SYWBS Part 4: Putting it all together

I guess this is a good time to illustrate in a bit more details the stuff that we have been talking on the "So you wanna buy shares" series. It was also opportune that we had a great piece of news of Norges' additional investment into the small and mid cap companies on Bursa Malaysia.

Lets recap.

1. Know yourself and what you want to do

The first thing we want to do before we invest is to get our objectives clear. In order to do that we would need to know our investment horizon: long term or short term. This horizon is not dictated by our preference, really, but rather our constraints in terms of capital, the need for cash (liquidity) and our time to monitor the market.

In this 'simulation' I would assume that the investor (Lets' give our hypothetical investor a name: Adam) does not have the time to monitor the shares hourly. At best daily at the end of the day or weekly. He has a day job that occupies his time. He has some money that he sets aside each month from the paycheck for investment purpose, so he does not need regular cash from his investments. Based on that, the investment horizon would be a mid to long term and by that I would mean he would not need to touch his investment money for at least 12 months.

2. Know what you got to do (strategy)

As Adam does not have the time to punt the market, he would need an alternative investing strategy and that would be building a portfolio. In our previous article, we touched on a top down strategy as one of the thought process that we could apply in trying to narrow down our investment focus.

The strategy may be different if Adam has the time to say monitor the market on full time basis. For the time being, let's stick to the top down approach.

3. Do what you got to do

The first thing that Adam would need to do is decide which market would he want to invest in, i.e. the top of the top. Assuming that Adam is only investing in Malaysia, that would mean he has to select which market sector to invest in. Well, the choice is not as easy as it seems. There is activity-based sector (utilities, O&G,  Banking) and there is cross-activity size-based sector (Large Cap, Mid Cap, Small Cap, Fledgling). So where does he start?

Well, there is where the economic outlooks and reports that appear in the newspapers come in handy. And more tellingly, we have indices to help Adam decipher the health and wealth of a particular sector. Bursa Malaysia, via its index series has the following sectors indexed:

• FTSE Bursa Malaysia KLCI - 30 largest companies in FTSE Bursa Malaysia EMAS Index (FBMEMAS) by full market capitalisation.
• FTSE Bursa Malaysia Mid 70 Index - next 70 companies in FBMEMAS.
• FTSE Bursa Malaysia Top 100 Index - sum of constituents in the above two indices.
• FTSE Bursa Malaysia Hijrah Shariah Index - 30 largest Shariah-compliant companies in
• FBMEMAS screened by Yasaar Ltd and the Securities Commission's Shariah Advisory Council
• FTSE Bursa Malaysia Asian Palm Oil Plantation Index (USD and MYR) - companies earning substantial proportion of revenue from palm oil activities in the Asia Pacific Region.
• The FTSE Bursa Malaysia EMAS Index - constituents of the FTSE Bursa Malaysia Top 100 Index and FTSE Bursa Malaysia Small Cap Index.
• FTSE Bursa Malaysia EMAS Industry Indices - 10 Industries, 19 Supersectors and 39 Sectors.
• FTSE Bursa Malaysia Small Cap Index - top 98% of the Bursa Malaysia Main Market excluding FTSE Bursa Malaysia Top 100 Index constituents.
• FTSE Bursa Malaysia EMAS Shariah Index - Shariah-compliant constituents of the FBMEMAS that meet the screening requirements of the SAC.
• FTSE Bursa Malaysia ACE Index - all eligible companies listed on the ACE Market.
• FTSE Bursa Malaysia Palm Oil Plantation Index - based on FBMEMAS and comprising companies earning a substantial proportion of revenue from palm oil activities.

Now Adam has to bear in mind that these indices would differ from one index provider to another and be mindful to read the fact sheet.

Broad based

Lets assume that Adam was interested with the news that Norges is investing more in Mid and Small cap companies in Bursa Malaysia. He would therefore would like to know more about the companies within this categories that would be on the radar of Norges. But since there are hundreds of companies out there, how could Adam narrow down the list further? His monthly investment coffer cannot buy them all.

But could he? Technically, he can. He can buy the exposure into the sector by investing in a collective investment scheme that invest in the same sector and share the same objective (of course after reading the prospectus). He can look up the unit trust funds that invest in small and and mid cap companies and invest there. There are plenty of unit trust agents who could advise him over a cup of coffee and an EPF form in hand :-).

But if that is not his cup of tea, he could also try investing in a close-end fund. Which is also a collective investment scheme but is close-end (as opposed to the open-end unit trust schemes) and is listed and traded on Bursa Malaysia. We have only one example on Bursa Malaysia and that would be icapital.biz Berhad. Based on its annual report, the investment strategy are : "Your Fund invests in undervalued companies which are listed on the Main Market of Bursa Malaysia Securities Berhad (Bursa Securities) and the ACE Market of Bursa Securities". Well, that investment 'universe' is a bit too wide for Adam's Small and Mid cap strategy hence no can do...sigh.

He can try investing in an exchange traded fund ("ETF"), a passive collective investment scheme that tracks an index. An ETF that tracks the (say) FTSE BM Mid 70 index and FTSE BM Small Cap Index would fit in nicely in this strategy. Investing in ETF, would relieve Adam of the headache of punting in the sector.Let's have a look at the ETF's that are available in Bursa Malaysia:

List of ETFs

Equity ETF

• FBMKLCI-ETF (0820EA)
• CIMB FTSE ASEAN 40 MALAYSIA (0822EA)
• CIMB FTSE Xinhua China 25 (0823EA)

Equity ETF (Shariah Compliant)

• MyETF-DJIM25 (0821EA)
• MyETF MSCI Malaysia Islamic Dividend (0824EA)

Fixed Income ETF

• ABFMY1 (0800EA) 

Hmm... no ETF on Small and Mid Cap indices... so ETF is also out of the question on this strategy. It looked like all the broad based options are not really there, so Adam have no choice but to try to look at the individual stocks and building his own portfolio.

Narrowing it down

In order to narrow it down, Adam would need to have to know the relevant stocks that would be on the radar of the fund manager and other investors. Where could he find the clues?

The first clue would be from the index constituents. If Adam were to look at the FTSE website, he would stumble upon (I choose this phrase for a reason) the fact sheet and reports on the indices we mentioned earlier. Unfortunately the index provider does not release the list of all the index constituents unless you pay them a lot of money. FTSE however did give out this information to the public in the June 2013 report on the indices (all information here are sourced from the FTSE website). 

FMB 70 index had 70 companies listed in it. The top ten (by weight) is as follows:

• Gamuda
• IJM
• Dialog Group
• Malaysia Airports
• Alliance Financial Group
• AirAsia
• Bumi Armada
• IOI Properties Group
• Lafarge Malaysia
• YTL Power International

FMB Small companies index has 167 companies in it. The top ten is as follows:

• Star Publications Malaysia
• KNM Group
• MPHB Capital
• TA Enterprise
• Cb Industrial
• Muhibbah Engine
• Sumatec Resources
• Perdana Petroleum
• Scomi Energy Services
• Kian Joo Can Factory

If you would want to have a look at the report (which contains the best and worse performing of the sectors), please drop your email address in the comment box and I will try to email the pdf copy of the report to you soon.

The second source of clues are from the research reports and recommendations of research houses. For example, the following which appeared in the Star Newspaper recently where it delivered a report by UOBKayHian which said:

“We advocate being selective, picking beneficiaries of compelling investment themes or with specific event catalysts. These include Deleum, Barakah Offshore and Malaysian Resources Corp Bhd (MRCB),”

In order to narrow it down further, Adam should perform the fundamental analysis (and technical too) on these companies before buying the shares.  A topic for next time.

Well, that is all for today folks. Till next time :-)

Why Being Financially-wise is Wise (Guest posting by Vincent)

 Why Being Financially-wise is Wise

Do you know the important pointers and possible risks if you’re investing for the first time? Do you even know what an income statement is? How about a balance sheet? Many people are not really financially literate. Financial knowledge is a necessary skill and can help you achieve financial security.

Lack of financial knowledge can possibly lead to bad financial decisions and you may end up paying for the reperscussions for many, many years. To avoid this, you have to equip yourself with the right financial skills and tools.

It’s not just about buying discounted goods or saving for a rainy day. It’s also knowing exactly what happens to your money.

Financial knowledge is not always taught in school. Professionals like doctors, engineers, attorneys and even teachers can be very good in their chosen fields but turn helpless when it’s finally time for them to check their bank statements.

Gaining financial knowledge is an investment. It is the first step in controlling your money, your finances and your future. Here are some basic tips on how you can become financially-wise:

Learn How to Properly Manage Your Money

It is easy to be overwhelmed by financial issues if you have absolutely no idea what these are about. But knowing why debt happens and how you can escape it, why you must start saving and why knowing the right investments to take or getting the right insurance, is crucial. 

Learning proper money management is hugely important. But you have to give it the time and attention it needs. You don’t just say that you’ll think about it when it becomes more important—like when you suddenly lose your job and you realize you don’t know the first thing to do about your finances. Start now, and start right away. Because money and money management is relevant. That is never going to change.  

Joseph Montanaro, certified financial planner at United Services Automobile Association (USAA), suggested: “manage your budget in a spreadsheet or software package, it’s critical that you keep it front and centre,” You can always create a system for paying bills that will keep your expenses on target and help you meet your financial goals.

Talk to a Financial Consultant

Financial knowledge is a concern for everyone and the solution lies in getting the right information. You don’t really have to know everything but at least exert an effort to “speak the language.”

Start with simple ways through which you can help improve your financial knowledge. For example, go over your bank statement again. Read all the details and exert an effort to know the important technical terms in that statement. Don’t limit yourself only to details that you only know. It’s best to be aware of what’s behind those digits. Ask help from those who know best. Consult professionals in the field.

Get the Right Training—and Spread It

Financial knowledge helps you adapt to changing business situations. So, if you own a business, it’s even more important that you know how to handle money—yours and the companys’. But it’s not just your problem. A company is made up of people and sometimes, being with other like-minded people can go a long way in improving your financial understanding.

For example, if you work in a family business, giving your employees the right financial training allow for growth. You never know when the next brilliant financial insight may come from your nephew or someone in your family. Financial training gives you and your family the right tools to take that business to the next level.   

Know that It Pays to Pay Extra

The minimum payment on your credit card is determined by taking a percentage of your balance and charging you that percentage each month. Since this amount is a very small percentage of your balance, it will take a long time for you to settle your bill if you keep paying the minimum. But if you know enough to pay more than the minimum so you can cut down on the interest, then you will have saved yourself money in the process.

Help yourself make informed financial decisions. If you keep that skill, then you’ll always stay on top of your game.

About the Author:

The article is prepared by Compare Hero for My Musings Malaysia. Compare Hero is Malaysia’s leading financial comparison website. Compare a broad range of financial products, from credit cards to broadband plans, with the primary vision of making Malaysians be equipped with financial knowledge to make better financial decisions.

GST, the economist and the economic sense

The Star reported that some economist are in favor of the GST and that it should be implemented quickly.

Well, indeed GST is an revenue source which is more equitable, IF and only IF
1. You reduce the income tax accordingly and
2. You apply the right subsidy assistance to the right group of people.

But Malaysia does not a have a problem in collecting money - it is rich. The problem is handling money.

There is absolutely no use of generating more revenue for the government's coffers when we do not address the inefficiency and leakages completely. If we do not address these holes before we open the GST tap, we will find ourself back in deficit, back in the same problem - very fast.

And what happens then? Raise the income tax back to pre-GST level? Remove more subsidies?

The problem is not the money people, it is the use (or rather misuse) of it.

Below is the excerpt from the Star Newspaper

Economists urge Govt to implement goods and services tax

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KUALA LUMPUR: The sooner the better. That’s how economists feel about the goods and services tax (GST), whose unveiling is widely anticipated in Budget 2014.
Kenanga Research economist Wan Suhaimi Saidie said a comparative study on the broad-based tax in Australia, Singapore and Thailand showed a positive wealth effect, with the three countries experiencing three- and even four-fold increases in gross domestic product (GDP) per capita post-GST.
“It’s basic economic theory. As the system becomes more efficient across the supply chain, wages, prices and wealth can be distributed more evenly,” he said at a briefing yesterday.
Wan Suhaimi cited Singapore as having the best model for the GST implementation, which saw the city-state substantially reducing corporate and income tax, tripling per capita income and attracting large investments and human capital.
Kenanga Research is expecting an initial GST rate of between 4% and 7%, with 5% being the most likely.
The consumption-based tax, on which basic necessities would be exempted, could be introduced next July at the earliest or January 2015, the local research outfit said.
But Wan Suhaimi suggested that a quick implementation was crucial if the Government intended to stick to its deficit reduction target of 3% by 2015.
Rating agencies, which have been keeping close tabs on Malaysia’s debt situation and dwindling current account surplus, are also in favour of the Government cleaning up its fiscal house, rather than being fixated on growth, which should come naturally with the recovery in external demand, Wan Suhaimi said.
Kenanga Research said a January 2015 timeline for the GST would result in an end-2015 deficit of 3.5%, off the Government’s target by 0.5%.
If the tax took effect next July, however, then the fiscal deficit is likely to be pared down to 3.1% by the end of 2015, its numbers show.
The GST introduction might even lead to a rally on the local bourse, if the stock markets of Australia, Singapore and Thailand were any indication, Kenanga head of research Chan Ken Yew said.
Their benchmark indices soared shortly before the tax came into effect, as consumers hoarded goods and services to avoid paying higher prices, giving markets a short-lived sugar rush.
On his outlook for the market, Chan said he was adopting a “cautiously optimistic” approach, advising clients to buy on weakness – especially if the FTSE Bursa Malaysia KL Composite Index plunges below 1,745 points – and be selective in their stock picks.
And despite the impending pullback of the US Federal Reserve’s easy money policies, which fear-mongers said would drive an unprecedented exit of foreign capital from emerging markets, Chan is taking a contrarian view.
“Foreign investors are returning to Bursa Malaysia. They turned net buyers again recently,” Chan said, noting that the still near-zero interest rates in most Western countries were a boon to monetary expansion.

Give me efficiency before you take my subsidy

There are more news of subsidies being taken away from the people of Malaysia from the Government of Malaysia.

Praise to Allah, he has lifted me from being one of those who need the subsidy BUT there are plenty of others that do need the subsidy - the poor, the orphans and the needy. But my argument is not about the subsidy being 'slashed', but rather what do you do with the savings.

As long as the government is in deficit, the law of basic mathematics says that the savings from the subsidy will be spent by the Government. They will use it for other purposes.

These 'other purposes' must yield better return and benefits (both socially and economically) to the country compared to the benefits of the subsidy. If the returns and benefits are higher, then as a country, we make progress - we created value (in which case I support subsidy reduction with a MORE SIGNIFICANTLY IMPROVED JABATAN KEBAJIKAN MASYARAKAT).

But if the return from these 'other purposes' is lower, then the Government has destroyed value.

The AG report recently shows that these 'other purposes' could fall to become leakages - wastage. If that happens, than all the savings from the subsidy will be drained away.  I am not saying that this will definitely happen, but there is a possibility of it happening. Based from The AG's report, the 'happening' could be in billions of ringgit.

My say is DO NOT talk about taking away the basic subsidies until you have proven to be efficient to handle the money that you already have. Stop the leakages, stop the corruption. 

Here is the report from the STAR Newspaper (and the photo belongs to STAR too)

 

AYER HITAM: Consumers must be prepared for a possible hike in sugar and flour prices if the Government decides to further reduce subsidies for the two essentials.
Domestic Trade, Co-operatives and Consumerism Minister Datuk Hasan Malek said: “If certain decisions could help to strengthen the economy, we will have to do it although it may not be well received.
“We will have various possibilities, and decisions will be made based on our studies.”
Hasan said the Government’s priority was to enhance the economic growth and development of the country, as well as to take care of the people’s welfare.
Hasan said the details would be announced by Prime Minister Datuk Seri Najib Tun Razak during Budget 2014 on Oct 25.
“Letting the people understand the reasons behind the slashing of subsidy is important,” Hasan said after opening a new Kedai Rakyat 1Malaysia (KR1M) located at Bandar Baru Ayer Hitam here yesterday.
He said this year, the Government would set up 40 more KR1M (Kedai Rakyat 1 Malaysia) outlets nationwide, especially in Sabah and Sarawak.
He said in Johor alone, 12 KR1M outlets had been set up.
“An additional four more are being planned for Segamat, Batu Pahat, Bakri and Sri Gading, ” added Hasan.