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It's been some time since I last update this blog and if anyone is reading, I'm am truly apoletic about it cos I am really just too busy with everything recently from work to study and lastly tuning my own investment style. I had a detailed discussion with my brother last week on investing strategies because we were contemplating of a merger(Sound likes a coroporate move eh haha) and although it is called off in the end but still I have learned heaps from it... My brother is an advocate of using trends and charts to make trade decisions and up to date, his system has proved to be efficient and applicable and that really inspires me though I'm a firm believer of fundamental analysis.. I know I will be flamed by some people because a true person who used fundamentals will think that charts are useless and all informations it displayed are not related to the company at all.... I used to think in that direction too but well, actually market price does affect the company fundamentals at all.. Have you wondered, if the stock price performed well in the market, the company can receive more money from issuing placement shares and the proceeds can be used for reinvestment which will beneft the business and improve their financial health too and from then, it might trigger the buying indicators for people who fundamental analysis. So as you can see, everything is interlated and maybe technicals and fundamentals are related too?
Let us imagine one scenario, one fine day, you have found a good fundamental reason but recently, this stock suffered a drastic slump in price but the market is still rising.. So what's the best course of action? Taking a position in this stock by going against the crowd or stay out from it until it forms a good trend again? In this situation, I will sniff out the possible cause of this and use my own judgement to determine whether if this is an overreaction from the market. Follow by that, I will compare the current value with my own derived intrinsic value of the company that I have calcuated prior to the purchase. Well, I used to buy the stock when the market value is below the intrinsic value and this system sounds plausible but will I allocate all my available funds to the stock? This links to another question, money allocation and how certain I am that my analysis is correct considering that all the information that I'm using is publicly available. Did I overlook some factors or my I just too optimistic in the company's prospect when I'm calculating the intrinsic value?
I still have more to write on this topic but due to time constraint (only a couple of weeks left to my cfa level 1 exam), I guess I have to continue next time. In conclusion, I think an one dimensional approach can't be taken towards investing and one has to be more opened to other methods and style to adapt to today's market but having said that, I'm still more inclined to fundamental analysis. Remember, stock market is a zero sum game so by understanding different trades, it will only do you good..
Weakness in my current System
1. Position Sizing ( Has to find a way to allocate funds to each counter systematically according to my confidence. Ways to quantify my confidence level)
2. Selling (Well, I do not have a clear set of rules for selling.. Maybe I will set weightage to different factors in calculating intrinsic value and allocate a small portion to market sentiments?) 3. Quite comfortable with picking good fundamental stocks but as for the entry price, I am need to fine tune it.... Taking a conservative or aggressive approach?
4. Not to pick stocks on intuition again! Recently, I have been picking stocks based more on intuition rather than analysis. I still do analysis on them but only at a basic level.. Well, the results are mixed but I have decided to trim down my porfolio by selling all the stocks that I bought on impulse.
Link
My brother's Blog
Tuesday, October 23, 2007
Thursday, October 18, 2007
LifeStyle Fund
Recently, I was thinking about the prospect of investing in companies which offers products or services that I frequently use. The basic idea is to cover all my expenses incurred from the company with their annual dividends distributed to me. I will do an experiement on this by using my lifestyle as an example.
Spendings
Transport
I usually travel to work by train and occasionally taxi and these transport services are provided by SBS, ComfortDelGro and SMRT. I spend roughly $60 dollars each month on train transport and an average of $10 on cab transport. This adds up to a total amount of $720 and $120 on train and cab respectively each year.
SMRT - $720
ComfortDelgro - $120
I am aware that SMRT offers cab service too but for better illustration purposes, I will assume all cabs that I have taken are from ComfortDelgro.
Apparel
Assuming I always patronize GAP and other fashion boutiques operated by FJBenjamin to buy my new year clothings. I spend roughly $300 each year on apparel.
FJBenj - $300
Telecommunication
My current handphone line is subscribed under Singtel. My handphone bill adds up to an average of 40 plus dollars each month which sums up to $420 each year.
Singtel - $420
Cable TV
Both my cable TV and internet connection is offered by StarHub. The total bill adds up to 100 plus dollars each month which sums up to $1200 each year.
StarHub - $1200
Brokerage
I make approximately 20 trades a year and the commission charges incurred are paid to SGX and my brokerage company. A trade usually cost me $30 and sums up to $360 each year and to simply things, I will just assume SGX receives the full amount.
SGX - $360
Publication
Newspapers which I usually bought are Business Times and Newpaper and both of them are published by SPH. They cost me approximately $20 each month which sums up to $360 each year.
SPH - $360
Oil
I do drive occasionally and usually I will replenish my patrol in SPC. I dont drive frequently so in this case, I will just give an estimate figure.
SPC - $500
Mailing
I do send and receive mails frequently and as far as I know, SingPost is the only company which offers local courier services. Well I'm not too sure about the charges and the number of letters I have mailed out every year so again, I will just give an esimate again.
Singpost - $200
Food
I do buy breads quite frequently from BreadTalk and occasionally, I will also patronize a restaurant named Ding Tai Fung which is also operated by them. On an average, I spend around $20 each month on them which sums up to $240 each year.
I also buy drinks like soyabean and etc manufactured by F&N and spend an average of $500 each year.
BreadTalk - $240
F&N - $500
In total, my daily neccesities cost me $4920 annually.. So how can I adjust this portfolio accordingly to neturalise my expenses from dividends distributed by each company? To test out this theory, I will use the company's current stock price and last year's dividend payout for the calculation..
SMRT
Current Price : $1.720
Divdend paid out last year : 0.072500 per share owned
Money Spent on SMRT : $720
No of shares required to neutralise the expenses incurred : 9000 (9 Lots)
Total amount required to purchase the shares : $15 480
ComfortDelgro
Current Price : $1.940
Dividend paid out last year : 0.061250 per share owned
Money Spent on Comfort : $120
No of shares required to neutralise the expenses incurred : 2000 (2 Lots)
Total amount required to purchase the shares : $3880
FJBenjamin
Current Price : $0.860
Dividend paid out last year : 0.025000 per share owned
Money Spent on FJBen : $300
No of shares required to neutralise the expenses incurred : 12000 (12 Lots)
Total amount required to purchase the shares : $10 320
Singtel
Current Price : $3.980
Dividend paid out last year : 0.110000 per share owned
Money Spent on Singtel : $420
No of shares required to neutralise the expenses incurred : 4000 (4 Lots)
Total amount required to purchase the shares : $15 920
STARHUB
Current Price : $3.080
Dividend paid out last year : 0.115000 per share owned
Money Spent on StarHub : $1200
No of shares required to neutralise the expenses incurred : 11000 (11 Lots)
Total amount required to purchase the shares : $33 880
SGX
Current Price : $14.900
Dividend paid out last year : 0.360000 per share owned
Money Spent on SGX : $360
No of shares required to neutralise the expenses incurred : 1000 (1 Lot)
Total amount required to purchase the shares : 14 900
SPH
Current Price : $4.50
Dividend paid out last year : 0.160000 per share owned
Money Spent on SPH : $360
No of shares required to neutralise the expense incurred : 3000 (3 Lots)
Total amount required to purchase the shares : $13 500
SPC
Current Price : $8.850
Dividend paid out last year : 0.200000 per share owned
Money Spent on SPC :$500
No of shares required to neutralise the expense incurred : 3000 (3 Lots)
Total amount required to purchase the shares : $26 550
SingPost
Current Price : $1.220
Dividend paid out last year : $0.062500 per share owned
Money Spent on SingPost :200
No of shares required to neutralise the expense incurred : 4000 (4 Lots)
Total amount required to purchase the shares : $4880
BreadTalk
Current Price : $0.585
Dividend paid out last year : 0.004200 per share owned
Money Spent on BreadTalk : $240
No of shares required to neutralise the expense incurred : 57000 (57 Lots)
Total amount required to purchase the shares : $33 345
F&N
Current Price : $5.750
Dividend paid out last year : 0.280000 per share owned
Money Spent on F&N : $500
No of shares required to neutralise the expense incurred : 2000 (2 Lots)
Total amount required to purchase the shares : $11 500
WOOT! It addds up to an astronomical amount . ha .. The total sum is $184 155.. But don't be alarmed by this because both the current price and dividends used in the above example are not accurate. Because prior to purchasing any shares of the above, I will use fundamental analysis to determine my entry price although there might be a chance that the 'intrinsic' value conincides with the market value and secondly, the current price is taken into account of future expected dividends hence using past dividends together with current price would not be accurate. You must be wondering, if one is to have so much cash, why would the person be concerned with such meager expenses? In my opinion, theortically, you have nothing much to lose since in the event of bad recessions, majority of things stated above will still be used by most people and most probably you will still be earning dividends during the period. Assuming you buy them at the market peak and the market crashes right after that, there's nothing to worry about as most of the companies stated have good financial health to see them through bad times and if there are excess cash, one might consider cost averaging it. This is at a experimental stage, I will need to do further research to judge the feasibility but I'm sure the total amount derived from using fundamental analysis will be much lesser than this figure.
The 3 most timeless investing principles
I happen to chance upon an interesting article in Investopedia summarizing Benjamin Graham’s approach towards investing who is also widely known as the father of value investing. His ideas and methods on investing are documented in his books, “Security Analysis” and “The Intelligent Investor”. These texts are not any easy reads and required some fundamental knowledge in order to grasp the concepts inside the book. I have finished reading “The Intelligent Investor” and struggle throughout the read because I do not understand most of the terms that were mentioned in the book so I will usually check the definition in Investopedia. My perseverance and efforts paid off as I have managed to learn a lot out from it and it also shaped my beliefs towards investing. I will give it a shot summarizing the article which I found in Investopedia.
Principle No 1: Margin of Safety
Basically, margin of safety is the principle of buying a security at a significant discount to its intrinsic value which is thought to not only provides high-return opportunities but also to minimize the risk of an investment. Graham also looks out for stocks where the book value is higher than the market cap. This means he is effectively buying the business for nothing.
One thing to take note is that company may mark up their asset values by using various accounting methods and this might mislead investors in believing the company is undervalued.
Principle No 2 : Expecting volatility and profit from it
Graham illustrates the market’s volatility with the analogy of Mr Market, the imaginary business partner of each and every investor. Basically Mr market will offer investors a price quote at which he would either buy an investor or sell his share of the business. He will tend to quote a high price when the prospect of the business is overly hyped and quote a low price when the prospect is unpromising.
The lesson here is that we should form our own judgment based on a sound and rationale examination of facts and not letting the market to affect our views and worse, leading us to a investment decision. The market will inevitably fluctuate over time, sometime wildly but instead of fearing it, we can use it to our advantage to make bargains in the market or sell out when your holding becomes overvalue.
Here are two strategies that Graham suggested to migtate the negative effects of market volatility .
1 . Dollar Cost Averaging
It can be achieved by buying equal dollars of amounts at regular intervals.
2.Investing in Stocks and Bonds
Graham recommended allocating one portfolio evenly between stocks and bonds as a way to preserve capital in market downturns.
Principle No 3 : Know what kind of investor you are
Graham advised that investors know their investment selves. To illustrate this, he categorized investors into 2 groups, active investors and passive investors. You only have two real choices : The first is to make a serious commitment in time and energy to become a good investor who equates the quality and amount of hands-on research with the expected return. Second, if you have nether the time nor the inclination to do quality research, then investing in an index will be a better alternative.
Both Graham and Buffett said that getting an average return from an index is more of an accomplishment than it might seem. The fallacy that many people buy into is that if it’s easy to get an average return with little or no work (index) than perhaps a little more work should yield a higher return but reality is that most people who try this end up doing much worse than average.
You can read the full article here.
Appendix
Investopedia
Tuesday, October 16, 2007
TAT Hong Financial Statement Analysis Part 2C (Financial Health)
A company's financial health is one area that investors should not overlook and underestimate especially when a company are having increasing profits over years. It is important to keep their financial heath in check because they may be leveraging or borrowing excessively to achieve this result. If for an instance, recession is on the way, having a weak balance sheet may not see them through this tough period and in worst cases, the company may go bankrupt. In this section, I will attempt to analyse Tat Hong's financial health using some ratios and figures.
2 Financial Health
2a) Is the company's long term liability more than the equity
Debt to Equity ratio can be used to answer this. In 2005, 2006 and 2007, Tat hong's d/e ratio is at 0.43, 0.32 and 0.34 respectively. Quite simply, the higher the figure, the higher the leverage the company employs. Tat Hong's d/e ratio has increased in 2007 but it is still maintained at a safe level below 0.50. (Passed)
2b) Can the company pay off their long term liability with just earnings
The above metioned ratio has its weekness because some assets are never a source of funds unless the company is in bankruptcy. The best then, of a company's financial power is it's abilityto pay off its debt out of its earnings. In 2005,2006 and 2007, Tat hong has a net income of 20.77 million, 46.09 million and 84.17 million and long term liability of 76 million, 73 million and 100 million respectively. This tells us that Tat Hong can clear its long term debt at 2005,2006, 2007 in approximately 3 years, 1.5 years and 1.15 year respectively. This concludes that Tat Hong has a durable competitve advantage which enables them to pay off their long term debt within just few years with strong enough earnings. (Passed)
2c) Is the company leveraging excessively on their equity
A common measure of leverage is simply the financial leverage that is used in calculating ROE (a term which I will describe in later posts) , equal to assets divided by equity. In 2005, 2006 and 2007, Tat Hong's financial leverage is 2.34, 2.08 and 2.07 . What do all these numbers mean? Taking the 2005 ratio which is 2.34 to illustrate the example, it simply means a dollar in equity, Tat Hong has $2.34 in total assets which tells us it borrows the other $1.10. Over these 3 years, Tat Hong financial leverage has been decreasing steadily and profits soaring and this shows us that the the capital is well managed. A financial ratio of 2.1 is fairly conservative and its when we see ratios of 4 , 5 , or more, companies start to get really risk. (Passed)
2d) Can the company pay interest easily with their earnings before interest and taxes
Borrowing money comes at a cost: the interest that is payable month after month, year after year. Interest payments affect the company's profitability and for this reason, the comany's ability to meet interest obligations is one of the most important factor in analysing the company's financial health. In 2005, 2006 and 2007, Tat Hong interest coverage ratio is at 5.30, 7.77 and 11.74. The more times the company can pay its interest expense, the less likely that it will run into difficulty if earnings fall unexpectedly and as you can see, Tat Hong's ratio has been increasing steadily and in 2007, it's coverage ratio is at 11.74. In other words, Tat Hong has earned enough money in 2007 to cover it's interest obligation 11 times over which is pretty safe. The benchmark for construction industy is 3. where tat hong has surpassed it extensively. (Passed)
Financial Health : (5/5)
I will rate Tat Hong financial health full marks because as you can see the checks that I have made above, they have surpassed the expectations and this shows that it has the stability to get through unexpected problems . Although its true you might miss out companies with great potential of making astronomical profits with such stringent test but how difficult it is to find another microsoft in the making.. Out of 100, 99 failed so in my opinion, its better to play safe by sticking to companies with good financial health. In the next section, I will analyse Tat Hong's cash flow cycle by using some activity ratios.
2 Financial Health
2a) Is the company's long term liability more than the equity
Debt to Equity ratio can be used to answer this. In 2005, 2006 and 2007, Tat hong's d/e ratio is at 0.43, 0.32 and 0.34 respectively. Quite simply, the higher the figure, the higher the leverage the company employs. Tat Hong's d/e ratio has increased in 2007 but it is still maintained at a safe level below 0.50. (Passed)
2b) Can the company pay off their long term liability with just earnings
The above metioned ratio has its weekness because some assets are never a source of funds unless the company is in bankruptcy. The best then, of a company's financial power is it's abilityto pay off its debt out of its earnings. In 2005,2006 and 2007, Tat hong has a net income of 20.77 million, 46.09 million and 84.17 million and long term liability of 76 million, 73 million and 100 million respectively. This tells us that Tat Hong can clear its long term debt at 2005,2006, 2007 in approximately 3 years, 1.5 years and 1.15 year respectively. This concludes that Tat Hong has a durable competitve advantage which enables them to pay off their long term debt within just few years with strong enough earnings. (Passed)
2c) Is the company leveraging excessively on their equity
A common measure of leverage is simply the financial leverage that is used in calculating ROE (a term which I will describe in later posts) , equal to assets divided by equity. In 2005, 2006 and 2007, Tat Hong's financial leverage is 2.34, 2.08 and 2.07 . What do all these numbers mean? Taking the 2005 ratio which is 2.34 to illustrate the example, it simply means a dollar in equity, Tat Hong has $2.34 in total assets which tells us it borrows the other $1.10. Over these 3 years, Tat Hong financial leverage has been decreasing steadily and profits soaring and this shows us that the the capital is well managed. A financial ratio of 2.1 is fairly conservative and its when we see ratios of 4 , 5 , or more, companies start to get really risk. (Passed)
2d) Can the company pay interest easily with their earnings before interest and taxes
Borrowing money comes at a cost: the interest that is payable month after month, year after year. Interest payments affect the company's profitability and for this reason, the comany's ability to meet interest obligations is one of the most important factor in analysing the company's financial health. In 2005, 2006 and 2007, Tat Hong interest coverage ratio is at 5.30, 7.77 and 11.74. The more times the company can pay its interest expense, the less likely that it will run into difficulty if earnings fall unexpectedly and as you can see, Tat Hong's ratio has been increasing steadily and in 2007, it's coverage ratio is at 11.74. In other words, Tat Hong has earned enough money in 2007 to cover it's interest obligation 11 times over which is pretty safe. The benchmark for construction industy is 3. where tat hong has surpassed it extensively. (Passed)
Financial Health : (5/5)
I will rate Tat Hong financial health full marks because as you can see the checks that I have made above, they have surpassed the expectations and this shows that it has the stability to get through unexpected problems . Although its true you might miss out companies with great potential of making astronomical profits with such stringent test but how difficult it is to find another microsoft in the making.. Out of 100, 99 failed so in my opinion, its better to play safe by sticking to companies with good financial health. In the next section, I will analyse Tat Hong's cash flow cycle by using some activity ratios.
Monday, October 15, 2007
Comparison between fundamental analysis and technical analysis
In the investing circle, people are always mentioning about fundamental analysis and technical analysis so what do they actually mean. In the broadest term, fundamental analysis involves looking at any datas except trading patterns of the stock itself while technical analysis focuses mainly on the trading and price history of the stock.
Investors using fundamental analysis usually believe that by purchasing the company’s stock, they will own a proportional share in the business. As a consequence, it is important to assess the company’s financial in terms of per share in order to calculate the how much the proportional share of the business is actually worth. Investors taking this approach usually like to find deals where they only need to pay half a dollar for a company worth 1 dollar.
Investors using technical analysis take a completely different approach. They do not care about the value of a company and what they are mainly interested are the price movements in the market. They believe that all information about a stock are already accounted for in the stock price so there is no incentive in analyzing a company’s fundamental.
Both these 2 methods have their pro and cons. By using fundamental analysis, you can have an idea of the company’s financial health, profitability and growth and at least you can be assured that the company that you are invested in has good potential and stable but one of the complications is that the underlying principles of fundamental are based on a huge numbers of factors and they get getting increasingly volatile and harder to predict over time. By using technical analysis, you can gain an insight of the overall state of the market, attractiveness and state of a specific security as compared to other securities.
I am currently exploring the possibility of creating a system which combines both fundamental analysis (heavier weightage) and technical analysis because I do believe that one can only find bargains from fundamental analysis whereas charts can give you an insight of the market mood. A rough idea of the new system which I have in mind:
1.) Derive the current price trend from charts
2.) If it’s a downtrend, search for factors which possibly causes this
3.) Do a complete fundamental analysis on the company and judge whether if the factors will affect the company for long or short term
Appendix
1. Investopedia
2. Motley Fool
Investors using fundamental analysis usually believe that by purchasing the company’s stock, they will own a proportional share in the business. As a consequence, it is important to assess the company’s financial in terms of per share in order to calculate the how much the proportional share of the business is actually worth. Investors taking this approach usually like to find deals where they only need to pay half a dollar for a company worth 1 dollar.
Investors using technical analysis take a completely different approach. They do not care about the value of a company and what they are mainly interested are the price movements in the market. They believe that all information about a stock are already accounted for in the stock price so there is no incentive in analyzing a company’s fundamental.
Both these 2 methods have their pro and cons. By using fundamental analysis, you can have an idea of the company’s financial health, profitability and growth and at least you can be assured that the company that you are invested in has good potential and stable but one of the complications is that the underlying principles of fundamental are based on a huge numbers of factors and they get getting increasingly volatile and harder to predict over time. By using technical analysis, you can gain an insight of the overall state of the market, attractiveness and state of a specific security as compared to other securities.
I am currently exploring the possibility of creating a system which combines both fundamental analysis (heavier weightage) and technical analysis because I do believe that one can only find bargains from fundamental analysis whereas charts can give you an insight of the market mood. A rough idea of the new system which I have in mind:
1.) Derive the current price trend from charts
2.) If it’s a downtrend, search for factors which possibly causes this
3.) Do a complete fundamental analysis on the company and judge whether if the factors will affect the company for long or short term
Appendix
1. Investopedia
2. Motley Fool
TAT Hong Financial Statement Analysis Part 2B (Liquidity)
When it comes to analyzing of financial statements, it is easier if a systematic approach in interpreting different ratios and numbers is adopted because there are simply just too much information and if there isn't a certain "template", it will be very difficult to start. First, I will start from the company's liquidity which is their ability to meet up current obligations with ease in the event of bad times.
1 Liquidity
1a) Current Ratio
Tat Hong's current ratio in 2005,2006,2007 is 1.36,1.44 and 1.27 respectively. An increase in current ratio signifies the company's improvement in liquidity because they have more assets than liablities. A ratio below one indicates that a company will not be able to pay off it's debt. A decrease in current ratio is worth to take note of especially if it happens frequently. We will take a look at more ratios to give us a clearer picture. Even though Tat Hong's current ratio decreased in 2007 but it is currently still in an expanding phase so some leeway can be given as long as its ratio don't go below one! (Failed)
1b) Quick Ratio
It is similar to current except it excludes inventory from the current assets because as compared to cash and receivables, this is most difficult to convert into cash. Tat Hong's Quick ratio in 2005,2006,2007 is 0.52,0.64,0.53 respectively. Similar to current ratio, the higher the ratio, the better the position of the company. (Failed)
1c) Dynamic Ratio
The dynamic current ratio tells us a more accurate way of assessing short term liquidities than any of the ratios above because it takes into account the company's respective liquidity with regard to both inventory, accounts receivable and accounts payable instead of the full amount. Tat Hong's Dynamic ratio in 2006,2007 is 1.46 and 1.28 respectively. (Failed)
1 Liquidity
1a) Current Ratio
Tat Hong's current ratio in 2005,2006,2007 is 1.36,1.44 and 1.27 respectively. An increase in current ratio signifies the company's improvement in liquidity because they have more assets than liablities. A ratio below one indicates that a company will not be able to pay off it's debt. A decrease in current ratio is worth to take note of especially if it happens frequently. We will take a look at more ratios to give us a clearer picture. Even though Tat Hong's current ratio decreased in 2007 but it is currently still in an expanding phase so some leeway can be given as long as its ratio don't go below one! (Failed)
1b) Quick Ratio
It is similar to current except it excludes inventory from the current assets because as compared to cash and receivables, this is most difficult to convert into cash. Tat Hong's Quick ratio in 2005,2006,2007 is 0.52,0.64,0.53 respectively. Similar to current ratio, the higher the ratio, the better the position of the company. (Failed)
1c) Dynamic Ratio
The dynamic current ratio tells us a more accurate way of assessing short term liquidities than any of the ratios above because it takes into account the company's respective liquidity with regard to both inventory, accounts receivable and accounts payable instead of the full amount. Tat Hong's Dynamic ratio in 2006,2007 is 1.46 and 1.28 respectively. (Failed)
1d) Can the company's operating cash flow cover the total interest bearing debt
The operating cash flow ratio can gauge a company's liquidity in the short term. Using cash flow as opposed to income is sometimes a better indication of liquidity simply because, as we know, cash is how bills are normally paid off. In 2005,2006 and 2007, Tat Hong's coverage is 0.09,0.24 and 0.20 respectively. Comparing with the previous year's ratio, Tat Hong has taken up more interest bearing debt without increasing their operating cash flow to achieve an improved coverage and this is something worth taking note of. (Failed)
Rating Liquidity : (2.5/5)
Tat Hong's dynamic ratio in 2007 has decreased 12% but it is still tolerable as long as the ratio is maintained at a level above 1.2. I will rate it's liquidity level conservatively because it is currently taking up more interest bearing debt without generating sufficient operating cash flow to cover it.
TAT Hong Holdings Financial Statement Analysis Part 2A (Financial Ratios)
In this section, I will be analysing Tat Hong using financial statements. Firstly, I will be using some numbers like revenue from income statements, balance sheet and cash flow and compare it against previous years to have an idea of the company's profitability ,growth and financial health. Secondly ,I will be using two numbers in conjunction to form a ratio where it might tell more about a company's condition. Example, current assets alone dont tell us a lot but using in conjunction with current liabilites, we are able to determine whether the company has enough money to cover short term debts.
Below is a spreadsheet consisting of all the important ratios and figures dervied from their annual reports . In the next section, I will writting in a semi Q&A format analysing their growth, profitability and their financial health using the financial ratios in the spread sheet. Do note that that due to time limitations, my research information is only constrained to 3 years from financial year 2005 - 2007 so to come extent, it may not be really accurate.
Part 1
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Part 2
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Below is a spreadsheet consisting of all the important ratios and figures dervied from their annual reports . In the next section, I will writting in a semi Q&A format analysing their growth, profitability and their financial health using the financial ratios in the spread sheet. Do note that that due to time limitations, my research information is only constrained to 3 years from financial year 2005 - 2007 so to come extent, it may not be really accurate.
Part 1
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Part 2
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Saturday, October 13, 2007
Positive news for Tat Hong (Business Times)
Business Times
Tat Hong set to beat profit goal
SINGAPORE - Singapore heavy lifting equipment provider Tat Hong is confident of surpassing its target of 25 per cent annual net profit growth for the next three years, bolstered by an upsurge in infrastructure projects in Asia.Mr Ng said that Tat Hong is eyeing acquisition targets in Australia - through 70 per cent owned subsidiary Tutt Bryant - and in China, Tat Hong, which has seen its market value more than double to US$839 million in half a year helped by the building boom, had reported a 66 per cent jump in first-quarter net profit to $17 million (US$11.6 million).'Based on our first quarter results, we feel confident that we will surpass the growth target,' Tat Hong chief executive Ng San Tiong Roland said in an interview on Friday.To sustain its growth, Mr Ng said Tat Hong, which has the world's largest fleet of crawler cranes with 450 units, is eyeing acquisition targets in Australia - through 70 per cent owned subsidiary Tutt Bryant - and in China.Mr Ng said the home-building slump in Australia will not have a significant impact as 80 per cent of sales come from the oil and gas industries, and from infrastructure projects.In China, Tat Hong plans to double its existing tower crane fleet to about 200 units by the of 2008, and expects China to contribute 20 per cent to sales by 2010, Mr Ng said. -- REUTERS
TAT Hong Holdngs Analysis Part 1 (Management)
From today's post onwards, I will attempt to write down my analysis process that I have done prior to the purchasing any stocks. Starting off from Tat Hong, the main reason for choosing it was because I wanted to have an exposure to the construction industry and at then, I forsee a strong demand of crane in the future due to the rapid development of infrastructure locally and globally. I have checked up the sgx market and realised there are only 2 companies in the crane business which are Tiong Woon and Tat Hong.. After doing a 10 minutes test* on both companies, I realised Tat Hong has a competitve edge over Tiong Woon hence I made a decision to do a detailed examination on Tat Hong...
Some background informaton of Tat Hong
The group is principally involved in the rental and sale of cranes and the sale of spare parts for cranes. Apart from cranes, the group is also involved in the rental and sale of other ancillary heavy equipment such as excavators, bulldozers, earth-moving equipment, foundation equipment, piling rigs and generators.
I will first analyze the company's management. It is not really an easy task attempting to analyze a company management but the following pointers can be used as a rough guideline .
1. Does a majoritiy of the board of directiors comprimised of indepent members
The board comprises of ten members, consisting of 5 executive directors, one non-executive non- independent director and four non-executive directors who are also independent from management. (Passed)
2. Is the Chariman of the board also the CEO or a former CEO of the firm
No. (Passed)
3. Are the boards earning an excessive amount of remuneration
No. The boards are paid at a decent amount despite the company having a good performance for the year (Passed)
4. Is the Board of Directors Stacked with Management's Family Members
Yes. All 3 directors are brothers of the MD.. This is hardly a good thing because if they are closely related to the top management, they may not be as hard-nosed when questioning the management's action as it could be. (Failed)
5. Do executives have substantial holders of the company stock
Yes. Mr Ng San Thiong and his brothers are holding a total of 11% of the company stock and CHWEE CHENG & SONGS PTE, which they are related to, holds 42% of the company. (Passed)
6. Length of tenure
It is always preferable to look for solid stable management that stick with their companies for long term and Most of the board members have been with Tat Hong for a relatively long time (10 years odd). (Passed)
7. Performance
They have increasing ROE and ROAs over the years which is not driven by excessive leverage. The company outstanding shares have not been increased substantially which is a positive thing because a agressive approach to issuance of equity will dillute your stake.. (Passed)
8. Strategic decisions
Has management made decisions that will give the film flexibilty in the future which includes simple decision like issuing equites when stock price is high , buy back stocks when price is low. (Unknown)
Rating (Company's management) : 4/5
Although the board are stacked with Management's family members which may not be a good thing but the management has proved their competence in the recent years by earning astronomical profits and making good strategic decisions. Futhermore, one of the most important criteria in analysising a management is to look for solid managements that stick with their company for the long time and they have fulfilled the criteria.
Some background informaton of Tat Hong
The group is principally involved in the rental and sale of cranes and the sale of spare parts for cranes. Apart from cranes, the group is also involved in the rental and sale of other ancillary heavy equipment such as excavators, bulldozers, earth-moving equipment, foundation equipment, piling rigs and generators.
I will first analyze the company's management. It is not really an easy task attempting to analyze a company management but the following pointers can be used as a rough guideline .
1. Does a majoritiy of the board of directiors comprimised of indepent members
The board comprises of ten members, consisting of 5 executive directors, one non-executive non- independent director and four non-executive directors who are also independent from management. (Passed)
2. Is the Chariman of the board also the CEO or a former CEO of the firm
No. (Passed)
3. Are the boards earning an excessive amount of remuneration
No. The boards are paid at a decent amount despite the company having a good performance for the year (Passed)
4. Is the Board of Directors Stacked with Management's Family Members
Yes. All 3 directors are brothers of the MD.. This is hardly a good thing because if they are closely related to the top management, they may not be as hard-nosed when questioning the management's action as it could be. (Failed)
5. Do executives have substantial holders of the company stock
Yes. Mr Ng San Thiong and his brothers are holding a total of 11% of the company stock and CHWEE CHENG & SONGS PTE, which they are related to, holds 42% of the company. (Passed)
6. Length of tenure
It is always preferable to look for solid stable management that stick with their companies for long term and Most of the board members have been with Tat Hong for a relatively long time (10 years odd). (Passed)
7. Performance
They have increasing ROE and ROAs over the years which is not driven by excessive leverage. The company outstanding shares have not been increased substantially which is a positive thing because a agressive approach to issuance of equity will dillute your stake.. (Passed)
8. Strategic decisions
Has management made decisions that will give the film flexibilty in the future which includes simple decision like issuing equites when stock price is high , buy back stocks when price is low. (Unknown)
Rating (Company's management) : 4/5
Although the board are stacked with Management's family members which may not be a good thing but the management has proved their competence in the recent years by earning astronomical profits and making good strategic decisions. Futhermore, one of the most important criteria in analysising a management is to look for solid managements that stick with their company for the long time and they have fulfilled the criteria.
Friday, October 12, 2007
Market thoughts
It's boring and unchallenging at work today where I am tasked to do testing on an application and its so repetitive that I almost dozed off ! In order to get it done fast, I forgoe lunch but well, my efforts are futile as I have yet to complete my work at the end of the day.. So to distract myself from the boring work, I was thinking of ways to optimise my investing strategy and was wondering if it's possible to incoporate methods from 2 lengends, George Soros and Warren Buffett... Theortically speaking, it is not possible as their investing beliefs are poles apart but in today's world of uncertainty, trading on a fundamental approach may be the prefered choice..
They do share some similar beliefs like :
1: Never Overdiversify
2: Taking a contraian approach
3: Risk is just a matter of perception....
George Soros is famously known as the man who broke the bank of england where he earned nearly a billion from that trade.. Even though most forex traders knows the pound currency is depreciating at that time but no one is as confident as Soros to place such an astronomical amount on it. Simiarly, during the great depression, a stock named Wall forgo(Spelling?) worth much less than it's intrinsic value and this is no secret but yet no one is confident to invest in it.. So conclusion, don't let the market affect your judgement and just do whatever you deem correct as long as you are comfortable...
So a question, is trend your friend or foe? Is there any possibility to perceive it differently accordingly to situations? As far as I believe, I still think fundamental analysis is a better way to screen stocks so trend might not be my friend but that is only applicable if a in depth analysis is done on the company. That is because, they are so many ways to beautify their financal statments nowadays and it is relatively easy to conceal the actual numbers and you might be kept in the hide of their actual profitability.
Currently, I have 90% of my funds invested in the stock market and the remaining 10% served as an opportunity fund where they are invested in a money management fund. BasicallyI just want to minimise the 10% from inflation risk (we have been warned that we will be seeing an increasing of inflation in the upcoming years) . I may still lose out from the inflation but I will be compensated from some intangible benefits like the chance of investing in companies when an good opportunity arises.
Well, that's all for today as there are not much time remaining for the night . It's only 2 hours away from my sleep time and there is barely sufficient time for me to revise for my CFA exam...
Melynn
They do share some similar beliefs like :
1: Never Overdiversify
2: Taking a contraian approach
3: Risk is just a matter of perception....
George Soros is famously known as the man who broke the bank of england where he earned nearly a billion from that trade.. Even though most forex traders knows the pound currency is depreciating at that time but no one is as confident as Soros to place such an astronomical amount on it. Simiarly, during the great depression, a stock named Wall forgo(Spelling?) worth much less than it's intrinsic value and this is no secret but yet no one is confident to invest in it.. So conclusion, don't let the market affect your judgement and just do whatever you deem correct as long as you are comfortable...
So a question, is trend your friend or foe? Is there any possibility to perceive it differently accordingly to situations? As far as I believe, I still think fundamental analysis is a better way to screen stocks so trend might not be my friend but that is only applicable if a in depth analysis is done on the company. That is because, they are so many ways to beautify their financal statments nowadays and it is relatively easy to conceal the actual numbers and you might be kept in the hide of their actual profitability.
Currently, I have 90% of my funds invested in the stock market and the remaining 10% served as an opportunity fund where they are invested in a money management fund. BasicallyI just want to minimise the 10% from inflation risk (we have been warned that we will be seeing an increasing of inflation in the upcoming years) . I may still lose out from the inflation but I will be compensated from some intangible benefits like the chance of investing in companies when an good opportunity arises.
Well, that's all for today as there are not much time remaining for the night . It's only 2 hours away from my sleep time and there is barely sufficient time for me to revise for my CFA exam...
Melynn
Thursday, October 11, 2007
STI Soar to a record high again
STI soar to a record high again at 3800 and I have a hunch that it will hit 4000 at the end of the month. From what I have observed, the stocks which are surging upwards with strong buying demand are mainly blue chips so I was wondering if there's a possiblity people are funding it by selling growth stocks. Well, actually I guess daily trading activity is not as important as it seem to be and predicting it may even impair my own judgement but I just can't resist the tempation of viewing my portfolio performance every half an hr because it is just a click away!!!.. HA, I should have work at a place with no internet access (just joking ) ...
As what I have mentioned in my previous post, my portfolio consist of mainly growth stocks where they mainly move together with the economy.. The sectors which I'm currently vested are retail, construction, internet, beverage and water treatment. If I do follow strictly with Buffett's methodology to purchase only stocks with a economic moat (close to a monopoly of business), I guess I would not be holding any of the stocks except maybe for 1. I broke the rules mainly because I forsee them benefiting in the future from global demand and econmic growth but still, I only purchase them when they fulfill the following criterias :
1: Healthy financial Records (3 years Financial statment, balance sheet, Cash Flow)
2: Competent Management (Some indicators like ROE, ROA, Remuneration, Board indepedence)
3: Not purchasing them at an inflated price (Important)
It is extremly difficult deriving the company's intrinsic value using discount cash flow method. Firstly, I have to predict the company's inflow of cash flow for 10 years which is literally impossible because future is uncertain... The best I can attempt is to give a fair estimate to future cash flows to derive the present value of future cash flow but the accuracy depends how aggressive/conservative you define the discount rate.. After obtaining the price from the formulae , I will further discount it at a rate depending on the company growth and that will be my entry price.. Normally, you will get an entry price that is much lower than the current price so patience plays a key factor but having said tat, this isn't any magic number and need not be followed rigidly....
To be continued!..
Melynn
As what I have mentioned in my previous post, my portfolio consist of mainly growth stocks where they mainly move together with the economy.. The sectors which I'm currently vested are retail, construction, internet, beverage and water treatment. If I do follow strictly with Buffett's methodology to purchase only stocks with a economic moat (close to a monopoly of business), I guess I would not be holding any of the stocks except maybe for 1. I broke the rules mainly because I forsee them benefiting in the future from global demand and econmic growth but still, I only purchase them when they fulfill the following criterias :
1: Healthy financial Records (3 years Financial statment, balance sheet, Cash Flow)
2: Competent Management (Some indicators like ROE, ROA, Remuneration, Board indepedence)
3: Not purchasing them at an inflated price (Important)
It is extremly difficult deriving the company's intrinsic value using discount cash flow method. Firstly, I have to predict the company's inflow of cash flow for 10 years which is literally impossible because future is uncertain... The best I can attempt is to give a fair estimate to future cash flows to derive the present value of future cash flow but the accuracy depends how aggressive/conservative you define the discount rate.. After obtaining the price from the formulae , I will further discount it at a rate depending on the company growth and that will be my entry price.. Normally, you will get an entry price that is much lower than the current price so patience plays a key factor but having said tat, this isn't any magic number and need not be followed rigidly....
To be continued!..
Melynn
Wednesday, October 10, 2007
Cherish every second of your life
A couple of days back, a superior of mine got a mild heart attack and a bypass operation was needed because some of his artery was clogged. I visited him at the hospital today and realise that this was actually his first attack . What surpised me is that prior to the atack, he's leading a fairly healthy lifestlye and excerising frequently and the main cause for his attack was his dna, which is hereditary. From this small conversation, I have realised the element of uncertainty in life and also the importance of cherishing everything and not taking them for granted.... Haha, I'm aware all this sounds cliche but well, this can serve as a form of self-reflection in the future when I am unappreciative of things in life
Going back to investing, the STI plunges 50 odd points to 3850+ today... I'm trying to take a bullish and a bearish view on the market currently and below are some of my thoughts :
Bullish thinking
1. More inflow of new funds coming into our market particularly from China...
2. Singapore econmy is growing at a fast pace and with the operation of IR in 2010, more jobs will be created.
Bearish thinking
1 Economy in US is slowing down due to sub prime issues and I read from articles stating that we are not even halfway thru the problem so another bad news may trigger a massive selldown in the global market.
The stocks that I'm holding now are mainly companies which will benefit in the economy expansion period and though I'm confident that they will survive in the event of a recesssion, they may still suffer huge losses . This may result in a deep plunge of stock price due to lack of confidence from investors and I will be in a dilema whether to buy more or to unload them first.
To be continued!!
Melynn
Going back to investing, the STI plunges 50 odd points to 3850+ today... I'm trying to take a bullish and a bearish view on the market currently and below are some of my thoughts :
Bullish thinking
1. More inflow of new funds coming into our market particularly from China...
2. Singapore econmy is growing at a fast pace and with the operation of IR in 2010, more jobs will be created.
Bearish thinking
1 Economy in US is slowing down due to sub prime issues and I read from articles stating that we are not even halfway thru the problem so another bad news may trigger a massive selldown in the global market.
The stocks that I'm holding now are mainly companies which will benefit in the economy expansion period and though I'm confident that they will survive in the event of a recesssion, they may still suffer huge losses . This may result in a deep plunge of stock price due to lack of confidence from investors and I will be in a dilema whether to buy more or to unload them first.
To be continued!!
Melynn
Tuesday, October 9, 2007
I'm back !!
It's been some time since I last blogged but anyway I don't think I have any ardent fans keeping track on my blog.. Well, the reason why I stopped blogging recently is because I realised I have a mental block whenever I need to write.. Possibly, its caused by my lack of practice and its been like 2 years since I wrote a full length report or eassy. I have decided to give my 100% to overcome this fear because writting may be essential for my dream job ...
My dream job is to be an analyst which requires good writting and analytical skills and I forsee myself in a disadvantage position compare to others if I made no attempts in improving this area. Well, today is not a hectic day at work probably because I'm still relatively new (near 2 months) . I do admit of skiving quite a lot and this is something I am feeling guilty of . Putting myself in the shoes of the employer, I would not want an inefficent staff hence I always give my best shot at work irregardless of the incentives because job satisfaction and the possiblilty is my priority.
I am starting to feel the heat from my upcoming CFA Exam.. Gosh, there are just too many sections to study and though, I have already finished reading through all the chapters but somehow, I just feel that I have yet to attain the "level" that will see me through the exam... 54 days and counting, hopefully I do not need to retake the level 1 exam which will just delay in my plans of making a career switch....
Some random thoughts just struck me today which is the possiblity of trading forex to optimise a portfolio. Well, I need to spend more time to understand the mechanism of forex and trading in demo account which will probably take me a year or so before trading it with real money.
From today onwards, I will try to pen down my thoughts here so that at least there's something for me to reminisice in the future :)..
Melynn
My dream job is to be an analyst which requires good writting and analytical skills and I forsee myself in a disadvantage position compare to others if I made no attempts in improving this area. Well, today is not a hectic day at work probably because I'm still relatively new (near 2 months) . I do admit of skiving quite a lot and this is something I am feeling guilty of . Putting myself in the shoes of the employer, I would not want an inefficent staff hence I always give my best shot at work irregardless of the incentives because job satisfaction and the possiblilty is my priority.
I am starting to feel the heat from my upcoming CFA Exam.. Gosh, there are just too many sections to study and though, I have already finished reading through all the chapters but somehow, I just feel that I have yet to attain the "level" that will see me through the exam... 54 days and counting, hopefully I do not need to retake the level 1 exam which will just delay in my plans of making a career switch....
Some random thoughts just struck me today which is the possiblity of trading forex to optimise a portfolio. Well, I need to spend more time to understand the mechanism of forex and trading in demo account which will probably take me a year or so before trading it with real money.
From today onwards, I will try to pen down my thoughts here so that at least there's something for me to reminisice in the future :)..
Melynn
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