APM AUTOMOTIVE HOLDINGS BERHAD
Real returns with smart investment strategies
Successful investing is not about taking big risks, but more about being able to balance risk and return by investing in a meaningful portfolio.
Use investment strategies that do work: a balanced allocation of your portfolio’s assets among securities that suit your individual needs, the use of Cost Averaging (CA) to lower the cost of overall investments and dividend reinvestment programmes, and a well disciplined, long haul approach to investing.
Most important factor you have in reaching your goals is time. The more time you have, the more chance you have of success. If you’re thinking of embarking on an investment strategy like CA, know your facts first.
For example, CA involves the regular purchase of units in a managed fund or shares over a period of time. It can be done automatically via an investment plan and you may reduce the risk associated with market fluctuations while giving your portfolio the best chance of long term profitability.
Here are options for you to choose from when it comes to investing in your future:
1.Direct investing
You invest directly in the share market, property or real estate investment trusts (REITs). The downside is that it generally requires market knowledge, plus regular monitoring of market trends, tax and legal changes. Many working adults don’t have access to the right market information or expertise to do direct investing well.
2.Buying bonds
The general principle of bond investing is that when you buy a bond, you are lending your money for a certain period of time to the issuer, be it a listed company or not. It’s a good choice for investors who require fixed horizon and steady income.
However, investing in bonds are usually for the high- net-worth and institutional investors as bonds are usually offered at a high entry cost, in hundreds of thousands or millions of ringgit.
Additionally, investors are advised to pay attention to total return, not just yield as bond prices fall when interest rates rise. An option for the retail investors to access the asset class will be to invest in unit trust bond fund due to its low entry cost and diverse holdings which allows for diversification.
3.Stocks/equities
Historically the best, but most volatile way to grow your money is through the stock market. On a short-term basis, stock prices fluctuate based on everything from interest rates to investor sentiment, to the weather. But on a long term basis, you could potentially make (or lose) a lot of your money in stock market. Bear in mind that risk and return come hand-in-hand.
4.Managed funds
If you only have a small sum to invest, a good option is to put your money in a managed or unit trust fund. These are funds which pool the investments from a number of investors, enable you to access markets and assets that may be expensive or difficult to buy directly into, such as the China’s restrictive A-share market, emerging markets and even the fixed income space such as government bonds.
Additionally, unit trust funds are a good alternative to buying individual stocks, where in exchange for a small fee you will have the advantage of participating in several stocks within a fund. What happens is that the fund manager trades the fund’s underlying securities, realising capital gains or losses, and collects the dividend or interest income. The proceeds are then passed along to the individual investors. Most funds require only moderate investments, ranging from a few hundred to a few thousand Ringgit.
This article is brought to you by HwangDBS Investment Management, your Asian Financial Specialists. Log on to www.hdbsim.com.my or call 1-800-88-7080 to find out how you can cost average your investment via the HwangDBS Smart Save Plan.
Use investment strategies that do work: a balanced allocation of your portfolio’s assets among securities that suit your individual needs, the use of Cost Averaging (CA) to lower the cost of overall investments and dividend reinvestment programmes, and a well disciplined, long haul approach to investing.
Most important factor you have in reaching your goals is time. The more time you have, the more chance you have of success. If you’re thinking of embarking on an investment strategy like CA, know your facts first.
For example, CA involves the regular purchase of units in a managed fund or shares over a period of time. It can be done automatically via an investment plan and you may reduce the risk associated with market fluctuations while giving your portfolio the best chance of long term profitability.
Here are options for you to choose from when it comes to investing in your future:
1.Direct investing
You invest directly in the share market, property or real estate investment trusts (REITs). The downside is that it generally requires market knowledge, plus regular monitoring of market trends, tax and legal changes. Many working adults don’t have access to the right market information or expertise to do direct investing well.
2.Buying bonds
The general principle of bond investing is that when you buy a bond, you are lending your money for a certain period of time to the issuer, be it a listed company or not. It’s a good choice for investors who require fixed horizon and steady income.
However, investing in bonds are usually for the high- net-worth and institutional investors as bonds are usually offered at a high entry cost, in hundreds of thousands or millions of ringgit.
Additionally, investors are advised to pay attention to total return, not just yield as bond prices fall when interest rates rise. An option for the retail investors to access the asset class will be to invest in unit trust bond fund due to its low entry cost and diverse holdings which allows for diversification.
3.Stocks/equities
Historically the best, but most volatile way to grow your money is through the stock market. On a short-term basis, stock prices fluctuate based on everything from interest rates to investor sentiment, to the weather. But on a long term basis, you could potentially make (or lose) a lot of your money in stock market. Bear in mind that risk and return come hand-in-hand.
4.Managed funds
If you only have a small sum to invest, a good option is to put your money in a managed or unit trust fund. These are funds which pool the investments from a number of investors, enable you to access markets and assets that may be expensive or difficult to buy directly into, such as the China’s restrictive A-share market, emerging markets and even the fixed income space such as government bonds.
Additionally, unit trust funds are a good alternative to buying individual stocks, where in exchange for a small fee you will have the advantage of participating in several stocks within a fund. What happens is that the fund manager trades the fund’s underlying securities, realising capital gains or losses, and collects the dividend or interest income. The proceeds are then passed along to the individual investors. Most funds require only moderate investments, ranging from a few hundred to a few thousand Ringgit.
This article is brought to you by HwangDBS Investment Management, your Asian Financial Specialists. Log on to www.hdbsim.com.my or call 1-800-88-7080 to find out how you can cost average your investment via the HwangDBS Smart Save Plan.
At the end of these 700 words you will all be able to value your business, your shares, your investment property, even your spouse.
YOU may have heard of a discounted cash-flow valuation. You should have. It is core to life, the financial industry and everything else. But, of course, half of us haven't and the other half are too afraid to ask.
So in a mild attempt to educate you, let me take you gently through it so you'll never have to nod cluelessly again. At the end of these 700 words you will all be able to value your business, your shares, your investment property, even your spouse.
Let's start with this. What is the value of a dollar? Well it's a dollar, of course. OK. So what is the value of a dollar in a year's time? Ah, well, it's not a dollar. And this is the issue. Thanks to inflation, a dollar in a year's time is only worth about 97¢ because, by the time you get the dollar, prices will have gone up by about 3 per cent, so the dollar in a year's time will only buy you about 97¢ worth of the goods that you could buy today.
We can now use this to value a company, an asset or an individual. All you have to do is work out how much money they are going to earn and, using inflation, turn those future dollars back into today's money, add them all up, add in the value of any other assets they have and that's what they are worth.
Here's the root calculation: A dollar earned in a year's time is worth $1 divided by 1.03 (1 plus the inflation rate). That's 97¢ in today's money (97.08¢, actually). To work out the current value of a dollar earned in two years you divide by 1.03 and divide by 1.03 again. Which gives us 94.26¢. So 94.26¢ is all you would want to pay for a dollar someone is going to give you in two years' time. So to bust a bit of jargon, the net present value (NPV) of a dollar earned in two years' time, discounted at the rate of inflation, is 94.26¢.
So now let's value a company.
So you can see that by forecasting future profits and discounting the value of future profits back to today's money you can value almost any income-producing company, asset, property, or person. You can even work out what your own net present value is. If you spend more than you earn, it's zero.
So this is what research analysts do with shares. They forecast profits, discount those profits back to today's money, add them all up, account for any other assets, divide by the number of shares on issue and come up with what a share is worth. A lot of them call that a ''target price''.
Of course, it's not quite this simple. In the real world they don't use inflation. They calculate a ''discount rate'' and the arguments over what discount rate to use are endless, but basically, rather than inflation, it is what you could have earned investing your money somewhere else. It is the opportunity lost, not the inflation cost. So if you could have put the money in a bond for 10 years and earned 5.5 per cent you'd use that instead of inflation.
So that's it. How to value a company or share. Nice concept.
But before you go out and value your spouse you should know that it's all complete bollocks. Of course it is. Because, in the end, there are so many forecasts, assumptions and subjective opinions integrated into the calculation of value that it ceases to be a science and ends up an imperfect art. A basis for the negotiation of price at best. A starting point for an argument between buyer and seller. May the best negotiator win. And that's the sharemarket.
Marcus Padley is a stockbroker with Patersons Securities and the author of sharemarket newsletter Marcus Today. For a free trial visit marcustoday. com.au
His views do not necessarily reflect the views of Patersons.
http://www.theage.com.au/business/doing-the-sums-is-is-easy-but-its-still-a-value-judgment-20101210-18swe.html
So in a mild attempt to educate you, let me take you gently through it so you'll never have to nod cluelessly again. At the end of these 700 words you will all be able to value your business, your shares, your investment property, even your spouse.
Let's start with this. What is the value of a dollar? Well it's a dollar, of course. OK. So what is the value of a dollar in a year's time? Ah, well, it's not a dollar. And this is the issue. Thanks to inflation, a dollar in a year's time is only worth about 97¢ because, by the time you get the dollar, prices will have gone up by about 3 per cent, so the dollar in a year's time will only buy you about 97¢ worth of the goods that you could buy today.
We can now use this to value a company, an asset or an individual. All you have to do is work out how much money they are going to earn and, using inflation, turn those future dollars back into today's money, add them all up, add in the value of any other assets they have and that's what they are worth.
Here's the root calculation: A dollar earned in a year's time is worth $1 divided by 1.03 (1 plus the inflation rate). That's 97¢ in today's money (97.08¢, actually). To work out the current value of a dollar earned in two years you divide by 1.03 and divide by 1.03 again. Which gives us 94.26¢. So 94.26¢ is all you would want to pay for a dollar someone is going to give you in two years' time. So to bust a bit of jargon, the net present value (NPV) of a dollar earned in two years' time, discounted at the rate of inflation, is 94.26¢.
So now let's value a company.
- Step one: Forecast how much profit it will make each year between now and eternity.
- Step two: Use our calculation to ''discount'' all those future profits and price them in today's money.
- Step three: Add up all those discounted profits.
- Step four: Add any other assets (cash and buildings). That's the current value of the company and what someone buying the company should be prepared to pay today.
So you can see that by forecasting future profits and discounting the value of future profits back to today's money you can value almost any income-producing company, asset, property, or person. You can even work out what your own net present value is. If you spend more than you earn, it's zero.
So this is what research analysts do with shares. They forecast profits, discount those profits back to today's money, add them all up, account for any other assets, divide by the number of shares on issue and come up with what a share is worth. A lot of them call that a ''target price''.
Of course, it's not quite this simple. In the real world they don't use inflation. They calculate a ''discount rate'' and the arguments over what discount rate to use are endless, but basically, rather than inflation, it is what you could have earned investing your money somewhere else. It is the opportunity lost, not the inflation cost. So if you could have put the money in a bond for 10 years and earned 5.5 per cent you'd use that instead of inflation.
So that's it. How to value a company or share. Nice concept.
But before you go out and value your spouse you should know that it's all complete bollocks. Of course it is. Because, in the end, there are so many forecasts, assumptions and subjective opinions integrated into the calculation of value that it ceases to be a science and ends up an imperfect art. A basis for the negotiation of price at best. A starting point for an argument between buyer and seller. May the best negotiator win. And that's the sharemarket.
Marcus Padley is a stockbroker with Patersons Securities and the author of sharemarket newsletter Marcus Today. For a free trial visit marcustoday. com.au
His views do not necessarily reflect the views of Patersons.
http://www.theage.com.au/business/doing-the-sums-is-is-easy-but-its-still-a-value-judgment-20101210-18swe.html
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