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Peter Lynch Lyrics: Foolish Acquisitions

Thursday, July 31, 2008

The following notes was taken from a forum posting. If not mistaken the original writings were posted at Wallstraits.com.


Lynch Lyrics

Foolish Acquisitions

"Instead of buying back shares or raising dividends, profitable companies often prefer to blow the money on foolish acquisitions. The dedicated diworseifier seeks out merchandise that is (1) overpriced, and (2) completely beyond his or her realm of understanding. This ensures that losses will be maximized."

"Every second decade the corporations seem to alternate between rampant diworseification (when billions are spent on exciting acquisitions) and rampant restructuring (when those no-longer-exciting acquisitions are sold off for less than the original purchase price). The same thing happens to people and their sailboats."

"These frequent episodes of acquiring and then regretting, only to divest and acquire and regret once again, could be applauded as a form of transfer payment from the shareholders of the large and cash-rich corporation to the shareholders of the smaller entity being taken over, since the large corporations so often overpay. The why of all this I've never understood, except that perhaps corporate management finds it more exciting to take over smaller companies, however expensive, than to buy back shares or mail dividend checks, which requires no imagination. Perhaps psychologists should analyze this. Some corporations, like some individuals, just can't stand prosperity."

"The 1960s was the greatest decade for diworseification since the Roman Empire diworseified all over Europe and northern Africa. It's hard to find a respectable company that didn't diworseify in the 1960s, when the best and the brightest believed they could manage one business as well as the next. Allied Chemical bought everything but the kitchen sink, and probably somewhere in there it actually took over a company that made kitchen sinks. US Industries made 300 acquisitions in a single year. They should have called themselves one-a-day. Beatrice Foods expanded from edibles into inedibles, and after that anything was possible."

"If a company must acquire something, I'd prefer it to be a related business, but acquisitions in general make me nervous. There's a strong tendency for companies that are flush with cash and feeling powerful to overpay for acquisitions, expect too much from them, and then mismanage them. I'd rather see a vigorous buyback of shares, which is the purest synergy of all."

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Holy heart failure Batman!

If you thought the possibility of Angelina Jolie as Catwoman in the next Batman was the most exciting addition to the Chris Nolan’s cast then you’re wrong! Sooooo very wrong.
Latest rumours have Johnny Depp in talks to play the Riddler.
How great would that be! I say tres great. Will Ferrell was apparently keen on the role but now the Depp-inator is in the works casting directors will no doubt pass on Feral opps I mean Ferrell. We all know how superb Depp is at playing bright, wacky characters thanks to Tim Burton’s version of Charlie and the Chocolate Factory.
Jim Carrey’s version of the Riddler will be a hard act to follow but Depp is the best actor of our generation and no doubt he will surpass previous attempts.




Oscar winner and buzz-actor of the moment Phillip Seymour Hoffman is in talks to play the Penguin. Danny DeVito played a twisted, dark version of the role in Burton’s Batman Returns. Hmmm I wonder if Hoffman will be commanding an army of intelligent Penguins and circus freaks in the Chris Nolan version??? I think not.

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More On Axis Inc

I just realised that Axis had made an announcement late last night.

This was the answer from Axis Inc posted on Bursa website.

  • Reference is made to your letter of even date via fax to us this afternoon, the Board of Directors is pleased to reply the queries as follows:-

    1. Full detail of the material unresolved issues and the amount involved, if any, as raised by your external auditor, Messrs Horwath

    The external auditors, Messrs. Horwath have disclosed the following in the draft financial statements:-

    (i) Included in other receivables as at 31 March 2008 are amounts due from the Contract Manufacturers of approximately RM105 million. The amounts outstanding as at 31 March 2008 showed a significant increase compared to the amounts outstanding of approximately RM11 million in the previous financial year. Subsequent to the balance sheet date, approximately RM20 million have been settled by the Contract Manufacturers.*

    (ii) The Contract Manufacturers also owed the Group a total of approximately RM28 million as at 31 March 2008 for sales of fabrics by the Group to the Contract Manufacturers. This amount is included under Trade Receivables in the financial statements.*

    (iii) As at 31 March 2008, included in other receivables are prepayments of approximately RM32 million made to certain suppliers for the supply of embroidery services, purchase of fabrics and accessories. Subsequent to the balance sheet date, approximately RM11 million of these services and goods were received by the Group. As represented by management, the balance of approximately RM20 million are expected to be settled by the end of September 2008 through further delivery of services and goods.*

    * Note: All the numerical figures as stated above are mere estimates taken from the draft Audited Financial Statements and they are not the final figures agreed upon by the Audit Committee and the Board of Directors.

    The external auditor, Messrs Horwath are unable to obtain sufficient appropriate audit evidence and explanations to ascertain the following:-

    (a) the basis of the advances made to the Contract Manufacturers, and whether the advances and settlement thereof are in compliance with the strategic alliance agreement with the Contract Manufacturers;

    (b) the recoverability of the outstanding balances due from the Contract Manufacturers (net of the settlement subsequent to 31 March 2008) in relation to the trade receivables and advances;

    (c) the recoverability of the net balance of the prepayments made to suppliers as stated in (iii) above.

    In view of the significance of the matters set out above, Messrs. Horwath are unable to complete the audit and form an audit opinion, pending the receipt of information and explanations on the above matters.

    2. Expected timeframe required by your Company to resolve the issues mentioned above

    The expected timeframe required by the Company to resolve the issues affecting the financial statements as at 31 March 2008 will be known once the appointment of the auditors for the special audit is determined by the Board and Bursa Malaysia Securities Berhad (“Bursa Securities”) will be advised accordingly.

    3. Information on the Special Audit:-

    (a) Name of auditor

    The name of the auditor will be advised when it is determined by the Board.

    (b) Appointment date

    The appointment of the independent auditors will be with immediate effect once the Board of Directors made its decision.

    (c) Timeframe required to conduct the special audit

    The time frame required to conduct the special audit will be determined once the Board approves the appointment of the independent auditor and the Company will advise Burse Securities in due course.

    (d) Scope of the special audit

    The scope of the special audit has not been finalised as of now. However, the Board of Directors will ensure that the scope of the special audit will cover detailed investigations on all the issues raised by the external auditors, Horwath.

    4. The impact of material unresolved issues on your Company’s financial statement for the financial year ended 31 March 2008

    The Board is committed to resolve the material unresolved issues raised by Horwath. However, the full impact will only be known upon the outcome of the Special Audit.

    In the event that the figures under paragraph 1 (i), (ii) and (iii) above are confirmed, the Management will have to take steps to recover the said amounts totalling approximately RM161 million in full, failing which, they may result in the write-off of those amounts uncollected in the Audited Financial Statements for the financial year ended 31 March 2008.


    5. Relationship with Contract Manufacturers

    The Contract Manufacturers are LA. (Cambodia) Garment Pte. Ltd., Vivatino Design (Cambodia) Pte. Ltd. and United Garment (Vietnam) Co. Ltd. and have been the Contract Manufacturers for Chongee Enterprise Sdn Bhd ("Chongee"), a subsidiary of Axis for a number of years and have formalised their relationship through a Strategic Alliance Agreement entered between the parties on 5 May 2008. Under that Strategic Alliance Agreement, the strategic partners are entitled to be paid a 25% advance payment of the value of a confirmed order for the cutting and sewing of the garments. In return, the strategic partners are obligated to handle local licensing requirements and to always keep their factory and workplace in full compliance with USA and European environmental and human rights standards.

    We will continuously furnish to Bursa Securities all information that we have on the issues as and when available and shall cooperate fully with Bursa to resolve the issues.


    This announcement is dated 31st day of July 2008

The sentence highlighted in red is rather very significant.

  • The external auditor, Messrs Horwath are unable to obtain sufficient appropriate audit evidence and explanations to ascertain the following:- (b) the recoverability of the outstanding balances due from the Contract Manufacturers (net of the settlement subsequent to 31 March 2008) in relation to the trade receivables and advances)

How would you interpret the above statement?

If the outstanding balances cannot be recovered then how? Write down?

As it is the total amount receivables is far too huge and the possibility is there for Axis Inc being asked to write down these debts.

I could be wrong but once the receivables it's written down, I would imagine that the impact should be rather severe.

And Axis Inc would be resuming trading this afternoon.

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A Deeper Look At Axis Inc

So it now appears that Axis Inc has crashed and burned. ( See Regarding The Plunge Of Axis!! and The Plunge Of Axis)

This morning I would like to take a simple and quick look at Axis and examine if there was any justifications to invest in Axis Inc or not.

Axis Inc was listed on April 2004 via taking over the listing of the failed Ganad.

The first fiscal year for Axis was announced on May 2005. Quarterly rpt on consolidated results for the financial period ended 31/3/2005.

Axis announced a net earnings of 14.394 million for the fiscal year. Margins were low at 5.18% and company was carrying net debts of over 77.845 million. And Axis is in the garments industry.

For the next fiscal year 2006, Axis earnings were rather shockingly poor. Quarterly rpt on consolidated results for the financial period ended 31/3/2006

Net earnings dropped to 8.154 million despite a sharp increase in sales revenue. Net margins slumped to a mere 2.33%. Net debts soared to 172 million! Any justifications?

The next fiscal year 2007, Axis had a bumper year! Quarterly rpt on consolidated results for the financial period ended 31/3/2007

Sales soared to 492 million from 350 million the previous fiscal year and net earnings soared to 25.167 million. Margins too improved to 5.11%. And an investor who just focus on earnings growth and earnings per share would be seduced, yes?

However, the fundamental weakness of the company was rather crystal clear.

I have compiled a table from all the links above and this is what I would have been looking at.


Shocking is the word. Despite all the incredible revenue and earnings growth, the fundamental deterioration was crystal clear! Total loans soared and the company is now in a net debt position of 224 million! Loans were just 85 million back in 2005. And look at the receivables. Receivables soared from 82 million to 200.9 million!

Others D&R stands for other deposits, receivables and prepayments - this figure would be interesting the next fiscal year!

So where there any justifications to invest in Axis Inc?

And this was Axis latest earnings report made on May 2008. Quarterly rpt on consolidated results for the financial period ended 31/3/2008

Take a look at the compiled figures in the new table below.

Earnings slumped to 16.105 million. Margins dropped.

Total debts is now at 325.701 million, which means the company is now in a net debt of 308.47 million! (Consider this, with a net earnings of around 16 million, it would take this company 20 years just to repay its total loans of 325 million!)

Others D&R, which stands for other deposits, receivables and prepayments soared to 151.559 million! Receivables improved slightly to 197.393 million!

(Sorry for the insinuation - I could be wrong here - but in my simple opinion - which may be flawed - this is simply looking so much like Megan Media!. The low margins, the increase in debts and receivables!)

How?

Was there any justifications to invest in Axis Inc?

Or don't you think Axis Inc simply looked like an accident waiting to happen?

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Harry Potplant

I had a plan of future posts which I was to write today but due to the release of the Harry Potter and the Half Blood Prince trailer they've been put on hold. I'm a massive fan of the Harry Potter books but have never really `celebrated' the films because of all the details they exclude. That said, I still fork out my $14 to see them and line up with all the other muggles wearing their Hogwarts t-shirts and Dobby ears. Fags. American movie website moviefone posted the very first trailer for the film a few hours ago and here is the link:

http://www.moviefone.com/movie/harry-potter-and-the-half-blood-prince/27063/main

Praise the lord! It's a real trailer! Finally! Now let's hope those dickheads who have been making fake fan trailers for the movie will stop posting them on YouTube and fooling unsuspecting people looking for a peek at the Half Blood Prince. But really, you deserve to sit through a four minute montage of the last five Harry Potter films if you don't notice the first comment under the video which reads: "THIS IS FAKE....DAMN YOU". Who's stupid enough to miss this? My hand is raised. Along with 2, 795, 653 others apparently.

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Peter Lynch Lyrics: Beware the Whisper Stock

Wednesday, July 30, 2008

The following notes was taken from a forum posting. If not mistaken the original writings were posted at Wallstraits.com.

Lynch Lyrics

Beware the Whisper Stock

"I get calls from people who recommend solid companies for Magellan, and then, usually after they've lowered their voices as if to confide something personal, they add: 'There's this great stock I want to tell you about. It's too small for your fund, but you ought to look at it for your own account. It's a fascinating idea, and it could be a big winner'."

"These are the longshots, also known as whisper stocks, and the whiz-bang stories. They probably reach your neighborhood about the same time they reach mine: the company that sells papaya juice derivative as a cure for slipped-disc pain (Smith Labs); jungle remedies in general; high-tech stuff; monoclonal antibodies extracted from cows (Bioresponse); various miracle additives; and energy breakthroughs that violate the laws of physics. Often the whisper companies are on the brink of solving the latest national problem: the oil shortage, drug addiction, AIDS. The solution is either (a) very imaginative, or (b) impressively complicated."

"My favorite is KMS Industries, which, according to the 1980-82 annual reports, was engaged in 'amorphous silicon photovoltaics', in 1984 was emphasizing the 'video multiplexer' and 'optical pins', by 1985 had settled on 'material processing using chemically driven spherical implosions', and by 1986 was hard at work on the 'inertial confinement fusion program', 'laser-initiated shock compression', and 'visual immunodiagnostic assays'. The stock fell from $40 to $2.50 during this period. Only an eight-for-one reverse split kept it from becoming a penny stock."

"What all the longshots had in common besides the fact that you lost money on them was that the great story had no substance. That's the essence of a whisper stock. The stockpicker is relieved of the burden of checking earnings and so forth because usually there are no earnings. Understanding the p/e ratio is no problem because there is no p/e ratio. But there's no shortage of microscopes, Ph.D.'s high hopes, and cash from the stock sale."

"What I try to remind myself (and obviously I'm not always successful) is that if the prospects are so phenomenal, then this will be a fine investment next year and the year after that. Why not put off buying the stock until later, when the company has established a record? Wait for the earnings. You can get tenbaggers in companies that have already proven themselves. When in doubt, tune in later."

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SEC Extending Short Selling On Financial Stocks!!

Yes! This is what they are doing!

  • SEC Extends Short-Selling Rules

    The Securities and Exchange Commission voted to extend the temporary rules it put in place to restrict short-selling of a handful of financial stocks.

    The SEC commissioners didn't take additional steps opposed by Wall Street to expand the number of stocks affected by the rules or make them permanent.

    The temporary rules were set to expire Tuesday, and the SEC extended the order on the 19 stocks until Aug. 12. It won't be extended beyond then.

    .......

    So far, the rules have had mixed results. Shares of the 19 financial firms targeted by the SEC soared after the rules were announced, but some, such as Merrill Lynch & Co., Fannie Mae and Lehman Brothers Holdings Inc., have fallen again, approaching their previous lows. That undercuts the arguments that short-sellers drove the decline of the shares. SEC economists are studying the effects of the emergency action on those stocks.

    SEC chairman Christopher Cox said he looks forward to the analysis and said he believes the emergency order "helped to control illegitimate rumor-mongering and other techniques of market manipulation."

Totally incredible!

By placing restriction on short selling on these shares, isn't this a form of manipulation too?

Where is the free market?

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Heath Ledger eat your heart out

This was emailed to me by a friend and I'm not sure who did it but I love them, it's hilarious.
If you know who created this let me know because they deserve the credit. Poor poor kitty.

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Regarding The Plunge Of Axis!!

Posted on Mootaktrade: The Plunge Of Axis

The plunge was incredible.



This stock was trading around 2.00 on 11th July 2008.

It closed yesterday at 0.35!

And what's most worrying is the following announcement on Bursa website. AXIS INCORPORATION BERHAD (“Axis” or the “Company”) - Submission of the Audited Financial Statements for the financial year ended 31 March 2008 (hereinafter referred to as “AFS”)

  • The Board of Directors of Axis (“Board”) wishes to announce that at the Board of Directors’ meeting held on 30 July 2008 at 6.40 p.m., the Board has unanimously resolved that the Company would not be able to submit its AFS by the deadline on 31 July 2008 as a result of material unresolved issues raised by our external auditors, Messrs Horwath during the Audit Committee meeting held at 3.35 p.m. on 30 July 2008. The Management of Axis requires time to resolve these issues.

    The Audit Committee has proposed and the Board has approved the need to appoint an independent firm of auditors to carry out a special audit immediately to address these issues.

    The Company will make necessary announcements upon the outcome of the special audit.

    This announcement is dated 30 July 2008.

Accounting problems??????

And what's even more worrying was their answer to Bursa regarding the plunge of the stock. AXIS INCORPORATION BERHAD (“the Company”) - Unusual Market Activity

  • We refer to Bursa Malaysia Securities Berhad (“Bursa Securities”) letter dated 30 July 2008 in relation to the unusual market activity of the Company’s shares.

    Pursuant to Paragraph 9.11 of the Listing Requirements of Bursa Securities, the Board of Directors of the Company wishes to announce that to the best of their knowledge,
    they are not aware of any of the following that may have contributed to the unusual market activity:

    1) Any material corporate development relating to the Group’s business and affairs not previously announced;

    2) Any rumours or report concerning the business and affairs of the Group; and

    2) Any other reasons to account for the unusual market activity.

    The Company will make the necessary announcement to Bursa Securities of any material information should it falls under the Listing Requirements of Bursa Securities in particular Paragraph 9.03 on disclosure of material information.

    This announcement is dated 30 July 2008.

How can they be not aware????????

Here is the link to their most recent quarterly earnings report: Quarterly rpt on consolidated results for the financial period ended 31/3/2008

Check out the rather godzilla sized trade receivables!

Incredible!

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Part II: The Story Of Garmet Player Wanting To Be Oil And Gas Player

Blogged recently: Garment Maker Wants to Turn Into An Oil & Gas Player?

Yes, this is the story of Baneng Holdings. Baneng Holdings, the garment maker wanting to transform itself to an oil and gas player!

Now due to this incredible tale, the stock soared. The chart below on the date of the blog was posted show how everyone on the Baneng tale flew up, up and away.


The stock closed yesterday at 0.70.

Which was an incredible performance for a stock. It even outperformed the KLCI and many other stocks.

This morning, Business Times carried another article on it, Baneng moves into oil sector with Atmos buy

I was shocked to see that headlines. I had stated the terribly weak balance sheet for Baneng Holdings on my earlier blog posting. Garment Maker Wants to Turn Into An Oil & Gas Player?

  • See their cash balance of only 4.914 million? And long term borrowings totals 36.486 million and short term borrowings is at a whopping 98.944 million!

So I thought they finally pulled something amazing off when I saw the headlines. Perhaps they are getting a massive loan or perhaps it's something where an oil and gas player pumps their business into Baneng, yeah a reverse listing of some sort.

So I was much eager to read it's fairy tale.

  • GARMENT maker Baneng Holdings Bhd has bought an engineering and fabrication company for RM800,000 to diversify into the oil and gas sector.

Huh? Only rm800,000 for this company? I thought it was a massive purchase? So where's the justification for the stock's huge run up then?

  • Executive director Albert Lim Meng Hong said Atmos Engineering Sdn Bhd, the firm that it is buying, has secured jobs worth a combined RM20 million from various oil majors, which will bolster Baneng's earnings. Atmos is also bidding for contracts that are worth up to RM200 million in total, he said.

Wahh! They bought a company for rm800,000? But the company got rm20 million of job order???? Wow? Am I reading it correctly?

Why is Atmos Engineering selling their company so cheap? Why?

The last sentence... bidding for contracts? Ahem. Bidding for contracts just means bidding for contracts, yes? There isn't much value till the contracts are won and after winning, the jobs from the contracts need to be translated to earnings!

  • With a paid-up of RM500,000, Lim said, Atmos has had limited resources and needed to tap onto Baneng's access to the capital market as a public-listed company to raise funds for its projects.

Huh? Huh? Ok, so Atmos has limited resources but yet it can secure jobs worth rm20 million! WOW! Incredible story or what!

  • He did not elaborate on Baneng's plan to raise money, but said that it is talking to bankers.

And this is so incredible. Obviously Baneng would need to raise money big time too!

  • "Atmos will contribute to our earnings from next year. We are still negotiating and there will be more acquisitions to come," he told reporters after signing with Atmos in Kuala Lumpur yesterday.

    Baneng will still retain its core business of manufacturing, knitting and dyeing of fabrics and other apparels, he said.

    "We will position ourselves in garment manufacturing and oil and gas for now, but will still look for any other businesses that can bring in more income," he added.

    Baneng has been on the lookout for strategic purchases in the last three years, he added.

    Shares of Baneng have risen 59.1 per cent this year, a stark contrast to the 19.7 per cent fall in the Kuala Lumpur Composite Index over the same period.

    The usually thinly-traded stock has also seen some active transactions recently.

    Baneng closed 1.4 per cent lower at 70 sen yesterday.

LOL!

Loved the second last line. "The usually thinly-traded stock has also seen some active transactions recently. " So let me attempt to interpret that sentence. This stock used to be thinly-traded (tak-laku or pak-woo-ying?) but lately the stock is moving up and the trading is rather active lately. Hmm.. is it because of this wonderful tale? I wonder.

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Boner anyone?

By nature I’m a very excitable person and considering new movies come out every week, it’s a miracle I haven’t exploded in to a glittery ball of joy by now. Alas, I’m still standing (or skipping rather). What is the one movie I’m most excited about you ask?
It’s none other than, drum roll please, THE LOVELY BONES


One of my favourite books of all time is being made in to a movie! Rejoice! This project has been common knowledge for a good year or two now, however, since I’ve only had a blog for three days this is the first chance I’ve had to write about it. The novel is a multi-genre piece written by Alice Sebold and was a number one best seller throughout the world. Why? I’ll tell you why young grasshoppers-because it’s beautifully written and beautifully tragic. The Lovely Bones tells the story of Susie Salmon who is raped and murdered when she’s 14 while walking home from school. From heaven, Susie watches down on her loved ones and how they cope with her gruesome murder. She watches her killer, how her classmates are affected by her death and the police involved in trying to solve the case. Interesting idea, which could have fallen on its arse if it wasn’t for Sebold’s execution. So the talented writer decides to sell the rights to her book to colossal talent Peter Jackson and his Lord of the Rings writing buddy Fran Walsh at WingNut films. The trio chat over coffee, have a few donuts, write a screenplay and Jackson adds the final tick in the best-way-to-adapt-a-novel-ever column by directing the movie. “But who shall star in such a potentially awesome movie?” pondered Jackson one night. “Uh-huh!” he said. “I’ll assemble the most awesome cast ever.” Okay `most awesome cast ever’ may be a bit melodramatic but for myself personally I couldn’t think of a more interesting combination or actors. With a dash of Mark Wahlberg, a pinch of Rachel Weisz and a sprinkling of Susan Sarandon as the three main leads Jackson stirs together a stellar dramatic cocktail. Did I mention 13-year-old Oscar nominee Saoirse Ronan (of Atonement fame) is dead gal Susie Salmon? No? Silly me.
Unfortunately this puppy has an October 16, 2009 release date meaning it will be out in Australian cinemas a few days later. The films completion is still a long way off but be sure to stay posted for plenty more updates on the progress of The Lovely Bones movie. It’s currently being filmed in New Zealand.

PS: Ryan Gosling was originally down to play the role of Susie’s father and even gained a belly and beard for the character. Two days before filming he pulled out and was replaced by my husband-to-be Mark Wahlberg who had just finished shooting the financial and critical flop The Happening in Pennsylvania. Apparently the last minute bail was because Gosling and Jackson had `creative differences’. I think it’s because Gosling’s “if I’m a bird you’re a bird” bullshit was no match for the power of Dirk Diggler baby.

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How do I love thee? Let me count the ways . . .

Is it possible to express my love for The Dark Knight in words? The answer is no. I’ve seen it five times in 11 days, that is all I will say.

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Update On EcoFirst

Blogged last year: EcoFirst (Kumpulan Emas) and Update on EcoFirst.

Ecofirst announced its earnings tonight. It wasn't nice at all. It lost some 24 million for the current quarter. Total fiscal year loss totals more than 35 million!


And the balance sheet was extremely weak!


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Peter Lynch Lyrics: Earnings, Earnings, Earnings!

Tuesday, July 29, 2008

The following notes was taken from a forum posting. If not mistaken the original writings were posted at Wallstraits.com.


Lynch Lyrics

Earnings, Earnings, Earnings!


"What you're asking here is what makes a company valuable, and why it will be more valuable tomorrow than it is today. There are many theories, but to me, it always comes down to earnings and assets. Especially earnings. Sometimes it takes years for the stock price to catch up to a company's value, and the down periods last so long that investors begin to doubt that will ever happen. But value always wins out-- or at least in enough cases that it's worthwhile to believe it."

"Analyzing a company's stock on the basis of earnings and assets is no different from analyzing a local laundromat, drugstore, or apartment building that you might want to buy. Although it's easy to forget sometimes, a share of stock is not a lottery ticket. It's part ownership of a business. Here's another way of thinking about earnings and assets. If you were a stock, your earnings and assets would determine how much an investor would be willing to pay for a percentage of your action. Evaluating yourself as you might evaluate General Motors is an instructive exercise, and it helps you get the hang of this phase of the investigation."

"Like the earnings line, the p/e ratio is often a useful measure of whether any stock is overpriced, fairly priced, or underpriced relative to a company's money-making potential. The p/e ratio can be thought of as the number of years it will take the company to earn back the amount of your initial investment-- assuming, of course, that the company's earnings stay constant. If you but shares in a company selling at two times earnings (a p/e of 2), you will earn back your initial investment in two years, but in a company selling at 40 times earnings (a p/e of 40) it would take forty years to accomplish the same thing."

"Some bargain hunters believe in buying any and all stocks with low p/e's, but that strategy makes no sense to me. We shouldn't compare apples to oranges. What's a bargain p/e for Dow Chemical isn't necessarily the same as a bargain p/e for Wal-Mart. If you remember nothing else about p/e ratios, remember to avoid stocks with excessively high ones. You'll save yourself a lot of grief and a lot of money if you do. With few exceptions, an extremely high p/e ratio is a handicap to a stock, in the same way that extra weight in the saddle is a handicap to a racehorse."

"There are five basic ways a company can increase earnings: reduce costs; raise prices; expand into new markets; sell more of its product in the old markets; or revitalize, close or otherwise dispose of a losing operation. These are the factors to investigate as you develop the story. If you have an edge, this is where it's going to be most helpful."

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Good things come in twos, Part I


There’s two new movie trailers that have got me really, really excited lately with the first being Watchmen and the second being Max Payne.
The official Watchmen trailer appeared on YouTube last week and high fives all round to the marketing team behind that one! Watchmen has long been considered one of, if not the, best graphic novels of all time so a film adaption was inevitable. In brief, the story is based around the murder of an ex-superhero and a former vigilante who decides to do a bit of digging around. Suspense, action, drama and awesomeness ensues. Basically it’s like The Incredibles but darker. Zac Synder, the guy behind 300, is directing. Also the casting director behind Watchmen deserves a big box of Ferrero Rocher’s for having the balls to pick a no-name cast. Don’t take that as an insult, I mean it in a 100% complimentary way because if you slapped on names like Angelina Jolie as Silk Spectre, Clive Owen as The Comedian and Hugh Jackman as Nite Owl then people aren’t going to be focused on the story anymore, they’ll be focused on the stars. And the Watchmen story deserves to be focused on.

Anyway, check out the trailer at:

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Ranhill Privatisation Rumours: What's Up With The Owner Disposing?

Blogged the other day: Ranhill: Our Financial News Being Used To Drive The Stock Higher! and Ranhill Answers: Our Financial News Being Used To Drive The Stock Higher!

Let's recall what has happened so far.

Last week, an incredible story was published on the Business Times suggesting that Ranhill could be taken private by the owners. It was all based on unnamed sources.

I found it hard to believe. Why would the owners be interested in this deal worth some 420 million? Why would they want to take it private when Ranhill is in a nett debt of 2.569 Billion? It simply did not sound rational at all.

And worse still, the article came out with a bunch of unnamed analysts suggesting a 'sum of private parts' valuation technique. I was amazed by such creativity!

And when questioned by Bursa, I posted Ranhill's reply on the second posting, Ranhill Answers: Our Financial News Being Used To Drive The Stock Higher!. All the management could answer to the Bursa query was the following.

  • we are constantly exploring opportunities in seeking for any proposals that may contribute to our objectives to enhance and boost our shareholders’ value

It was truly vague.

And less us not forget that the stock soared some 47.9% during these 2 trading days!

And yesterday there was another shocking development.

The owner announced a massive disposal of shares! ( See Changes in Director's Interest (S135) - Hamdan Mohamad )
  • Disposed 23/07/2008 29,000,000

Yes, Tan Sri Hamdan Mohamad had disposed some 29 million shares on the 23rd July, a couple of days before that article was published.

So why would Tan Sri Hamdan Mohamad want to take Ranhill Bhd private when he was disposing/reducing his shares?

This wouldn't make sense yes?

And since he was disposing/reducing his shares, why didn't Ranhill Bhd management deny that privatisation rumour? Why?

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Peter Lynch Lyrics: Don't invest if you don't understand the story

The following notes was from a forum posting. If not mistaken it was from Wallstraits.com.


Lynch Lyrics

Don't invest if you don't understand the story


"Getting the story on a company is a lot easier if you understand the basic business. That's why I'd rather invest in panty hose than in communications satellites, or in motel chains than in fiber optics. The simpler it is, the better I like it. When somebody says, "Any idiot could run this joint," that's a plus as far as I'm concerned, because sooner or later any idiot probably is going to be running it."

"If it's a choice between owning stock in a fine company with excellent management in a highly competitive and complex industry, or a humdrum company with mediocre management in a simpleminded industry with no competition, I'd take the latter. For one thing, it's easier to follow. During a lifetime of eating donuts or buying tires, I've developed a feel for the product line that I'll never have with laser beams or microprocessors."

"'Any idiot can run this business' is one characteristic of the perfect company, the kind of stock I dream about. You never find the perfect company, but if you can imagine it, then you'll know how to recognize favorable attributes, the most important thirteen of which are as follows:

  • 1. It sounds dull--or, even better, ridiculous
  • 2. It does something dull
  • 3. It does something disagreeable
  • 4. It's a spinoff
  • 5. The institutions don't own it, and the analysts don't follow it
  • 6. The rumors abound: it's involved with toxic waste and/or the Mafia
  • 7. There's something depressing about it
  • 8. It's a no-growth industry
  • 9. It's got a niche
  • 10. People have to keep buying it
  • 11. It's a user of technology
  • 12. The insiders are buyers
  • 13. The company is buying back shares

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Holy haberdashery Batman!

This just in: according to a News.com article Angelina Jolie is looking at playing the role of Catwoman. Former Catwoman Julie Newmar has said Jolie is in final negotiations with studio execs to secure the role. But will she play the cat in a spin off movie or alongside Christian Bale in Chris Nolan’s Batman films? Previously Nolan has said he wants to steer away from some of the more fantastical Batman characters such as Dr Freeze and Clayman. But is Catwoman a possibility for future films? Hmmmmm. . . .
Lets hope Jolie does a better job than Halle Berry. But is it possible to do a better job than Michelle Pheiffer?
Very interesting . . . .
View the article in its entirety here:
http://www.news.com.au/entertainment/story/0,26278,24100359-7485,00.html

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Good things come in twos, Part II


Secondly, the film adaption of the popular video game Max Payne has got me marking October 16, 2008 (the Australian release date) on my calendar with a big red YAY. As far as video game to film adaptions go all have been crap. Yes, that’s right, ALL. Think Doom, the Resident Evils, Final Fantasy, Hitman. Need I say more? I’m not sure whether it’s the slick trailer or edgy movie posters that have got me hoping Max Payne is the exception. It also might have something to do with Mark Wahlberg playing the title character. Not only is he a fine actor and at home in the action role he’s also, as a work colleague described, `total hotness’. The story is pretty basic and more of an excuse for lots of action and violence; however, it’s the cast who will pull this one off. After his wife and child are murdered as part of a conspiracy DEA agent Max Payne goes on a hunt to find those responsible. He teams up with assassin Mona Sax who’s out to avenge her sister's death. To add a bit of fuel to the raging inferno police, mob and a corporation are also hunting the pair. With Oscar nominee Wahlberg taking the lead his portrayal of Payne is likely to be high calibre. What’s even more enticing is the stellar support cast of Mila Kunis, Ludacris and Chris O’Donnell. Kunis is looking like she’s on her way to becoming a huge star thanks to her interesting choice in movie roles. Best known for being a central character on That 70s Show, she has also played a serial killer/psychopath in the sequel to American Psycho which was creatively titled American Psycho II. More recently she proved she can pull off comedy in Forgetting Sarah Marshall and only time will tell if she can handle being an action gal when she takes the reins in Max Payne as Mona Sax. Rapper by day and actor by night Chris `Ludacris’ Bridges is always good and former Batman sidekick O’Donnell is a strong performer in heavy, action laced roles.
You can view the Max Payne trailer here:
http://www.youtube.com/watch?v=JboQmDIdKWs

What movie are you looking forward to????

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They say red heads do it better . . .

Two potential movie posters for the 2009 release Red Sonja sprouted up on the internet a few days ago and there’s been no shortage of hype surrounding Robert Rodriguez’s latest venture. When news that a film was to be made based around the Marvel Comics character, Red Sonja, it raised a fair few eyebrows. But I have to say these nifty pieces of graphic art have got me hooked (either that or I’m afraid the red head will stab me). Rose McGowan is looking hot, hot, hot as the sword wielding she-devil.

Red Sonja first appeared as a side character in the Conan the Barbarian/Adventurer/Raving homosexual comics before branching out in her own series. If the posters are anything to go by (which I say they are) then McGowan’s Red Sonja looks likely to surpass Angelica Bridges god-awful version of the character played in the 80s TV series Conan the Adventurer. Plus McGowan’s costume doesn’t look like it was bought from `Dominatrix’s R Us’ so brownie points for that one. There was also a film adaption of Red Sonja in 1985 with the title character played by Brigitte Nielsen accompanied by the heavily tanned and bulging Arnold Schwarzenegger. Again I use the term god-awful to describe this cinematic effort.

The last time Rodriguez and McGowan paired up was for the hugely entertaining but financial flop Planet Terror. No doubt the real-life lovers are hoping Red Sonja will make more of an impact at the box office. Anyway, the talented and slightly scary Djimon Hounsou will be playing the other lead role of Thusla Doom while Douglas Aarniokoski is up to direct. But never fear! Although you mightn’t have heard of Aarniokoski before, he has worked with Rodriguez on majority of his films as first or second assistant director etc etc. The main draw card for me here is with Rodriguez on board, the action scenes are bound to be spectacular and well executed. He’s also one of the few directors in Hollywood who has his actors perform majority of their own stunts so McGowan better get used to lugging that pointy stick around otherwise someone just might lose an eye! Or boob! Stay posted for more Red Sonja pics and news.

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Bina Puri: Sources Were Spot On!

Amazing!

Truly amazing.

The sources speculation on the news that Bina Puri will win a contract from MRCB were spot on!
Bina Puri - The Sources Strikes Yet Again!

Bina Puri just made the following announcement.

  • Bina Puri Construction Sdn. Bhd., a wholly-owned subsidiary of Bina Puri Holdings Bhd. has received a letter of award from MRCB Engineering Sdn. Bhd. to undertake the subcontract works for the proposed Eastern Dispersal Link (EDL) Johor Bahru, Johor - design, construct and complete main line bridge, Ramp A, Ramp B, Ramp C and Ramp D at a contract sum of RM293 million. The project is expected to be completed within thirty-three months. With this new award, the current book order of the Group stands at about RM2.0 billion, which will sustain the Group until 2011.

    Please note that no directors, substantial shareholders and/or persons connected with them have any interests, direct or indirect, in the above transaction.

Well...

Since the sources were spot on, isn't this INSIDER info?

Why and how were the insider info leaked to the press?

Surely this is not legal, is it?

Did anyone profit from this news leakage directly?

How?

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Bina Puri - The Sources Strikes Yet Again!

Published on the Edge. 29-07-2008: Bina Puri close to landing RM290m EDL job


  • 29-07-2008: Bina Puri close to landing RM290m EDL job
    By Jose Barrock

    KUALA LUMPUR: Bina Puri Holdings Bhd is said to be close to bagging a RM290 million highway construction contract from Malaysian Resources Corp Bhd (MRCB), sources say.

    The contract is understood to be a portion of the Eastern Dispersal Link (EDL), the RM980 million highway which will connect the tail-end of the North-South Expressway at Pandan to the Customs, Immigration and Quarantine complex in Tanjung Puteri, Johor Bharu.

    Last June, the federal government awarded MRCB a 34-year concession for the design, construction, operation and management, and maintenance of the EDL, which is slated to be a three-lane dual-carriageway, 8.1km road with about 4.4 km elevated.

    It is learnt that MRCB would be giving out the letter of award to Bina Puri in the next few days, with an announcement to be made to Bursa Malaysia shortly after.... ( click here for rest of the article )

Oh my gosh!

The sources strikes yet again!

Last year, on June 23rd, I blogged the following, Regarding Bina Puri Article on Star Bizweek (Last year article was truly appalling since the reporter made several misleading statements in that article on Star Bizweek. Total debts were mis-stated making the company appear much healthier financially! - do read that blog posting!)

It's that same reporter.

Apparently now he's writing on the Edge.

Same again to sources yet again!

Sigh!

Just look at the quality of our financial press. It's simply depressing and more so, the same so-called reporter gets away by publishing articles after articles after articles based on unnamed sources!

One day... perhaps our financial press should be named the UNNAMED SOURCES NEWS!

Sigh!

Let me say again.. if there is any credibility in the sources of this news, then why is the source afraid to be named?? Why??

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My Favourite Peter Lynch Articles

Monday, July 28, 2008

My favourite article written by Peter Lynch was Use Your Edge.


  • Use Your Edge

    By Peter Lynch

    What's the best way to invest $1million?

    Tip one: Don't buy stocks on tips alone.

    If your only reason for picking a stock is that an expert likes it, then what you really need is paid professional help. Mutual funds are a great idea (I ran one once) for folks who want this sort of assistance at a reasonable price. Still, I'm not convinced that having 4,000 equity funds in this country is an entirely positive development. True, most of the cash flooding into these funds comes from retirement and pension contributions, where people can't pick their own stocks. But some of it also has to be pouring in from former stock pickers who failed to invest wisely on their own account and have given up trying.

    One of the oldest sayings on Wall Street is "Let your winners run, and cut your losers."

    When people find a profitable activity -- collecting stamps or rugs, buying old houses and fixing them up -- they tend to keep doing it. Had more individuals succeeded at individual investing, my guess is they'd still be doing it. We wouldn't see so many converts to managed investment care, especially not in the greatest bull market in U.S. history. Halley's comet may return times before we get another market like this. If I'm right, then large numbers of investors must have lost money outright or badly trailed a market that's up eightfold since 1982. How did so many do so poorly? Maybe they traded a new stock every week. Maybe they bought stocks in companies they knew little about, companies with shaky prospects and bad balance sheets. Maybe they didn't follow these companies closely enough to get out when the news got worse. Maybe they stuck with their losers through thin and thinner, without checking the story. Maybe they bought stock options. Whatever the case, they failed at navigating their own course.

    Amateurs can beat the Streat because, well, they're amateurs.

    At the risk of repeating myself, I'm convinced that this type of failure is unnecessary -- that amateurs can not only succeed on their own but beat the Street by (a) taking advantage of the fact that they are amateurs and (b) taking advantage of their personal edge. Almost everyone has an edge. It's just a matter of identifying it.

    While a fund manager is more or less forced into owning a long list of stocks, an individual has the luxury of owning just a few. That means you can afford to be choosy and invest only in outfits that you understand and that have a superior product or franchise with clear opportunities for expansion. You can wait until the company repeats its successful formula in several places or markets (same-store sales on the rise, earnings on the rise) before you buy the first share.

    If you put together a portfolio of five to ten of these high achievers, there's a decent chance one of them will turn out to be a 10-, a 20-, or even a 50-bagger, where you can make 10, 20, or 50 times your investment. With your stake divided among a handful of issues, all it takes is a couple of gains of this magnitude in a lifetime to produce superior returns.

    One of the oldest sayings on Wall Street is "Let your winners run, and cut your losers." It's easy to make a mistake and do the opposite, pulling out the flowers and watering the weeds. Warren Buffett quoted me on this point in one of his famous annual reports (as thrilling to me as getting invited to the White House). If you're lucky enough to have one golden egg in your portfolio, it may not matter if you have a couple of rotten ones in there with it. Let's say you have a portfolio of six stocks. Two of them are average, two of them are below average, and one is a real loser. But you also have one stellar performer. Your [Image]Coca-Cola, your [Image]Gillette. A stock that reminds you why you invested in the first place. In other words, you don't have to be right all the time to do well in stocks. If you find one great growth company and own it long enough to let the profits run, the gains should more than offset mediocre results from other stocks in your portfolio.

    Look around you for good stocks. Down the road, you won't regret it.

    A lot of people mistakenly think they must search far and wide to find a company with this sort of potential. In fact, many such companies are hard to ignore. They show up down the block or inside the house. They stare us in the face.

    This is where it helps to have identified your personal investor's edge. What is it that you know a lot about? Maybe your edge comes from your profession or a hobby. Maybe it comes just from being a parent. An entire generation of Americans grew up on [Image]Gerber's baby food, and Gerber's stock was a 100-bagger. If you put your money where your baby's mouth was, you turned $10,000 into $1 million. Fifty-baggers like [Image]Home Depot, [Image]Wal-Mart, and Dunkin' Donuts were obvious success stories to large crowds of do-it-yourselfers, shoppers, and policemen. Mention any of these at a party, though, and you're likely to get the predictable reaction: "Chances like that don't come along anymore."

    Ah, but they do. Take Microsoft -- I wish I had.

    You didn't need a Ph.D. to figure out that Microsoft was going to be powerful.

    I avoided buying technology stocks if I didn't understand the technology, but I've begun to rethink that rule. You didn't need a Ph.D. in programming to recognize the way computers were becoming a bigger and bigger part of our lives, or to figure out that Microsoft owned the rights to MS-DOS, the operating system used in a vast majority of the world's PCs.

    It's hard to believe the almighty Microsoft has been a public company for only 11 years. If you bought it during the initial public offering, at 78 cents a share (adjusted for splits), you've made 100 times your money. But Apple was the dominant company at the time, so maybe you waited until 1988, when Microsoft had had a chance to prove itself.

    By then, you would have realized that [Image]IBM and all its clones were using Microsoft's operating system, MS-DOS. IBM and the clones could fight it out for market share, but Microsoft would prosper regardless of who won. This is the old combat theory of investing: When there's a war going on, don't buy the companies that are doing the fighting; buy the companies that sell the bullets. In this case, Microsoft was selling the bullets. The stock has risen 25-fold since 1988.

    The next time Microsoft might have got your attention was 1992, when Windows 3.1 made its debut. Three million copies were sold in six weeks. If you bought the stock on the strength of that product, you've quadrupled your money to date. Then, at the end of 1995, Windows 95 was released, with more than 7 million copies sold in three months and 40 million copies as of this writing. If you bought the stock on the Windows 95 debut, you've doubled your money.

    If you missed the boat on Microsoft, there are still other technology stocks you can buy into.

    Many parents with children in college or high school (I'm one of them) have had to step around the wiring crews as they installed the newfangled campuswide computer networks. Much of this work is being done by Cisco Systems, a company that recently wired two campuses my daughters have attended. Cisco is another opportunity a lot of people had a chance to notice. Its earnings have been growing at a rapid rate, and the stock is a 100-bagger already. No matter who ends up winning the battle of the Internet, Cisco is selling its bullets to various combatants.

    Computer buyers who can't tell a microchip from a potato chip still could have spotted the intel inside label on every machine being carried out of the computer stores. Not surprisingly, [Image]Intel has been a 25-bagger to date: The company makes the dominant product in the industry.

    Early on, it was obvious Intel had a huge lead on its competitors. The Pentium scare of 1994 gave you a chance to pick up a bargain. If you bought at the low in 1994, you've more than quintupled your investment, and if you bought at the high, you've more than quadrupled it.

    Physicians, nurses, candy stripers, patients with heart problems -- a huge potential audience could have noticed the brisk business done by medical-device manufacturers Medtronics, a 20-bagger, and Saint Jude Medical, a 30-bagger.

    There are ways you can keep yourself from gaining on the good growth companies.

    There are two ways investors can fake themselves out of the big returns that come from great growth companies.

    The first is waiting to buy the stock when it looks cheap. Throughout its 27-year rise from a split-adjusted 1.6 cents to $23, Wal-Mart never looked cheap compared with the overall market. Its price-to-earnings ratio rarely dropped below 20, but Wal-Mart's earnings were growing at 25 to 30 percent a year. A key point to remember is that a p/e of 20 is not too much to pay for a company that's growing at 25 percent. Any business that can manage to keep up a 20 to 25 percent growth rate for 20 years will reward shareholders with a massive return even if the stock market overall is lower after 20 years.

    The second mistake is underestimating how long a great growth company can keep up the pace. In the 1970s I got interested in [Image]McDonald's. A chorus of colleagues said golden arches were everywhere and McDonald's had seen its best days. I checked for myself and found that even in California, where McDonald's originated, there were fewer McDonald's outlets than there were branches of the Bank of America. McDonald's has been a 50-bagger since.

    These "nowhere to grow" stories come up quite often and should be viewed skeptically. Don't believe them until you check for yourself. Look carefully at where the company does business and at how much growing room is left. I can't predict the future of Cisco Systems, but it doesn't suffer from a lack of potential customers: Only 10 to 20 percent of the schools have been wired into networks, and don't forget about office buildings, hospitals, and government agencies nationwide. [Image]Petsmart is hardly at the end of its rope -- its 320 stores are in only 34 states.

    Whether or not a company has growing room may have nothing to do with its age. A good example is [Image]Consolidated Products, the parent of the Steak & Shake chain that's been flipping burgers since 1934. Steak & Shake has 210 outlets in only 12 states; 78 of the outlets are in St. Louis and Indianapolis. Obviously, the company has a lot of expansion ahead of it. With 160 continuous quarters of increased earnings over 40 years, Consolidated has been a steady grower and a terrific investment, even in a lousy market for fast food in general.

    Sometimes depressed industries can produce high returns.

    The best companies often thrive even as their competitors struggle to survive. Until recently, the airline sector has been a terrible place to put money, but if you had invested $1,000 in [Image]Southwest Airlines in 1973, you would have had $460,000 after 20 years. Big Steel has disappointed investors for years, but [Image]Nucor has generated terrific returns. [Image]Circuit City has done well as other electronics retailers have suffered. While the Baby Bells have toddled, a new competitor, [Image]WorldCom, has been a 20-bagger in seven years.

    Depressed industries, such as broadcasting and cable television, telecommunications, retail, and restaurants, are likely places to start a research list of potential bargains. If business improves from lousy to mediocre, investors are often rewarded, and they're rewarded again when mediocre turns to good and good turns to excellent. Oil drillers are in the middle of such a recovery, with some stocks delivering tenfold returns in the past 18 months. Yet it took a decade of lousy before they even got to mediocre. Readers of my column in Worth learned of the potential in this long-suffering sector in February 1995.

    Retail and restaurants haven't been performing well -- but they're two of Lynch's favorite areas.

    Retail and restaurants are two of the worst-performing industries in recent memory, and both are among my favorite research areas. I've taken a beating in a number of retail stocks (some of which I still like and have continued to buy), but the general decline hasn't stopped Staples, [Image]Borders, Petsmart, [Image]Finish Line, and [Image]Pier 1 Imports from rewarding shareholders. Two of my daughters and my wife, Carolyn, have continued to shop at Pier 1, reminding me of its popularity. The stock has doubled in the past 18 months.

    A glut in casual-dining outlets didn't hurt [Image]Outback Steakhouse, and a surplus of pizza parlors didn't bother [Image]Papa John's, whose stock was a double last year. [Image]CKE Restaurants -- whose operations include the Carl's Jr. restaurants -- has been a profitable turnaround play in California.

    You can even find bargain stocks in this market that have been overlooked.

    So far, we've been talking about growth companies on the move, but even in this so-called extravagant market, there are plenty of bargains among the laggards. Of the nearly 4,000 IPOs in the past five years, several hundred have missed the rally on Wall Street. From the class of 1995, 37 percent, or 202 companies, are selling below their IPO price. From the class of 1996, 33 percent, or 285, now trade below their offering price. So much for the average investor's never having a chance to profit from an offering. In more than half the cases, you can wait a few months and buy these stocks cheaper than the institutions that were cut in on the original deals.

    As the Dow has hit new records week after week, many small companies have been ignored. In 1995 and 1996, the Standard & Poor's 500 Stock Index was up 69 percent, but the Russell 2000 index of smaller issues was up only 44 percent. And while the Nasdaq market rose 25 percent in 1996, a lot of this gain can be attributed to just three stocks: Intel, Microsoft, and Oracle. Half the stocks on the Nasdaq were up less than 6.9 percent during 1996.

    That's not to say owning these laggards will protect you if the bottom drops out of the market. If that happens, the stocks that didn't go up will go down just as hard and fast as the stocks that did. I learned that lesson in the 1971Ð73 bear market. Before the selling was over, companies that looked cheap by any measure got much cheaper. McDonald's dropped from $15 a share to $4. I thought Kaiser Industries was a steal at $13, but it also fell to $4. At that point, this asset-rich conglomerate, with holdings in aluminum, steel, real estate, cement, fiberglass, and broadcasting, was trading at a market value equal to the price of four airplanes.

    Wondering when you should exit the market? Use Lynch's rule of thumb.

    Should we all exit the market to avoid the correction? Some people did that when the Dow hit 3000, 4000, 5000, and 6000. A confirmed stock picker sticks with stocks until he or she can't find a single issue worth buying. The only time I took a big position in bonds was in 1982, when inflation was running at double digits and long-term U.S. Treasurys were yielding 13 to 14 percent. I didn't buy bonds for defensive purposes. I bought them because 13 to 14 percent was a better return than the 10 to 11 percent stocks have returned historically. I have since followed this rule: When yields on long-term government bonds exceed the dividend yield on the S&P 500 by 6 percent or more, sell stocks and buy bonds. As I write this, the yield on the S&P is about 2 percent and long-term government bonds pay 6.8 percent, so we're only 1.2 percent away from the danger zone. Stay tuned.

    So, what advice would I give to someone with $1 million to invest? The same I'd give to any investor: Find your edge and put it to work by adhering to the following rules:

    With every stock you own, keep track of its story in a logbook. Note any new developments and pay close attention to earnings. Is this a growth play, a cyclical play, or a value play? Stocks do well for a reason and do poorly for a reason. Make sure you know the reasons.

    Stocks do well for a reason, and poorly for a reason.

    *Pay attention to facts, not forecasts.

    *Ask yourself: What will I make if I'm right, and what could I lose if I'm wrong? Look for a risk-reward ratio of three to one or better.

    *Before you invest, check the balance sheet to see if the company is financially sound.

    *Don't buy options, and don't invest on margin. With options, time works against you, and if you're on margin, a drop in the market can wipe you out.

    *When several insiders are buying the company's stock at the same time, it's a positive.

    *Average investors should be able to monitor five to ten companies at a time, but nobody is forcing you to own any of them. If you like seven, buy seven. If you like three, buy three. If you like zero, buy zero.

    *Be patient. The stocks that have been most rewarding to me have made their greatest gains in the third or fourth year I owned them. A few took ten years.

    *Enter early -- but not too early. I often think of investing in growth companies in terms of baseball. Try to join the game in the third inning, because a company has proved itself by then. If you buy before the lineup is announced, you're taking an unnecessary risk. There's plenty of time (10 to 15 years in some cases) between the third and the seventh innings, which is where the 10- to 50-baggers are made. If you buy in the late innings, you may be too late.

    *Don't buy "cheap" stocks just because they're cheap. Buy them because the fundamentals are improving.

    *Buy small companies after they've had a chance to prove they can make a profit.

    *Long shots usually backfire or become "no shots."

    *If you buy a stock for the dividend, make sure the company can comfortably afford to pay the dividend out of its earnings, even in an economic slump.

    *Investigate ten companies and you're likely to find one with bright prospects that aren't reflected in the price. Investigate 50 and you're likely to find 5.

And my favourite interview on Peter Lynch was the one posted on pbs website: http://www.pbs.org/wgbh/pages/frontline/shows/betting/pros/lynch.html

It's a rather long interview which I fully recommend!

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Just a fly on the wall baby

The following is a transcript of recent office conversation:
MAN A: Hey, did you ever follow up on that bird who was friends with the real estate agents wife?
MAN B: Oh, you mean the one who called here a couple of weeks ago.
MAN A: Yeah.
MAN B: No I haven't yet but I should give her a call back, she's just separated from her husband.
ME: Glad to see you've set your standards high again.
MAN A: Nah it's when they're on the rebound you have to get in there.
MAN B: Plus my shoulders are nice and soft for someone to cry on.
ME: Absorbent too.

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Welcome friends...

This is officially the first post for the Movie Mazzupial blog and I have pondered long and hard about what to write.
Despite countless PowerPoint demonstrations, flow charts and colourful diagrams this is what I have decided about my blog-

  • I will tell you nothing about who I am because as much as it may work for some people I'm not comfortable detailing the exploits of my personal life on the web.
  • I was `inspired' by a friend who does a markedly better job at writing a blog and just plain existing than I. A link to the page where political correctness goes to do die is permanently posted on this site.

Basically, friends, the essence of Movie Mazzupial comes down to this : I've decided to abandon all attempts to be funny or witty and instead write a blog about things that I would like to read about.

Movie Mazzupial will include film news, reviews and updates as well as random snippets from the world around us (minus Frank Warrick).

I'm also a big fan of film festivals, local film makers, short films, graphic novels and comics so expect posts on these topics.
So here we go, friends.
If you enjoy my blog then wahoo and if you don't then wahoo fuck off to Perez Hilton.com instead.
Ciao

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Flashback: Integrax: My Earnings Has Shrunk!

The following posting was initially posted way back on May 2006. I am reproducing it here again.

I was told that this stock was recommended by a fund when it was trading around 1.38 back in Aug 2003.

Did they NOT know about the MASSIVE dilution impact from the conversion of the ICPs? They should have known, yes?

As of today, this stock still carries a HOLD recommendation.

It's now July 2008.

Stock trades at around 0.79.

Buy and Hold Forever?

Well? You tell me.

--------------------------


The following post is dedicated to Anon who asked about the dilutions effects caused by placement shares, esos etc.


One of the best example I could really think of is a past discussion I had on this one stock called Integrax.

On 28th feb 2003, Integrax announced its fy2002 Q4
quarterly earnings.

It made a total net earnings of 16.159 million from a sales revenue of 25.244 million for its fiscal year.

I got a message in July 2003 asking about this stock:

==>

I have made some studies on this counter and noted some good points:

  1. stable assure income from TNB power plant (future earning will double)
  2. closely link to state goverment
  3. potential aluminiam plant project (will add on the coal transportbusiness)
  4. low PE (really fantastically low)
  5. proposed to transfer to main board.
here was my reply then.

<<==>>

my comment on integrax ...

1. those listed port stocks, their fundamentals are ok, meaning they are companies that operates on a very high profit margins. in which you have also choices like Bintulu Port. So far, from its only earnings (Integrax was a newly listed stock, which was listed via a reverse takeover of a stock called Ganz) , in its
02 Q4 earnings report, Integrax had figures like this...



2. now as you would see the numbers were fantastic. (the eps is based upon 115.656 million shares, which was stated in that quarterly earnings report). And if you annualised such performance for fy 2003, then the potential is there.. cos one is looking at a potential eps of 38-40 sen for fy 2003. And yes, I did note that folks like Ah Goh (GK Goh) was projecting 03 earnings to be lower, at around 30 million, or an eps of 26 sen based on 115.656 million shares.

( Back then Integrax trading around 1.15-1.30 and based on the projected 03 earnings, Integrax at 1.15 was trading at a super duper low PE of 4.4x based on Ah Goh's estimates.. and at such a low PE multiple, surely this would have been an ideal hidden gem right? In fact, Surf 88 back then, had a super positive research calling it a Lumut Gem!)

3. But after researching more, i found out that there were lots of ICP shares being converted into ordinary shares. This was part of the agreement under Integrax's takeover of Ganz. Now I do NOT know know the exact restriction (if any) on how these ICPs were converted but judging from KLSE announcements, they were converted on quite a regular basis. So what's important is, if you wanna invest in this stock, you need to figure out how many total ICP's were issued.
(here is where the DILUTION of shares has such an impact on the share price.)

Now these ICPs, they have this dilution effect. As I had checked out the other day (back in July 2003), the number of shares in Integrax stands at 196,762 million shares!!

Now based on the projected earnings of 30 million, Integrax projected DILUTED eps is now 15 sen. Which now means, at 1.15 Integrax is trading at a forward PE of 7.6! (compared to a pe between 4.4).

See how greatly the eps has been diluted by these ICP's?

So... if you are not carefull.... you might have actually invested in Integrax had a much higher PE multiple than you have imagined...


4. Is Integrax an average company or an excellent company? I dunno.

Too early for me to determine, plus there is really too limited info i can dig up on Integrax itself.... so i cannot comment on it.

<<==>>

That was in July 2003. Now Integrax was in a nice rally mood.

And soon in Oct 2003, it was trading around 1.90++ (which turned out to be its peak today)


And here is another extremely interesting point.

Integrax Loan Stocks and its Irredeemable Convertible Preference (ICP) shares were still constantly being converted into ordinary shares. (here is one announcement indicating
the conversion of ICP shares )

Which meant that the earnings per share were constantly being diluted at a very rapid pace.

But the share price was rocketing.

How?

Would an investor cash out back in Oct 2003? (remember, they had an opportunity to buy just in July 2003 at around 1.15)

A year later, on 27th Feb 2004, Integrax announced its fy 2003 quarterly earnings.

It made a total net earnings of 28.819 million from a sales revenue of 93.434 million for its fiscal year.

Integrax's results is pretty impressive really. And in fact it does look like a decent and very profitable company... but i guess the main question is why the share price is performing so poorly was explained clearly by the company.

  • PATMI changes are reflective of the above while EPS changes reflect the impact of a larger share capital base this quarter.

Ahh... the EPS shrunk!!

Diluted!

The dilution effects from the conversion of Integrax's ICP shares and loan stocks. And the more conversion are made, the large the share base becomes, hence Integrax share base is growing each quarter, which meant that unless Integrax earnings grow at a much faster than how its share base expands, the eps would become smaller each quarter and when the E in PE becomes smaller, the price 'usually' goes down to reflect the lower E.

To fully illustrate how diluted the earnings become:

Integrax number of shares now is 263.882 million shares!! (back in Feb 2004)

Which meant Integrax eps is only 10.9 sen for its fy 2003! (a huge cry from Ah Goh's estimate of 26 sen eps!.. and most important see how the net profit increased a lot BUT yet the EPS 'dropped drastically?)

Which meant that the traded shares of Integrax is now much more expensive despite a pretty impressive fiscal year earnings? (In Feb 2004, at 1.50, Integrax was trading at a PE of 13.7x!!)

Perhaps it is better to take note of all those ICP shares, right?

Example
(done on 28th Feb 2004)

Integra has 263.882 million shares
Integra LA has 31.890 million shares
Integra PA has 10.570 million shares.
Full dilution = 263.882 + 31.890 + 10.570 = 306.342 million shares.
Fully diluted eps = 28.819 / 306.342 =
9.4 sen.

So do remember.. this bugger just got soooooo many shares out there.... that you dun really know what is going.... plus since this is a RTO listed company.... so you never know the true cost of those ICP shares, etc, etc..... and do take one step back ... dig deeper back into history.... look at Ganz last reported earnings report. Ganz had only got 19.8 million shares. Compare it to now. 263.882 million shares. A lot of new shares has been issued.

<<==>>

So in July 2003.. Integrax was trading around 1.15-1.30.

It peaked in Oct 2003 around 1.90++

On Feb 2004 it traded in the 1.50 region.

now on May 2006? Less than 0.70!

The below pix says it all...
(long term buy and hold? if your initial reasoning is wrong.. holding it longer is holding in hope!)



So if one purchases a share in a company and discounts the effect of the dilution of earnings, see the drastic end result?

Of course not all companies are like that. And as mentioned in the case of IOI, the conversion of warrants did not have a negative impact on the share price. Why? IOI Corps earnings grew at a much faster pace.

It's pretty simple actually.. take the blog posting
ROI on Uchi: Part III - the ESOS issue

<<==>>

Now if you add both figures up, you will get 82,820,992 new shares, assuming full exercise of ESOS.

Currently Uchi has 372,392,800 shares. Which means there is a possible dilution in earnings per share of 22% assuming full exercise of all these ESOS.

Now let's be realistic and ask ourselves this... is 22% dilution in earnings per share a lot or not?

Simple way to look at this dilution.

Say U** has a current eps of 100 sen.
Say U** has a possibility to trade at a price earnings multiple of 18x.

Which means U** could be worth some 18.00 in market price.

Now a 22% dilution means... the eps would be 78 sen.
And using the same pe multiple assumption of 18x, U** should be trading at a market price of 14.00.

See how disadvantage it is to the minority shareholder?

<<==>>


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