Author: The Fifth Person

Distilling the essence of Benjamin Graham in 2016

Benjamin Graham is a legendary investor who pioneered the idea of deep value investing. Graham is someone who walked the talk by putting his ideas into practice with his successful Graham-Newman Company from 1936 to 1958. His ideas have withstood the test of time and lived on in his famous disciple, Warren Buffett. Graham’s relevance in 2016 Let’s pause for a while and consider how this would relate to you in 2016 — 80 years after he put his idea of value investing into practice. Humans have the same basic desire for financial security whether they are in the...

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Shoppers’ wallets stay shut in 3Q16 and possibly beyond

Singapore’s retail environment continues to be challenging in 3Q, and weaker-than-expected economic growth and the soft job market is likely to affect spending for the rest of the year, Cushman & Wakefield. This is also reflected by consumer confidence in Singapore, which has dived to its lowest since June 2009 based on figures from the Mastercard Index of Consumer Confidence for 1H2016. Although 2016 tourist arrivals have grown 7.2% and 6.7% y-o-y in June and July respectively, the real-estate services company notes that retail sales continued to stay in the doldrums, falling 3.2% and 2.3% y-o-y in June and...

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5 signs its time to pull out of your unit trust or mutual fund

We don’t care how much regulation there is, the publicly available mutual fund will always be the Wild West of finance. Why? The reason is simple: these funds are targeted at laypeople, who may never have invested before. And they are fantastic at using buzzwords to keep you invested, even when they’re on the verge of imploding. Forget their marketing spin, and look for these signs: 1. Your mutual fund is a closet indexer Take a peek inside your mutual fund. What are the stocks in it? If you see something like the 30 blue chip companies on the...

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Singapore telco sector loses shine with new entrant likely

Singapore’s telco sector is seing a shakeup with three contenders throwing their hat into the ring to be the republic’s fourth player. This has led Daiwa Capital Markets to downgrade the sector from “neutral” to “negative”. M1 has also been downgraded to “hold” with StarHub and Singtel held at “underperform” and “hold” respectively. The possibility of a new player in the telecom market is now highly likely, notes analyst Ramakrishna Maruvada in a Monday report. This has a knock-on effect on the three incumbents, as they might have to spend more and offer larger discounts to retain their customers....

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WARNING: For investors in a Deutsche Bank-sponsored ETF or ETN (or even if you’re not)

It’s a matter of time before someone gets hurt in the slow-motion collapse of Deutsche Bank, Europe’s largest bank. You need to be sure – even if you’re far away from Germany – that your money isn’t collateral damage. And if you own ETFs or ETNs (which trade in a similar way but are very different) that are issued by Deutsche Bank, you’ll want to pay particularly close attention. And it’s not just Deutsche Bank. If you own an ETF or an ETN, there’s a good chance that you’re taking counterparty risk (which I’ll explain in a minute) that...

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4 strategies to overcome the effects of market psychology

To understand the market, we can see it as a hypothetical investor driven by panic, euphoria and apathy on any given day. Investing is a reaction to this mood. Investment markets follow a pendulum-like swing: between euphoria and depression, between celebrating positive developments and obsessing over negatives, and thus between overpriced and underpriced. The more extreme the swing, the faster the reversal. Stocks can be volatile, that is the nature of a market that allows the public to vote prices in, and you must remember that volatility is not just prices going down, but up as well, and this...

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China’s RMB on the world stage now

Starting Saturday Oct 1, China’s currency will be included in the International Monetary Fund’s (IMF) official foreign exchange reserves database. This comes nearly a year after the organisation gave the nod on Nov 30, 2015, for the renminbi (RMB) to join the US dollar, the euro, the pound sterling and the Japanese yen in its Special Drawing Rights (SDR) basket. Guy Harvey-Samuel, CEO of HSBC Singapore, declares the move as a “harbinger of the Chinese yuan’s elevation onto the world stage”, and a “clear recognition of its development as a global medium of exchange”. Rising role among central banks...

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How to Use ROE to Spot Potentially High-growth Investments

When you look at Berkshire Hathaway’s annual reports you will often see a page that lists Berkshire Hathaway‘s acquisition criteria. Under criteria number three, it states that a company must generate a good return on equity (ROE) while employing little or no debt. So why is ROE and low debt so important to Warren Buffett? ROE reflects the management’s ability to allocate capital efficiently and effectively. It measures how much return is generated for every dollar of shareholder equity. A company with high ROE (>15%) means it is able effectively generate growth without need for external financing. [Apart from...

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Mean reversion: How to profit between optimism and pessimism in the stock market

Market history gives us patterns and relationships that can be explained by market psychology and microeconomics. Knowing the patterns and what drives them helps us to uncover or validate (an increase in probability) of value investing opportunities. One such pattern is mean reversion. Mean reversion in stock prices Momentum is real. Stocks that go up tend to go up further, for no other reason than their share prices rising. Examples in the last few years include the stocks ensnared in the Blumont Saga in Singapore and Hanergy in Hong Kong. What investors fail to realize is that momentum does not last...

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3 ways to tell if CEOs and directors are overpaid

As a shareholder of any company, I truly believe that key management should be fairly rewarded and well compensated when they perform well in their roles. But I have an issue if they reward themselves excessively – especially if they underperform in their roles and the company is doing badly. This is a red flag that tells the management is not aligned with shareholders’ interests and they care more about their fancy pay packages regardless of how the company is performing. If you ever need to check how much a company’s CEO and directors are paid, you can always...

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A special 3Q for NeraTel shareholders

UOB Kay Hian is keeping Nera Telecommunications at “buy” with a target price of 83.5 cents ahead of an expected special dividend payout following the disposal of its point-of-sale (POS) business. NeraTel sold its POS business to Ingenico Group for $88 million cash, including $10 million held in escrow for nine months in case of any contingent liabilities. (See also: Nera Tel to sell payment solutions business for $88 mil) “The price came in at a 453% premium to book value, 1.9x sales and 31.3x PE, and resulting in estimated one-off gains of $71.5 million,” says UOB analyst Edison...

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How the ‘Blockchain’ might disrupt the banking & financial industries

Block-what? If you’ve been following the news, there has been increased talk of more and more financial institutions – especially the big banks experimenting with and even implementing “Blockchain” technology in their operations. UBS led a consortium of banks including BNY Mellon, Deutsche Bank and Santander to develop a “Utility Settlement Coin” which is a digital cash equivalent of major currencies backed by central banks. Goldman Sachs, JP Morgan, Morgan Stanley, Citi, Visa, NASDAQ and numerous others are also looking into it. Locally, Singapore seems to be leading the pack in terms of institutions experimenting with this technology. Hitachi...

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Should you save or pay off your debts first?

We all know we should save money, but the issue is muddled once debt gets involved. Given that we may never out-save or out-invest our debt, is it wiser to focus on paying off all our debt before we start saving? The answer is “it depends”. Here are some solutions to different scenarios: The first rule: Always save at least a little bit Even if your main objective is to pay off debt first, always save a little bit. This is because you need access to funds during an emergency, and failing to do so can trap you in...

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Deep value investing: The 4 core tenets to finding bargain stocks with big upside

Deep value investing is the identification of attractive investment opportunities with limited downside and significant upside. In contrast to growth investing, we look at places with pronounced mispricing – in the unloved, neglected, ignored and feared stocks. This investment philosophy was developed by Benjamin Graham, better known as Warren Buffet’s teacher. To give you an idea of the regard that Buffett has for Graham, he routinely describes Graham as the man who changed his life, and on the cover of Graham’s book The Intelligent Investor, Buffett writes simply: “By far the best book on investing ever written.” High praise from...

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5 common ways Singaporeans derail their retirement plan

Considering Singapore is a financial hub, we’re pretty dismal with regard to financial literacy. Singaporeans who meddle with the CPF Investment Scheme (CPFIS) somehow manage to lose money, the braver ones get burned by gold traders, and a small bunch are still hiding money in Milo tins. It’s time to address how we mess up our retirement. 1. Overreaction to bad news Singaporeans tend to have an “episodic” view of finance. Don’t believe us? Check out the reaction in comments boxes, whenever news breaks that GIC or Temasek Holdings has underperformed. Even if the loss is for one-quarter, all...

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