Financial Planning

There are some good news among all the bad. If you are a long term investor this is good news but if you are a short term speculator, you will still need to try to catch the short term up and down fluctuations in the share market. This piece of news is from Reuters.

Wednesday August 20, 2:38 am ET
By Kevin Plumberg HONG KONG (Reuters) - Most Asian stock markets edged higher on Wednesday, rebounding from a two-year low as Chinese shares surged on hopes for policies from Beijing to jumpstart growth, though many analysts said it was a long shot.

The dollar struggled as crude oil crept above $115 a barrel and gold prices edged higher, taking some of the steam out of the U.S. currency’s recent surge to a seven-month high.

World stock markets slid to the lowest since September 2006 on Tuesday, with investors increasingly skeptical about earnings expectations for 2009 given the mixed results so far in 2008 and constant reminders about instability in the financial sector.

However, most Asian indexes turned higher as cheap valuations proved irresistible, especially with markets rife with chatter about fiscal stimulus in China.

“Bargain hunters have returned to the market on talks that a rescue package is on the way,” said Francis Lun, general manager from Fulbright Securities in Hong Kong. “We are all waiting for a miracle,” Lun added.

Hong Kong’s Hang Seng index (HKSE:^HSI - News) rose 1.9 percent, after closing at a one-year low on Tuesday, with shares of China Mobile (HKSE:0941.HK - News) providing the biggest boost.

Shares of Asia’s largest wireless carrier, up 2 percent, hit a one-year low before the rally swept through the region.

The Shanghai composite index (^SSEC - News) surged 6 percent after touching a 20-month low. The index is watched by many global investors as a gauge of risk taking and a leading indicator for the world’s fastest growing economy.

Monday August 11, 2008 MYT 3:36:25 PM

KUALA LUMPUR: Public Mutual will launch two new Islamic funds, Public Islamic Select Enterprises Fund (PISEF) and Public Islamic Income Fund (PI Income), on Thursday.

The mutual fund said on Monday PISEF was targeting investors seeking long-term growth potential of Syariah-compliant bellweather companies in the domestic market.

It said PI Income was for investors seeking a steady stream of annual income. Both funds are open for EPF members investment scheme.

Public Mutual chairman Tan Sri Dr Teh Hong Piow said PISEF was an aggressive Islamic equity fund that seeks to achieve capital growth through investment in the largest 50 companies.

These 50 companies would be measured in terms of market capitalisation - at the point of purchase - which complied with Syariah requirements.

“These bellweather companies are usually considered relatively resilient as they have established track records, resilient growth prospects due to their size and entrenched market shares, and financial resources to withstand challenging economic conditions,” he added.

As for PI Income, the Islamic fixed income fund seeks to provide annual income over the medium to long term by investing in sukuk and Islamic money market instruments.

“PI Income allows access to the growing sukuk market which is generally only accessible to insititutional investors. Sukuk and Islamic money market instruments offer a steady stream of income to investors with profit distributed annually,” Teh said.

Public Mutual said the initial offer price of PISEF and PI Income would be 25 sen per unit and RM1 respectively during the 21-day initial offer period from this Thursday to Sept 3.

The minimum initial investment for both funds is RM1,000 and the minimum additional investment is RM100.

Below are comments by some economist and business writers. One is just non-committal whereas the other says that likely there will be a sharp fall. What ever it is I just wish that the world would be greener, people will be less dependent on oil and use more green energy, even leg power. However the most important is that economies of the world would recover so that people all around the world will not suffer from the effects of a recession. The world would be a better place to live.

“On a happier note, there is hope that the decline in oil prices has just begun. While Schork says it’s anyone’s guess where crude will trade - “By the end of the third quarter, there’s a good chance oil could be below $100 a barrel, and a good chance it could be above $150,” he says - others see a chance that the commodity, having enjoyed a head-spinning runup, could also drop more than anyone expects. Economist Jim Griffin notes at the ING Investment Weekly that crude’s rally earlier this year became “nearly parabolic” - a sign that the decline could be steep.”

Take the cue from Zeti. Inflation is here to stay, 6% and more. Atleast until second half of 2009. So with the low fixed deposit rates it would logically mean the more you save the more you lose. But of course you can look at alternative investments such as unit trust funds, blue chip shares and properties. However for any money put into these alternative investments, a long term view of atleast 3-5 years must be adopted. With this in mind, these alternative investments will serve you well and have historically given returns of 10% p.a. and above. Below is an extract of the article as reported by the Star.

KUALA LUMPUR: Bank Negara Malaysia expects the consumer price inflation to exceed 6% in June, following the adjustment in petrol prices by 40.6% and diesel prices by 63.3%, says Governor Tan Sri Dr Zeti Akhtar Aziz.
“While domestic inflation is expected to remain elevated for the remaining part of this year and early next year, it is expected to moderate in the second half of 2009,” she said Wednesday.
She said the inflationary pressure was also from increase in electricity tariffs on July 1, with tariffs by up to 18% for households and an average of 26% for some commercial and industry users.

I found this interesting article by Harry Domash which I like to share with you. Harry did a very good study on Peter Lynch investment style.

The white-haired guru, now retired, made his mark by pursuing fast-growing companies that trade out of the limelight. This screen lets you emulate his legendary strategy.

By Harry Domash

When talk turns to market gurus, Peter Lynchs name usually pops up, and for good reason. His Fidelity Magellan fund (FMAGX) returned 29% on average, annually, during Lynchs 13 years at the helm.

Lynchs stock-picking success didnt rely on secret formulas or magic indicators. He didnt buy stocks simply because they fit his mathematical criteria. Instead, he considered passing stocks as grist for further research.

Once he identified a candidate, Lynch diligently learned as much as possible about its business, industry and future prospects. Lynch avoided hot, fast-growth industries, preferring instead to find an overlooked stock in a humdrum sector. Much like Warren Buffett, Lynch avoided industries that he didnt understand.

Lynch revealed his stock-picking strategies in his book, One Up on Wall Street, published in 1989, shortly before he retired. That book became an instant best seller and is still in print. In 1993, Lynch followed up with a second book, Beating the Street.

If youre going to read just one to glean his best ideas, choose One Up on Wall Street, because its stuffed with the specific rules that Lynch employed to qualify prospective stock candidates. “Beating the Street” is more anecdotal, discussing stocks that Lynch bought or should have bought. The only exception is the chapter on stocks in the savings and loan sector, one that Lynch didnt cover in his first book. There he gives specific guidelines for analyzing S&Ls, which these days, have morphed into regional banks.

Lynch loves aggressive companies, big baggers
In his books, Lynch divides stocks into six different categories including turnaround plays, cyclical stocks and asset plays. But he makes it clear that his favorite is a category he calls the fast growers. These are small, aggressive enterprises that grow (earnings) 20% to 25% a year.

Lynchs definition of fast growth is at the low end of the 20% to 40% numbers that you hear from most growth-stock mavens these days.

Nevertheless, Lynch says that “if you choose wisely, this is the land of 10- to 40-baggers and even the 200-baggers. If you havent heard the expression before, a 10-bagger is a stock that increases 10 times in value.

Out of the limelight and no red flags
Heres a link to a screen I used to find stocks that Peter Lynch might like, based on my interpretation of his fast-grower strategy. It looks for consistently profitable, out-of-the-limelight, low-debt, reasonably priced stocks meeting his earnings growth requirements. The screen also checks for an inventory red flag that Lynch relied on to avoid risky bets.

Since Lynch felt that earnings growth was a primary driver of stock prices, Ill start there.

Fast . . . but not too fast. Although Lynch favors companies with a track record of fast earnings growth, he thinks that you can have too much of a good thing.

Lynch’s view: stocks growing earnings faster than 30% annually are risky bets. For starters, those high growth rates aren’t sustainable, and worse, such companies attract hordes of competitors wanting to get in on the action.

Companies showing historical average annual earnings growth in the 20% to 25% range are the best bets, and anything above 30% is verboten, under the Lynch strategy.

I set my minimum allowable five-year average annual earnings growth at 20% and the maximum at 30%. I used 30% instead of 25% to increase the number of stocks turned up by the screen. Reduce the maximum to 25% if you want to stick to Lynchs ideal earnings growth range.