Tuesday, 13 October 2015

DBS Vickers promotion continues till dec 15

Hmm... Sweet deals for deploying your war chest?

Make sure you log in to Vickers from your POSB or DBS ibank site and not direct to Vickers in order to enjoy these offers.

Disclaimer: This is NOT a paid advert.

Sunday, 11 October 2015

Indicators and intrinsic value - no magic formula?

In deciding whether to buy, hold or sell a stock, we need to do FUNDAMENTAL analysis. In determining the short term trend and entry point in a stock, we need to do TECHNICAL analysis and also review market sentiments.

Here's my understanding on fundamental analysis and what indicators should be considered.

Quantitative indicators:
  • Price to earning ratio (low or high relative to competitors)
  • Year-on-Year profit (note revenue does not mean profit)
  • Net asset value (how much is the company's asset worth)
  • Debt to asset ratio
  • Dividend yield (increasing, decreasing? is the payout consistent?)
  • Free cashflow & cashflow from operation
Source: gettyimages.com

Qualitative indicators - Understanding the business:
  • Sources of revenues (does it earn from recurring income and not from one off from asset disposal?)
  • Business plans and development (what acquisitions made?)
  • Does it have a business moat? (eg. high barrier of entry, consumer cost-of-switching)
  • What are its business risks? (eg. currency, technological revolution, environmental...)
  • Any changes to its management lately (eg. CFO resigned)

Now now...
Another term we often see when people speak of analysis is 'Intrinsic value' or value investing, so what is it?

Definition by Investopedia - 'The actual value of a company or an asset based on an underlying perception of its true value including all aspects of the business, in terms of both tangible and intangible factors. This value may or may not be the same as the current market value.'

It is a concept that I still find hard to fully grasp because we can't really put a figure to what's intangible. Even Investopedia failed to give me an answer, this is what it says - "...there is no "correct" intrinsic value. Two investors can be given the exact same information and place a different value on a company (Read more: Value Investing Definition |Investopedia http://www.investopedia.com/terms/v/valueinvesting.asp#ixzz3oEMe1eyl )."

The most difficult part is the putting of a figure to the value since we need that figure in order to compare with the share price (or market capitalization $). The next billion dollar question is - what is the magic formula? Funny thing is, many people would just use 'gut feel' to pinpoint that figure.

Then to determine whether to buy or not... "Once Buffett determines the intrinsic value of the company as a whole, he compares it to its current market capitalization - the current total worth (price). If his intrinsic value measurement is at least 25% higher than the company's market capitalization, Buffett sees the company as one that has value.
(Read more: Warren Buffett: How He Does It (BRK.A))"

Glancing through some formulas when I did a Google search, the keywords in the formulas are "expected" and "projected". I got a headache from looking at mathematical symbols from some famous formulas even before doing any calculations. One website that gave me a simpler overview is this

Another simpler way is to compare a few qualitative indicators against the benchmark, eg. average PE ratio is 15 so if the PE is less than 15 a stock is possibly undervalued, Price/Book value versus its peers etc. But bear in mind that nothing can be absolute.

Then determine when to sell?
That one has caused hot debate here (make sure you scroll all the way down the page) - http://singaporemanofleisure.blogspot.sg/2015/02/heres-question-to-value-investors.html

Another SMOL post on Value Trap for your reading pleasure.

Have you found your magic formula? Or follow the 'don't analyse, just invest' cult?

Read also: Buying into the right business

Friday, 9 October 2015

Endowment and annuity policies 'trap'

When I step into any of the well-known local banks, one thing that never fails to irritate me would be having financial advisers (or whatever position the bank prefers to call the personnel) coming to sweet-talk me into putting my money 'somewhere with better returns' when all I was there for was to open an FD account. Upon further probing, the products or package that they are trying to sell me are none other than endowment or annuity policies.

By definition of wikipedia -

"An endowment policy is a life insurance contract designed to pay a lump sum after a specific term (on its 'maturity') or on death. Typical maturities are ten, fifteen or twenty years up to a certain age limit. Some policies also pay out in the case of critical illness."

"An annuity is a financial contract in the form of an insurance product according to which a seller (issuer) makes a series of future payments to a buyer (annuitant) in exchange for the immediate payment of a lump sum (single-payment annuity) or a series of regular payments (regular-payment annuity), prior to the onset of the annuity."

The policies are often beautifully packaged as 'saving plans', deposits $xxx every month and you will get this projected amount after xx years with x% growth. And sometimes they would throw in a few goodies like "you can enjoy a higher interest rate in your savings account" or "you can put your FD for x years at a higher interest rate". Some policies you would be able to do a partial redemption after say 3 or 5 years.

Before getting all enticed by the figures and signing on the dotted line (to part with your cash), here are a few things you should consider:

1. Do I need to use a big sum of money in the short terms? For example - buying properties, investing, family expenses. Because once you put them into the plan, it is a commitment on your part. Those money are being 'locked' in and there's no way you can withdraw them without suffering a penalty subjected to the mercy of the policy issuer.

2. Is it capital-guaranteed? Are the returns guaranteed?
Often you will see the words "for illustration only". Nuff said.

3. Can I put my money elsewhere that would reap me better returns with no lock-in? Say maybe the SSB...

4. What are the costs involved? (eg. how much are the admin charges, how much of the savings go to premium payment, what are the penalties for early termination)

5. Am I already adequately insured?
There is no need to buy a financial product which you don't need in the first place. Whatever perks that the bank gives would not offset the amount of money you need to cough up into the policy and any opportunity cost.
You need to be insured only when you have liabilities. How much you need to insure is proportionate to how much liabilities you have. Imagine if you are age 55, with children all grown up and working, housing loan fully paid for and a comfortable sum of money for retirement - you want to buy insurance? For what??!

I recalled buying an endowment policy some years ago which showed an illustrated interest rate of 2.5% and this was what happened one year after my purchase - http://www.aviva.com.sg/pdf/SAYP_Website_Update_-_Int_Rate_Table.pdf. It has not seen daylight since.

I was like '***!!!'. (Fine, blame it on the Lehmen crisis.)

So always remember when things sound too good to be true, they most probably aren't true.

Friday, 2 October 2015

10 Rules to closing sales

Blog post number 111.

It's been seven years of front line sales work, I start to think it's about time for me to move on to do something else. Doing sales may prove to be challenging work, especially for a fresh grad or natural introvert which I think I was once both.
Doing sales has toughened me up greatly. Along the arduous journey from which I didn't start off from a sales background, I have come to realize the following rules on doing and closing sales these years...

  1. Smile.

  2. Speak your customers' language.
    Communication is tough if one speaks chicken, one speaks duck. Language is really a power tool... Or does Google translate?
    1. Cluck cluck... you talking to me?

  3. Ask and listen more than you speak.
    There's a Chinese saying: "The more you talk, the more err." So learn to lend a listening ear.

  4. When you do speak, speak with confidence and conviction.

  5. If the customer can't describe what he wants (as he doesn't know what he wants), then he's a 'browser'. No need to waste your breath further.

  6. Avoid technical or bombastic terms. Use simple terms to instill ideas. Customers would not be impressed, they would be confused.

  7. Avoid giving customers too many choices. Because that makes it harder for them to make up their minds. 

  8. Look at what product(s) they seemed interested at and engage them about it (list some pros and cons).

  9. In times of complaints - instead of explanations, it's best to offer solutions.

  10. Customers might not be always right (I am sure your boss tells you otherwise). Still, do acknowledge their feedback and remember to say 'Thank you'.

See previous post: Body language - the key to success
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