Financial Planning

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.

What is natural gas?
Natural gas is a mixture of hydrocarbons found in the ground independently or together with crude oil. Its composition varies (depending on where it is found), but its main component is “Methane”(CH4}. The rest of the gas is made up of varying amounts of other gases like ethane, propane, butane, and heavier hydrocarbons, plus Carbon Dioxide, Nitrogen, water and traces of other substances. Natural gas is a by-product of decaying vegetable matter in underground strata. Natural gas is the cleanest burning fossil fuel; it can help improve the quality of air and water,especially when used in highly polluted places.

Malaysia is blessed with abundant natural gas reserves. At 82.5 trillion cubic feet, these reserves are two times the amount of oil, thus there is opportunity to promote and diversify the use of the natural gas not just as a power source in the industrial and utilities sector; but also as an alternative fuel for vehicles. PETRONAS, through its wholly, owned subsidiary, PETRONAS NGV Sdn Bhd , have been making NGV available to Malaysian motorists through its expanding chain of NGV outlets in the Klang Valley and other major urban areas in the country.

FAQ’s at bottom of this page. For more info on NGV visit: IANGV or Green Car Congress

FAQ’s at bottom of this page

FAQ’s at bottom of this page

Green fuel - Commonly referred to as the green fuel because of its lead and sulphur free character, CNG reduces harmful emissions. Being non-corrosive, it enhances the longevity of spark plugs. Due to the absence of any lead or benzene content in CNG, the lead fouling of spark plugs, and lead or benzene pollution are eliminated.

Increased life of oils - Another practical advantage observed is the increased life of lubricating oils, as CNG does not contaminate and dilute the crankcase oil.

Mixes evenly in air - Being a gaseous fuel CNG mixes in the air easily and evenly.

Safety - CNG is less likely to auto-ignite on hot surfaces, since it has a high auto-ignition temperature (540 degrees entigrade) and a narrow range (5%-15%) of inflammability. It means that if CNG concentration in the air is below 5% or above 15%, it will not burn. This high ignition temperature and limited flammability range makes accidental ignition or combustion very unlikely.
Properties

Low operational cost - The operational cost of vehicles running on CNG, as compared to those running on other fuels, is significantly low.At the prevailing price of fuel ,operational cost of CNG vehicles is 68% lower than petrol and 36% lower than diesel.

FAQ’s at bottom of this page

NGV is supported by the government of Malaysia with incentives and legislation to encourage vehicles owner to use NGV. NGV price is only 68 cent/litre equivalent of petrol, is cheaper than other fuels. NGV conversion kits are exempted from import duty and sales tax.
Reduction of road tax from existing levels:

* Monogas vehicle (NGV only) - 50% off
* Bi-fuel vehicle (Petrol & NGV) - 25% off
* Dual-fuel vehicle (Diesel & NGV) - 25% off

All these are major factors for potential owners to consider when making their vehicle fuel choices. However, what many owners may not be aware of is the safety record of NGV vehicles. NGV vehicles safety record compares favourably to other traditional fuels or alternative fuels available today. This is due to the superior (and still improving) technology, higher safety standards and the physical properties of NGV itself which makes it as safe or safer to use than petroleum-based fuels.

Frequently Asked Quetions (F.A.Q) :

1. Natural Gas for Vehicles (NGV)?
Yes! It is natural gas under pressure in cylinders, placed in your car boot compartment.

2. Can my petrol cost be really cut by half?
Yes! The price of NGV is only about half the price of petrol. Petrol price is RM1.20 per litre while NGV price is 56.5 cents per litre. So your petrol cost will definitely be cut by about half.

3. Will it affect my car’s engine?
Not at all! NGV is a clean fuel. It makes your engine run cleaner and quieter. So, definitely NGV can reduce your service maintenance bill.

4. But is it safe?
NGV has been in use overseas since 1945. Today, more than 1,000,000 vehicles use NGV all over the world. And there has not been any serious accident caused by NGV.

5. But what about the storage cylinders?
Unlike a petrol tank, the storage cylinders are so strong they can withstand direct impact from a car speeding at 90 km/hr or a small calibre bullet.

6. What about the gas inside?
The NGV inside is so much lighter than air, it just disappears into the air quickly in case of leakage. It also does not ignite easily.

7. Where do I refill NGV?
At any NGV outlet. Look for the NGV sign.

8. What about road tax for my car?
You get 25% deduction for your road tax. This clearly shows the Government’s commitment to NGV.

9. Can I use both - petrol and NGV?
Yes! You can use either NGV or petrol after fixing the NGV kit in your car.

11. One last question. Is it environment-friendly?
Yes! It definitely is! No black smoke! No lead! It keeps Malaysia’s air clean and people healthy.

There is no doubt that the declines in housing prices and stock market prices are a serious matter and that people will be impacted in various ways as a function of circumstance or because of their own actions and the potential impact on the economy at large could be unpleasant.

While I believe the above to be true it is also true that many people will not be materially affected.

If you have a loan you can afford and you want to stay in your house it is likely that a drop in your home’s value won’t matter a whole lot if at all.

My friend bought a house and he can’t imagine he could sell it today for what he bought it for six months ago. All things considered he would of course hope that the value did not go down (I am assuming it price is down somewhat but I don’t know with any certainty) but he can afford the housing loan and will keep the house.

If three houses on your block each sold for $500,000 a year ago you might assume that is what your house is worth but if you did not try to sell you really don’t know. You can only know the value of your house when you and a buyer meet on price. What your house might have been worth a year ago really means nothing.

If you own a house that you want to stay in you don’t need to worry about the value today you just need to make your payment (if you have one) and fix things that need fixing.

Think about your stock portfolio or unit trust investments now. At the end of December 2007 the KLCI was at 1445. Let’s suppose that between now and the end of the quarter KLCI experience a slight gain to close at 1300. If that happened the KLCI would finish the quarter down 11%. A person whose only exposure is a unit trust with a 70/30 mix would likely be down less than 11% for the quarter. If this same person does not follow the market at all and only checks his unit trust balance once a quarter he might be totally oblivious to what a wild ride this quarter had been.

As unit trust funds are investments with 3 to 5 years time horizon, you should only be bothered about the market correction phase as this is a time to overweigh your equity funds. I would suggest that you keep investing as getting better lower pricing of the unit trust funds will enhance your portfolio. And ‘wah-lau-eh’, imagine when the market finally recovers, your returns will likely to exceed the average returns of 8% to 12% per annum.

If you have the proper asset allocation (this is crucial!) a bad year is unlikely to really have anything more than a psychological impact. All of the gloom and fear that this time could be different.

You don’t need to worry about stock prices you need to focus on having enough money when you need it in the future. That means a lot of saving and a couple of prudent decisions along the way.