How NOT to open a bank account with AmBank?

Date - Aug 2, 2012 (Thursday)
Time - about 130pm
Place - Johor Bahru, Jalan Wong Ah Fook Branch
Attended by Shirley (personally) and Mr Tan Hiang Tak (Michael) (by phone) - District Manager, Southern District 4

My intention - to open a savings account to be used to service a housing loan

What did I bring to the bank? I brought myself, Malaysian identity card (I/C), Malaysian passport and money.

After Shirley reviewed my docs, she asked me why I need to open an account in Johor Bahru (JB) when the address on the I/C shows that I am from Kuala Lumpur (KL).

I told her I am working and staying in Singapore and have just entered into an option to buy a property in JB. She then asked me for work permit or Permanent Resident card or any document to prove that my place of residence is in Singapore.

I asked her why the need to show that I am residing in Singapore. She told me that it would not be appropriate for someone with a KL address to open an account in JB. So I ask why not?

I offered some possible resolutions to our impasse. I offered her my lawyer's details for her to confirm my intention. She said no. I asked Shirley whether she could talk to AmBank loan officer who is currently reviewing my loan request. She said no again.

My mind is trying to find a single possible valid reason for someone staying in Jurong being refused to open a bank account in Tampines.

Is it because the Malaysian banks' computer systems are not fully linked? Are they worried that a "naughty" customer would be able to open accounts all over Malaysia and they could not cross check each other branch's database? (By the way, I wish to reiterate that I am trying to open a savings account and not a current account. It is very difficult to cheat someone with a savings account.)

She added that I could come AGAIN on another day with perhaps, my utility bill (for example) showing my name against the address.

I asked to see the Branch Manager. I was told he is not around. I asked to speak to him over the phone. I was duly connected to a Michael Tan. I appealed to him for a waiver. He said he is unable to yield to my request and offered to ask Shirley to send an email to their Head Office for permission. I was asked to wait for the request to go through.

I waited for ONE hour.

At the end of that one hour, Shirley informed me that Head Office has turned down my request.

What am I seeking in this open letter?
a) Please explain the need for proof of residence or some other docs to support why one need to open an account in a certain location.

b) What is your standard response time for Head Office to reply to an email request from a branch?

====================================================
I am really curious to learn the reason for this requirement. The requirement for proof of residence is so important to the Bank that they could reject your request to open an account. This open letter could also many other prospective customers to understand your policy.

I actually went straight to my lawyer and duly informed him to inform future Malaysians staying in Singapore to bring their respective proof of residence.
====================================================

Are managed funds any good?

Are active fees actually yielding any outperformance, let alone absolute returns? A question asked in BT dated Feb 12, 2009.

Based on public data, for a 3-year period to end January, Asia ex-Japan funds:-

• Asia ex-Japan funds lost negative 9% on an annualised basis, compared to
• negative 11% by the MSCI Asia ex- Japan index.

Over a 5-year period,

• the funds lost one per cent on an annualised basis, compared to
• the index loss of 0.13%.

Over 10 years,
the funds' record shows an annualised return of 3.49% among funds, against
2.66% for the index.

Based on the above numbers ==> the index has beaten the fund managers in 2 of 3 categories.

Have you started your soul-searching over the value of active management ie. are the fund managers any good? I have. If you refer to my earlier posting, I am concluding just that. I can't PERSISTENTLY beat the market in the long run.

I won't be surprised that high networth clients are preparing to show fund managers / private bankers the door, replacing their allocations with no-frills index funds.

Should part of sovereign wealth of a nation be in no-frills index funds too?

Temasek portfolio down 31% - My lesson

r u a pedestrain?

The sub-headline said - "Measured against other indexes, Singapore's two state-owned investment companies did better."

What is that sub-headline supposed to mean? Shouldn't the Temasek team, with the best of qualification, experience and market knowledge/access, be doing better than any index?

May I cite the following info for my record:-
Temasek Holdings - down 31%
MSCI World Index - down 38%

The 31% drop is equivalent to $60bio drop to $127bio.

Looking at own potfolio which suffered a bigger decline than MSCI's and given the above information, what shall be my future investment strategy?

Since the best fund managers at Temasek team are beyond my reach, the next best option would be to invest in MSCI World Index Fund. Since it is an index fund, it should be quite efficient. Another plus point is that I am also able to bring my future portfolio performance closer to that of Temask's.

P/S - Fool.com's strategy of investing in the widest index fund possible. It is now the time for me to it seriously.

EVA and Keppel Corp

Quiet - my 4.30pm picnic lunch on Friday last

What is EVA?
Economic value-added (EVA) is after-tax operating profit minus the dollar cost of capital employed. It is measured in dollar figures, and not a percentage rate of return.

EVA = after-tax operating profit - [weighted average cost of capital X total capital employed]

EVA is positive as long as the residual income is positive. EVA is used to avoid situation where an investment that is profitable for the Group is given a miss by the responsible division, whose performance is measured on ROI.

Keppel Corporation is a key user of EVA. I quote the paragraph from their latest financial report.

"We have been reporting positive EVA since 2004, achieving a record $604 million in 2007.

This positive EVA was due mainly to the improvement in Net Operating Profit After Tax (NOPAT), an efficient capital structure, stringent investment criteria and strong cashflow.

The improvement in EVA by $181 million was attributed largely to higher NOPAT partially offset by higher Capital Charge. NOPAT increased by $216 million due to an increase in after-tax profit of $172 million. Capital Charge increased by $35 million due to a higher Weighted Average Cost of Capital (WACC) partially offset by lower EVA Capital. WACC increased from 6.5% to 6.99% attributed largely to a higher unlevered beta. Average EVA Capital decreased by $132 million from $9.08 billion to $8.95 billion.

In all, total EVA growth was $405 million over the last two years."

Value investing OR Growth investing?

Can you tell the difference between the two?

Value investing is the art of looking for "out of favour" companies with discounts in price-earning (PE) multiples. Looking for established companies with proven earning records but relatively "cheap" now.

Growth investing is the "science" of looking for fast earnings growth, probably relatively young companies with possibly cutting edge, new age products seeking to change market paradigm. Such companies are usually trading at high PEs. Why? Got not much earnings to show now.

So who am I? Can I say I am both a value investor and growth investor.

In a recent presentation by Mr Jimmy Pang, a senior portfolio manager at Alliance Bernstein recently, he said,

• Forecasts for exciting companies tend to be too exciting ie. optimistic.


• On the other hand, investors are too pessimistic with value companies.

His themes were that

• "reversion to the mean is good for value stocks but bad for growth stocks" under the current investment climate.


• "there is very little value to wring out of value companies but there is a lot of value to be found in growth companies"

What is the reward of correctly identifying the "right" growth company to invest in?

Well, if you had invested $10,000 in Cosco five years ago, you would be a millionaire today!!!! (worth $1.1m today)

What is "share buyback"?

my sunday jog

Who is buying?

It is the public listed company buying back its own shares from the open market using company's fund. Shareholders' approval must be secured to use company's funds for this purpose.

Under the old rule, the shares would be cancelled. Current rule allows such shares to be placed in a Treasury Account ie. a holding account.

What are the possible reasons for such action?

• to enhance Return on Equity
• to tighten control over the company by the majority shareholders' using company's fund
• to discourage any takeover attempt by restricting supply of free floating shares
• to return excess capital back to shareholders
• to buyback and give the shares to employees as reward under its various incentive schemes
• to support the company's share price

When is it an appropriate time for the company to do it?

It is usually done during periods in which the respective company thinks its share price is undervalued.

It is reported in BT yesterday that the total value of share buybacks rose from $53.47mio in July to $174.6mio in Aug to date.

UOB Bank alone accounted for $143.32mio ie. an amazing 63% of total value of share buybacks over the these 2 months. Haw Par Corp, another company related to Wee family, bought back $40mio worth of shares.

So is the Wee family signalling to us to buy too???

Holding period for shares

I just been informed by Ms Teh Hooi Ling in her article in yesterday's BT that there is a formula used to measure average holding period.

What is the formula?

It is calculated based on the annualised value of stocks traded in a month divided by the entire market cap of the stock exchange and multiplied by 365 days.

Last month ie. July 2007, the number of days a stock is held by investors in Singapore last month hit 353 days. It is the second lowest level in the last 17 years since the dotcom bubble in June 1999.

For the record, it was 309 days in June 1999.

So is it good or bad to have "a low holding period"?

Back in 1994 and 2000, average holding periods during thes 2 years dropped to the lowest level during their respective peak of the stock market.

And two months back, holding periods for stocks in Asia was at its briefest, shorter than even in 1994 and 2000.

Thus on hindsight, the correction should have been seen to be coming.

Lesson learnt - Set up the formula in your Excel spreadsheet and monitor it for the next stock market crash!!!

360 day-year or 365 day-year - What is the big deal?

I have just been informed by my DBS Credit Card Statement that:-

"the basis of interest calculation will be revised FROM existing 360 day-year TO 365/366 day-year (in a leap year)"

I couldn't believe my eyes!!!!

That for once in my life, I am looking at an unilateral amendment to a service agreement that is in favour of customers.

So what is the big deal?

Allow me to illustrate with an example. Let us say I have a personal loan of $10,000 at 14% p.a. What is my interest expense for the month of August (a 31-day month) based on:-

a) 365 day-year and;

b) 360 day-year?

Answer

For a 365 day-year, my Aug's interest expense,

$10,000 x 14% x 31/365 = $118.90

For a 360 day-year, my Aug's interest expense,

$10,000 x 14% x 31/360 = $120.56

Based on DBS Bank's revision of its basis year, it has implicitly given me a discount of $1.65 per $10,000 loan per month (estimated).

If you multiply this by the billions of personal loans, credit card loans, car loans, property loans, travel loans, renovation loans etc etc etc, this would be (as I am not sure whether this is applicable to all DBS loans) a significant move by a leading bank in Singapore in the right direction ie. a fair deal to both the bank and its customers.

Cheers to DBS Bank!

P/S - Refer to http://anythingwithedgar.blogspot.com/2007/05/how-to-increase-your-companys.html for my earlier expression of displeasure.

Have you got a call from your broker?

It is definitely BAD news if I had received a MARGIN call from my broker in the last 2 weeks.

What is a margin call?

Situation arises when I have borrowed money from stockbroking firm to partially pay for my share purchases AND the share price of that counter fell significantly.

Example

I have purchased 100 lots (ie. 100,000 shares) of Company X at $1 per share. At 80% financing, I paid $20,000 from my own pocket and the remaining $80,000 borrowed from the firm.

When the share price dropped to 70 cents, the firm would recalculate the loan amount ie. 80% of 70 cents x 100,000 shares = $56,000.

The firm would call me to top up the difference of $24,000 (ie. $80,000 less $56,000)!

If I got the money, I would pay the $24,000.
If I got no money, I would be forced to sell my shares at a loss of $30,000!!!

Moral of the story - You must consider the downside for any upside that you are expecting.

Things people do not care

The following are things people do not care about when the market is red hot!!! The following are quotes from today's papers after the blood bath yesterday.

"People are not investing BUT trading."
[(red face) Edgar was trading on IPOs. He didn't read the prospectus.]

"It went from unbelievably bullish to unbelievably bearish in just hours."
[Edgar was searching for news to explain the suddent turn in sentiment. I thought a bomb went off somewhere in the world.]

"Traders were unnerved by a sharp sell-down..."
[Edgar has been mentally prepared for this type of occurrence. He was actually looking to buy.]

"Many heavily traded stocks are those belonging to financially strapped companies with poor earnings records."
[Edgar is fully aware of this and has been advising caveat emptor. See past posting.]

"Reverse takeovers can take as long as a year."
[Edgar understands the difficulty of doing business. A simple deal may take weeks or months to negotiate. Imagine a reverse takeover between 2 entitites under 2 different legal, accounting, financial and sovereign jurisdictions. The deal may even break down.]

"Can a company with poor earnings record be valued at close to a billion dollars?"
[Edgar cannot believe it is happening. But apparently there are many who give such valuation to those companies.]

IPO Strategy

Hi friends,

In the middle of a night of a day last week, I chanced upon the opportunity to apply for IPO for China Sunsine using the massively convenient internet banking. The IPO price was 39cts and I decided then to apply for 20 lots.

The next day after the closing date, I was informed that I have been successfully alloted 3 lots.

On trading day, I sold at 57.5cts. A nimble profit of 18.5cts per share or $500 over a few days.

Given the small success, I started to give IPO a little more attention. I applied to a few but was unsuccessful in all of them. The opportunities missed are as follows.

• RH Energy - IPO at 32cts and closed the trading day at 87cts.
• China Angel - IPO at 35cts. Traded as high as 80cts.

Moral of story - It confirms again - There is no sure thing. Caveat Emptor always.

P/S - Financial One - IPO'd at $1.15 and closed the day at $1.15.

HG Metal Chairman sells 1.1mio shares

The point - Whenever an insider make a buy/sell activity or a series of buy/sell activities, we should pay attention.

We need to evaluate that action/s in perspective ie.

• How insider is this person? Key/majority/very executive shareholder?
  
• no. of shares bought/sold against his existing holding
  
• any reason given for the buy/sell - Sometime, the person may sell to pay for the bungalow he is buying etc etc.
  
• pattern based on past activities of this person

Let us take a look at what is reported in Straits Times today on the sale of 1.1mio made by HG Metal Chairman.

• Who is he? The Chairman of the company.
  
• 1.1mio shares sold --> reduced his total shareholding position from 6.06% to 5.65%.
  
• no reason given
  
• pattern of activity - I did not check.

My view - He sold when the share price broke new high yesterday. I think he could be cashing in on some of the gains.

In search of next stocks to buy

On Jul 7, 2007's Weekend edition of Business Times, Ms Teh Hooi Ling gave us the following clues to find our next winners.

"Go for stocks with high return on equity but low price-to-book ratio"

What are those ratios?

• Return on equity (ROE) - We have several versions of the formula to ROE. Basically "return" could profit before tax or profit after tax and "equity" would be the summation of paid up capital plus all the reserves. Ms Teh is telling us to look for companies with high ROE.

Take for example - If most businesses in Singapore are able to generate a return of 10% on its resources, that 10% becomes the normal rate of return. Then look for companies making above the normal rate.

• Price to book (PTB) ratio - What price? Share price of that company. What "Book"? It refers to the net assets value as reflected in the accounts. PTB ratio will give an indication of how much we are paying in excess of the book value per share of the target company. Thus Ms Teh rightfully told us to look for companies with LOW PTBs.

Take for example - If the book value is $1 and the share price is trading at $2.40, PTB is 2.4x.

So where to find those ratios?
Sadly, such information is not easily found and nicely presented somewhere for us to see. Ms Teh had downloaded the ROEs and PTBs of all the companies listed on the Singapore Exchange from 1990 until 2007 from Thomson Financial Datastream. She had done a lot of secondary analysis to do the article.

As retail investor, we can do calculations on the few target companies. But market or industry figures would be the value added of institutional investors.

But if you actually do your homework, you will be well rewarded as per historical data. Ms Teh found out that the top 10 per cent of companies with the highest ROE/PTB would have turned your $100 into $34,048 in 17 years ie. average growth of 41% per annum.

Do you read the prospectus of IPOs?

Dear friend,

Frankly speaking, I couldn't.

I could not read every page but I do attempt to read sections of prospectus for info on the following areas:-

• What business/industry are they in? What is their business model? How do they make money? Thus is it defensible to some extent?
• What is the price am I buying in into the company? I will look for price-earning (PE) ratio as my first rule of the thumb.
• What are the declared risks of the business by management of the company? Many years ago, there was this IPO in the palm oil business which has declared that some of their plantations are sitting on land with ownership under dispute. Of course upon reading that, we should review for possible impact.

STI ETF 100 - huh?????

On Apr 24, 2007, I bought my first lot of 100 shares of STI ETF 100 @$33.25.

Based on my memory, the market had experienced a correction of more than 100 points the day before. I took the opportunity to try out a new investment type ie an ETF.

As of May 18, 2007, the last traded price was $35.29. A $2 appreciation in less than a month. Good decision on the timing but not on the amount invested.

So what is an ETF?
ETF is an exchange-traded fund. For STI ETF, it invests in the component stocks of Straits Times Index according to the respective weightage.

What are the advantages?

• It allows me to participate in the equity market at theoretically lower risk.
• It spares me the need to comb through piles of brokers' recommendation.
• It allows me to participate in the growth of a group of 50 companies representative of the Singapore economy.
• My fortune is thus not tied to the fate and turbulence of a single company. Many of these companies are the bluest of the bluest chips counters.
• I will receive dividends on dividends received from these companies.
• Any fees payable to the fund manager? Nil. I only pay for the commission and fees as per buying and selling shares on the exchange. Thus in terms of costs against fund-manager-managed funds, ETF is definitely cheaper.

Are there any disadvantages?

• I might experience liquidity issue ie. there could be occassions where there are no buyers or sellers at prevailing price. But in recent weeks, I must say liquidity has improved. Not sure whether it was due to a letter written about the higher volume done on ST index in overseas exchanges.
• While I may have diversified away company-specific risks, I am still exposed to country-specific risk for STI ETF.

Unit trusts and Funds - What????

A reader said in a recent posting that shares are very volatile and thus asked me to write something about unit trusts.

Unit trusts or funds are financial vehicles where individuals can pool their monies to invest in certain sectors, themes, country etc at a specific risk profile.

Individuals essentially engaged fund managers to make investment decisions on their behalf.

For that, you have to pay them $$$. The annual fees are usually a percentage of funds under management, regardless whether the fund make money or not.

In addition to that annual fees, you may be required to pay a one-time marketing fee upfront when you first participate in the fund.

Volatility will still be around as it would depend on the type of unit trusts you have selected. Eg. you should have a higher appetite for risk for you to invest in technology funds as compared to investing in essential consumer product sector.

Useful info from today's ST

Friends,

The following is an illustration of how reading the newspaper can be an important and probably prosperous exercise everyday.

I will be referring to page S25, S28 and S29 of today's Straits Times.

1. "Singapore Land's profit rises 12%"
For the YE 31 Dec 2006, EPS is 24.3cts. (Thus PE ratio is 42x)
Group Net Asset Value (GNAV) - $7.50 against Friday's closing of $10.10.
Proposed dividend of 45cts.
This would give a gross dividend yield of 4.4% at current share price.

2. "TeckWah lifts net gain to $8m"
EPS - 3.65cts
Yesterday closing share price - 21cts.
Thus PE ratio - 5.7x
NAV - 37.9cts
My assessment - Relatively low PE with NAV > current share price ==> relatively attractive

3. "UIC's gain more than doubles to $492mio"
EPS - 35.7cts
Yesterday closing share price - $2.57
PE ratio - 7.2x
GNAV - $1.77
Proposed dividend - 9cts
My assessment - Attractive PE ratio against gross dividend yield of 3.5%. Negative - $2.57 share price > GNAV.

Disclaimer - My above assessment is purely from my simple reading of articles in the papers. This is to illustrate that precious info are available if you know where to look for them.

I have no position in all of the above counters.

HG Metal - Theoretical price after Ex-All

Hi investing friends,

HG Metal's offer on dividends and rights issue wil go ex-all on Monday.

Just want to present the calculation to arrive at the theoretical price after ex-all.

Based on Friday's closing of 54cts and 2-for-5 rights issue @20cts,

Cost of purchasing 5 shares @54cts - $2.70
Cost of 2 rights shares @20cts - $0.40
Total costs of getting 7 shares would be $3.10.
This would give you a theoretical ex-all price of 44cts.

P/S - Computation excludes brokerage costs.
P/S - Edgar does not have any HG Metal share.

Business Trust - What is that?

There is a bit of hype going on with Business Trusts as a new investment class. Hyflux is already a benefactor.

What is a Business Trust (BT)?
Essentially, BT is a vehicle that allows investors to collectively own an asset with the following features:-

• stable predictable growth in earnings,
• stable cashflows and;
• low capital expenditure requirement in the near future ie. a generally completed infrastructure.

The BTs are set up as trusts rather than traditional companies. BTs are subject to corporate income tax rates.

Some examples of such asset would be power plant, water production plant, refining facilities, a plane, a ship, an oil tanker, etc.

It is similar to REIT. REIT focuses on properties.

Investors should generally focus on income yield. Capital appreciation is limited to those with longer term perspective.

Valuation for a company - A Method

The following is a method (among many) in attempting to estimate the valuation of a company.



Proposition



Value of company =
Book Value + NPV of future stream of abnormal earnings



where

• Book Value - ie. original capital invested to start the business
  
• Abnormal earnings - ie. earnings above the cost of capital

Consequently from the above proposition, you would have 3 possible scenarios.

1. when company's earnings > cost of capital


2. when company's earnings = cost of capital


3. when company's earnings < cost of capital
   

Investors would be willing to pay MORE than the book value of the company in scenario 1. Whereas, investors should pay a price equal to the book value of company for scenario 2. In scenario 3, investors should seek a discount on the book value to justify a normal return on investment.

My view

I would recommend the use of current networth (net assets) of the company instead of just the "original capital".

For a company that has been in business for many years, it would be using the original capital invested + any retained earnings + other reserves as the current capital involved in funding the business operations today.

The above formulation is a multi-year model ie. both the investors and owners of the business are required to look at future areas of business that would generate the abnormal returns.



We can use a single-year model to be used as "rough" valuation.

Example - ABC is company with the following profile:-
- a net assets of $100
- It generated a profit of $10 ie. 10% return on net assets.
- cost of capital for this businees is 7%.

The "rough" valuation should be around,
$10/7% = $142.86 (ie. > greater than net assets of $100)

Reference - "Abnormal earnings drive a firm's value", Business Times, Teh Hooi Ling, Dec 2-3, 2006.