Fundamental Analysis is Useless without Integrity

'Somebody once said that in looking for people to hire, you look for three qualities: integrity, intelligence, and energy. And if they don't have the first, the other two will kill you. You think about it; it's true. If you hire somebody without the first, you really want them to be dumb and lazy., -Warren Buffett

One thing good about this crisis is that it gives people a chance to learn things. Having received that mass circulated email as published in the previous article, we just decided to take a look at a randomly chosen certain textile S- share company that has its shares suspended lately. Below is a snippet of announcement issued by the company on 13 March 2009 where it states that Fibrechem is in default of a loan of US$26,365,581 to a consortuim of local and international banks. So who are these banks?

See below for a snippet of the annoucement made on 22 Aug 2006 by Fibrechem.

What really amazes us is that there was little or no clue based on publicly available information that could have led to somebody predicting this could have happened. By looking at their financial statements, both audited and non-audited that were released, leading up to this default, it seemed that this company was flush with cash and settling bank loans were a non-issue.

See below for the financial statements leading up to the event.

Audited Annual Report 2007 ( By One of the Big Four Audit Firms )

The Cash and Cash Equivalent is enough to pay more than twice the bank loans owed!!

29 April 2008 - Unaudited First Quarter Financial Statement

The Cash and Cash Equivalents are again more than enough to cover 2 times the Bank loan!

4 August 2008 - Unaudited 2nd Quarter Financial Statement

Ok maybe now the Cash and cash equivalent is not able to pay twice the bank loan...but it still looks pretty decent. (Maybe the astute analyst might notice the sudden decline in excess cash over bank loan due to the huge jump in non current bank loan and question it..but we don't think we would have noticed it ....heng ah..luckily never look at this counter.)

3 Nov 2008 - Unaudited 3rd Quarter Financial Statement

The Cash and Cash Equivalent is nearly twice the bank loan...a huge jump in cash and cash equivalent amount this time.

So thats the last financial statement Fibrechem released. So who would have suspected that Fibrechem would have difficulty repaying the bank loan of a mere US$26,365,581 since they have HKD1,166,140,000 in Cash or USD$151,598,200 ( 1HKD = USD0.13) based on the last statement released??

Where did this cash go? Is it real in the first place? Which bank did Fibrechem stash this cash in? Did the big four auditor verify this cash in year 2007? What is going on!...This proves that fundamental analysis is useless if given rubbish data. Warren Buffet is right...Integrity of management is the most important! All else is secondary. S shares can go eat shit.

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Important: The objective of the articles in this blog is to set you thinking about the company before you invest your hard-earned money. Do not invest solely based on this article. Unlike House or Instituitional Analysts who have to maintain relations with corporations due to investment banking relations, generating commissions,e.t.c, SGDividends say things as it is, factually. Unlike Analyst who have to be "uptight" and "cheem", we make it simplified and cheapskate. -The Vigilante Investor, SGDividends Team

How To Reduce Investment Expenses when doing Dollar Cost Averaging

" The shortest route to top quartile performance is to be in the bottom quartile of expense. " - John Bogle ( Founder of The Vanguard Group)

This post is to do a comparison in relation to investment expenses between Unit Trusts, ETFs through DBSV Cash Upfront and other brokerages and POEMS sharebuilders plan. In relation to sales charges, based on the spreadsheet done below, there is an optimal way to invest, so as to reduce charges or fees, based on the investment amount if one is to follow a monthly dollar cost averaging strategy.

Generally, dollar cost averaging means allocating a fixed amount of money into investments at regular intervals, so as to lower the average cost of the investment, since when share prices go up, less shares are bought and when share prices go down, more shares are bought. The other reasons for dollar cost averaging (DCA)include not having enough funds to buy a pricey blue chip company say, the minimum 1 lot DBS shares and so DCA allows one to slowly accumulate DBS shares. Other reasons includes a person not being savvy enough or having not enough time to monitor the market so as to "generally" time the market to enter.

The reason why we are comparing the said instruments is because these share a common trait, which is, they allow one to so call diversify their portfolios. Well, personally, SGDividends do not use any of this said instruments, that is Unit Trusts, Share Builders Plan or buy any ETFs, but oh well, to each his own.

For those who don't know what POEMs share builders plan is...read below.



Read here about DBS Vickers Cash Upfront Trading Service

Ok so now that we have some background information on what the POEMS share builders plan and the DBS Vickers Cash Upfront Service is....let us compare! Do note that for the share builders plan, we are refering to the scenario where a person buys more than 2 different counters each month....since 2 or less counters is not really diversification....don't you think? Therefore, the handling fees is $10.70 instead of $6.42.

Also, do note that Share Builders Plan only allows one to buy certain Singapore listed shares.

Regarding ETFs, most of them allow one to buy in terms of 100 units or 10 units ( for example, DBS STI ETF 100) instead of a board lot size of 1000 units, so monthly regular DCA of $100 is still possible....

Ok some points to note. It is stated above that between the monthly investment amount of $100 - $700, unit trust is the cheapest. That's misleading ok....in addition to the sales charge above, there is an annual managment fee of generally 1.5%. In fact, SGDividends has been very sweet to the Unit Trust as we took the lowest sales charge of 1.5% among different UTs. Many UTs have sales charges of up to 5%.

ETFs generally have, in addition to the above sales charges, an annual fee of 0.28% - 0.3%. Also, one must pay brokerage fees when one liquidates this investment. Unit Trusts do not charge fees when it is liquidated. Having said that, ETF is still cheaper than Unit Trust.

For Poems ShareBuilder Plan, in addition to the above charges, there are compulsory unaviodable charges of $10.70 for corporate actions per counter. So, lately, with the recent spate of rights issuance by some bluechips company, there has been quite some expenses.......

So well, you decide for yourself which is the way to go...... and do note that expenses is just one single factor when investing as the performance of the underlying instrument through which ever means, Share Builders Plan, DBS Vickers Cash Upfront or Unit Trust..e.t.c is still the most important

If you like this blog, do help SGDividends by adding us as your favourites via this link,THANK YOU!:
                                  

Important: The objective of the articles in this blog is to set you thinking about the company before you invest your hard-earned money. Do not invest solely based on this article. Unlike House or Instituitional Analysts who have to maintain relations with corporations due to investment banking relations, generating commissions,e.t.c, SGDividends say things as it is, factually. Unlike Analyst who have to be "uptight" and "cheem", we make it simplified and cheapskate. -The Vigilante Investor, SGDividends Team

Warren Buffet's Opinions - Most recent 2008 Letter

Finally, its out...like an eager beaver, we read his letters with glee. Just some opinions from Warren Buffet.
His Thoughts on the Economy
"We’re certain, for example, that the economy will be in shambles throughout 2009 – and, for that matter, probably well beyond – but that conclusion does not tell us whether the stock market will rise or fall."

His Thoughts On Future Oil Prices
"Without urging from Charlie or anyone else, I bought a large amount of ConocoPhillips stock when oil and gas prices were near their peak. I in no way anticipated the dramatic fall in energy prices that occurred in the last half of the year. I still believe the odds are good that oil sells far higher in the future than the current $40-$50 price. But so far I have been dead wrong. Even if prices should rise, moreover, the terrible timing of my purchase has cost Berkshire several billion dollars."

His Thoughts on Holding Treasury Bills and Cash

"The investment world has gone from underpricing risk to overpricing it. This change has not been minor; the pendulum has covered an extraordinary arc. A few years ago, it would have seemed unthinkable that yields like today’s could have been obtained on good-grade municipal or corporate bonds even while risk-free governments offered near-zero returns on short-term bonds and no better than a pittance on long-terms. When the financial history of this decade is written, it will surely speak of the Internet bubble of the late 1990s and the housing bubble of the early 2000s. But the U.S. Treasury bond bubble of late 2008 may be regarded as almost equally extraordinary. Clinging to cash equivalents or long-term government bonds at present yields is almost certainly a terrible policy if continued for long. Holders of these instruments, of course, have felt increasingly comfortable – in fact, almost smug – in following this policy as financial turmoil has mounted. They regard their judgment confirmed when they hear commentators proclaim “cash is king,” even though that wonderful cash is earning close to nothing and will surely find its purchasing power eroded over time.

Approval, though, is not the goal of investing. In fact, approval is often counter-productive because it sedates the brain and makes it less receptive to new facts or a re-examination of conclusions formed earlier. Beware the investment activity that produces applause; the great moves are usually greeted by yawns."
Important: The objective of the articles in this blog is to set you thinking about the company before you invest your hard-earned money. Do not invest solely based on this article. Unlike House or Instituitional Analysts who have to maintain relations with corporations due to investment banking relations, generating commissions,e.t.c, SGDividends say things as it is, factually. Unlike Analyst who have to be "uptight" and "cheem", we make it simplified and cheapskate. -The Vigilante Investor, SGDividends Team

Boring = Good Investments? - Look at Warren Buffet for clues!

Warren Buffet seems to like boring investments. See the "cut and paste" screenshot below. This is his list of top investments as of end 2007 from his letters. Don't you find some similarities or clues as to what kind of companies this old fogey likes?Look at the red arrows.

Below are a brief description:

Anheuser-Busch (beta:0.31)- domestic beer, international beer, packaging and entertainment.

Coca-Cola (beta:0.61) - manufacturer, distributor and marketer of nonalcoholic beverage concentrates and syrups in the world

Johnson and Johnson (beta:0.50) - research and development, manufacture and sale of a range of products in the healthcare field to consumers.

Kraft Foods Inc (beta: 0.59) - engaged in the manufacture and sale of packaged food products, including snacks, beverages, cheese, convenient meals and various packaged grocery products.

Proctor and Gamble ( beta: 0.52) - Beauty; Grooming; Health Care; Snacks, Coffee and Pet Care; Fabric Care and Home Care, and Baby Care and Family Care.

Wal- mart( beta: 0.05) - retail stores (supermarts,mega marts)

Washington Post(beta:0.65) - diversified education and media company

Notice how the betas are generally much lesser than 1? ( Beta measures the stock volatility.The smaller it is, the lesser its price will fall in a downturn compared with the general stock market. It will also generally rise less in a upturn. Cyclical industries usually have high betas above 1.)

Notice also that the customers of these companies are retail consumers which are diversified. Don't forget his holding company Berkshire Harthaway also consists of a large portion of subsidiary companies such as See's Candies which cater to retail customers.

Hmm..maybe its a good idea to start looking at such kind of stocks for investment..don't ya think?

Warren Buffet Letter - His Thoughts on Financial Helper's AGAIN. OLD FOGEY!

Below is an extract from Warren Buffet's Letters where he wrote against enlisting Helpers ( Wealth Managers in general) in managing one's money. SGDividends, however, thinks he is being a bit too extreme towards them but then again he is an old fogey. Anyway, as he himself owns an insurance business, we don't think he is refering to insurance helpers or else he would be commiting "hara kiri",right?( we have to say this also or else our insurance helpers will kill us. Anway, we have had great insurance helpers and have benefitted a lot from them. There are still some good sheep around.) This is his second letter (posted in 2006) where he has blasted these people. The other one appearing in 2007.

The Old Fogey's Letters:
"To understand how this toll has ballooned, imagine for a moment that all American corporations are, and always will be, owned by a single family. We’ll call them the Gotrocks. After paying taxes on dividends, this family – generation after generation – becomes richer by the aggregate amount earned by its companies. Today that amount is about $700 billion annually. Naturally, the family spends some of these dollars. But the portion it saves steadily compounds for its benefit. In the Gotrocks household everyone grows wealthier at the same pace, and all is harmonious.

But let’s now assume that a few fast-talking Helpers approach the family and persuade each of its members to try to outsmart his relatives by buying certain of their holdings and selling them certain others. The Helpers – for a fee, of course – obligingly agree to handle these transactions. The Gotrocks still own all of corporate America; the trades just rearrange who owns what. So the family’s annual gain in wealth diminishes, equaling the earnings of American business minus commissions paid. The more that family members trade, the smaller their share of the pie and the larger the slice received by the Helpers. This fact is not lost upon these broker-Helpers: Activity is their friend and, in a wide variety of ways, they urge it on.

After a while, most of the family members realize that they are not doing so well at this new “beatmy- brother” game. Enter another set of Helpers. These newcomers explain to each member of the Gotrocks clan that by himself he’ll never outsmart the rest of the family. The suggested cure: “Hire a manager – yes, us – and get the job done professionally.” These manager-Helpers continue to use the broker-Helpers to execute trades; the managers may even increase their activity so as to permit the brokers to prosper still more. Overall, a bigger slice of the pie now goes to the two classes of Helpers. The family’s disappointment grows. Each of its members is now employing professionals. Yet overall, the group’s finances have taken a turn for the worse. The solution? More help, of course.

It arrives in the form of financial planners and institutional consultants, who weigh in to advise the Gotrocks on selecting manager-Helpers. The befuddled family welcomes this assistance. By now its members know they can pick neither the right stocks nor the right stock-pickers. Why, one might ask, should they expect success in picking the right consultant? But this question does not occur to the Gotrocks, and the consultant-Helpers certainly don’t suggest it to them.

The Gotrocks, now supporting three classes of expensive Helpers, find that their results get worse, and they sink into despair. But just as hope seems lost, a fourth group – we’ll call them the hyper-Helpers – appears. These friendly folk explain to the Gotrocks that their unsatisfactory results are occurring because the existing Helpers – brokers, managers, consultants – are not sufficiently motivated and are simply going through the motions. “What,” the new Helpers ask, “can you expect from such a bunch of zombies?”

The new arrivals offer a breathtakingly simple solution: Pay more money. Brimming with selfconfidence, the hyper-Helpers assert that huge contingent payments – in addition to stiff fixed fees – are what each family member must fork over in order to really outmaneuver his relatives. The more observant members of the family see that some of the hyper-Helpers are really just manager-Helpers wearing new uniforms, bearing sewn-on sexy names like HEDGE FUND or PRIVATE EQUITY. The new Helpers, however, assure the Gotrocks that this change of clothing is all-important, bestowing on its wearers magical powers similar to those acquired by mild-mannered Clark Kent when he changed into his Superman costume. Calmed by this explanation, the family decides to pay up. And that’s where we are today: A record portion of the earnings that would go in their entirety to owners – if they all just stayed in their rocking chairs – is now going to a swelling army of Helpers. Particularly expensive is the recent pandemic of profit arrangements under which Helpers receive large portions of the winnings when they are smart or lucky, and leave family members with all of the losses – and large fixed fees to boot – when the Helpers are dumb or unlucky (or occasionally crooked).

A sufficient number of arrangements like this – heads, the Helper takes much of the winnings; tails, the Gotrocks lose and pay dearly for the privilege of doing so – may make it more accurate to call the family the Hadrocks. Today, in fact, the family’s frictional costs of all sorts may well amount to 20% of the earnings of American business. In other words, the burden of paying Helpers may cause American equity investors, overall, to earn only 80% or so of what they would earn if they just sat still and listened to no one."

Warren Buffet Letter's...A Time to Resynchronise Our Mind

Having been blasted with bloomberg, reuters, buy, sell calls, reports, announcements, opinions, news,CNBC and all the jazz matazz surrounding us today, the SGDividends team decided to retreat to the beach side, taking with us some letter's from Warren Buffet to realign our thoughts again.It's not that we believe everything he says, cos we don't believe anything unless we have researched, verified with common sense and pondered with facts before we believe. However, since he did mention something about a person not needing a high IQ to invest wisely, just some common sense, so we thought hey, it seems like a good fit to us, given that our peabrain monkey has averaged down the group's IQ. Therefore, his letters we brought. These letters were sent to us last year, and we have cut and paste the letters in soft copy (below) to show our dear readers the things which stood out.

Quote: "The presence of layers of consultants and high priced managers ("helpers")........Beware the glip helper who fills your head with fantasies while he fills his pockets with fees." Does it ring a bell? Minibonds? In fact, its plain common sense that the more middlemans you have between your investments and you, the less net cash is actually invested after deducting expenses to line their pockets. Yes,yes, we are hearing some people now saying: but these middlemans have the expertise and we, don't have the expertise, what if we invest wrongly. Let Warren Buffet answer this question. "....but this group will incur high ...advisory cost...their returns diminished by a far greater percentage than will their inactive brethren." So the morale of the story is : invest by yourself, minimise your churning, and if you really know nothing, maybe you just copycat warren buffet?Like the recent GE or Goldman Sachs...and guess what you will be buying at a cheaper price than him as of now...so you will beat him...sounds good?

Quote: "I should mention that people who expect to earn 10% annually from equities during this century, envisioning that 2% of that will come from dividends and 8% from price appreciation- are implicitly forecasting a level of 24,000,000 on the DOW by 2100" . Warren is implying that 10% annually is unrealistic, isn't he..that Old Fogey! But then again, GIC raked in an annualized real return of 4%, so maybe this dude's right. That's a sobering thought though..But here at SGDividends we will show him that he is wrong...grrrgh.

Now now, what does Warren Buffet says about Airlines. He hates it and we believe he is right. Look at where we are now! A typical cyclical industry where even in bad times, expenses are still high and oil prices in our opinion is only going up up up and away ( in the long run). Anyway, before we pen off, just to let you know how low our group IQ has becomed, our peabrain monkey just said: Happy Hari Raya...Adilfitri.