Stocks in View
MajuPerak Bhd
Unaudited Final Quarterly Earnings for 2015 are out and the company has collected its cash from the land sale of RM42mil thereabouts. From FY2014 to FY2015, EPS(P.S.) and the company's cash holding(B.S.) has increased about 3x and 2x respectively. Net Assets per Share (NAV) reduced to RM1.13 but would have increased to RM1.20 if not for the conversion of ICPS based on the Unaudited Report. Further assessment is necessary to assess proper allocation of cash collected FY2015.
[P.S. found in Profit Statement, B.S. found in Balance Sheet, at http://disclosure.bursamalaysia.com/FileAccess/apbursaweb/download?id=190692&name=EA_FR_ATTACHMENTS ]
Perak Corporation Bhd
Earnings were dismal for the final quarter 2015 however amazing for the entire 2015 up about 100% from RM51mil to RM100mil. NAV increased from RM5.63 to RM5.82 while Total Debt was reduced by 57% from RM176mil to RM74mil.
Until next time, happy value investing.
[DISCLOSURE: The writer currently owns minority stake in Majuperak Bhd, Perak Corporation Bhd among the mentioned stocks as of 29/02/2016 under his personal account. JR Capital LLP has no interest in mentioned stock 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.]
