Sunday, February 27, 2011

Volume 3 Issue 9: Two-Cent Economics

Past and Present - Did Time Stop?

This is one of those posts where I let the pictures do the talking. I will show you a series of pictures of cities and the years when those pictures were taken. For starters, this exercize shows us how fast and how much the world has changed and advanced in the past few decades.

Atlanta - 1961
Atlanta - Present Day
Brazil - 1970s 
Brazil - Present Day
Hong Kong - 1970s

Hong Kong - Present Day
Houston - 1960s
Houston - Present Day 
London - 1997
London - Present Day
Manhattan - 1931
Manhattan - Present Day
Melbourne - 1921
Melbourne - Present Day
Moscow - 1997
Moscow - Present Day
Seattle - 1970
Seattle - Present Day
Yokohama - 1978
Yokohama - Present Day

Tampa - 1956

Tampa - Present Day
Tokyo - 1945
Tokyo - Present Day
I suppose up until now, you would not have been too surprised by the changes that you see throughout the above countries. After all, most of them are developed countries anyway. You must be wondering when I am going to show you China by now. Well, you don't have to wait any longer. Below, you will not only see China, but some of the other emerging economies as well, such as Korea, Singapore, Indonesia etc. Beware, some of these photos may be shocking. 

Shanghai - 1990

Shanghai - Present Day
Chongqing - 1998
Chongqing - Present Day
Makati City, Philippines - 1980s
Makati City, Philippines - Present Day

Mexico City - 1950 

Mexico City - Present Day
Dubai - 1990

Dubai - Present Day

Jakarta - 1960s

Jakarta - Present Day
And this may be shocking to you, but the picture below is Seoul, Korea in 1961.

Seoul - 1961

Seoul - Present Day
And the next picture is from our neighbor, Singapore. By now, one must wonder what has become of Malaysia in the last few decades.

Singapore - 1974

Singapore - Present Day
I guess here is the big finale. Maybe not so big. If you look at the picture below, many of you should recognize what we know as Chulia Street in Penang. 

Chulia Street - 1960s
Chulia Street - Present Day

Comparing Chulia Street in 1960s with that of today, you would probably think that time stood still for Penang. In fact, the trishaw from the 1960s is still there in the picture of present day Chulia Street. Compare Penang's performance with those of all the countries above and we wonder how did Penang fall so far behind. Chulia Street has barely developed in the past 50 years. It is indeed a sad case for Penang and Malaysia. Well, in the spirit of Malaysia Boleh, I have one last comparison to share. Below are pictures of a city that has barely changed through time as well. 

Greece - 1860s
Greece - Present Day
Yes, you read it right. Apart from adding a few more buildings, the skyline of Greece has barely changed in the past 150 years. This is the story of a more or less bankrupt nation. The next question to ask is, are we trying to become like Greece?

Volume 3 Issue 8: Intelligent Investing

The Power of Diversification?

Very often, we hear so-called financial planners tell us to diversify our assets to minimize risks. Today, we shall examine a few simple cases to put this adage to the test. Let's just assume that Mr UTA (Unit Trust Agent) is a relatively educated investor and has decided to listen to his "financial planner" to diversify his assets when investing in the KLCI. So, what better way than to diversify it according to the KL Composite Index itself.

For your information the KLCI comprises 30 of the largest stocks by market capitalization listed in Bursa Malaysia. By that virtue, how badly can Mr UTA do?

Now let us take a look at the KLCI since January 2003.

If Mr UTA were to buy and hold all the stocks according to the KLCI since January 2003, he would have earned a handsome return of 124.0% in total or about 10.4% per annum. That is not too bad by any standards. But in actual fact, Jan 2003 is at one of the low points of the KLCI. We will come back to this later.

Now let us take a look at the performance of Bhd (DIGI) in the same time period. 

The returns for DIGI, excluding dividends paid, is 1,029.5%, or a whopping 35.0% per annum. Now, this is one case where one particular stock has outperformed the KLCI. The reason I picked DIGI was because it is a household name that many of us can relate to. Most people would have known or heard about what DIGI was about. It is not some obscure stock that is into some sketchy business. The key was in finding out the fact DIGI was a good investment all the way back in 2003.

Let us look at another household name, Parkson Holdings Bhd (PARKSON).

OK, so PARKSON is not DIGI. DIGI may have been an exceptional case. The cumulative returns for PARKSON over the same time period was about 347.0% or an annual compounded rate of return of 20.4%. Both of these stocks clearly outperformed the super diversified KLCI by a huge margin.

Perhaps you may think that stock picking is luck. What we hope to do here at the Main Streeter is to identify stocks like DIGI or PARKSON way in advance and buy them at times such as in 2003 when they were severely undervalued. While there is some element of probability in this, but it is most definitely not luck.

Finally, let us look at the KLCI again. But this time, assume that Mr UTA had bought into the KLCI since January 1994.

After approximately 17 years and 2 months, the overall return for Mr UTA would have been ONLY 16.8%, which translates to about 0.91% compounded per annum. Yes, it is less than 1% per year. Mr UTA would have been so much better off if he had just did nothing but put his money into fixed deposit.

As you can see, it is not always good to diversify your investments. In fact, it could even backfire. Simply following the "market" or the KLCI is not the intelligent way to invest. What the above examples also show is that, timing the market will most likely lose out to stock-picking through genuine, thorough research. If one could have identified companies such as DIGI or PARKSON in 2003, one's returns would have been extraordinary.

Of course it is very easy to say all this with hindsight. Perhaps, in the future issues, we could examine deeper into some of the indicators that could have led us to purchase these shares in January 2003.

Disclaimer: All company analyses, including the paper portfolio that appear in this newsletter are derived from facts gathered from various sources and the contributors' personal opinions and for education purposes. It is NOT an invitation to deal in securities, and especially not a recommendation for buying or selling any stock. The contributor(s) do not guarantee the accuracy of the facts being presented. The accuracy of such facts are only as reliable as the sources that they are obtained from. Please consult your investment advisers before acting on any information provided by the analyses here.

Sunday, February 20, 2011

Volume 3 Issue 8: Two-Cent Economics

Follow Excellence, and Success Will Chase You, Pants Down

It is rare that I would make a movie recommendation, particularly in supposedly serious newsletter such as the Main Streeter. However, I have watched this movie three times and I must admit that I have enjoyed it every single time.

On the surface, the movie appears to be a comedy with multi-angled humor, poking fun at those who treat life as a race, chasing after success, money or whatever it is that they seek. But the movie goes much further than merely providing good entertainment. It reaches out to the ordinary-ness in us, with an attempt to inspire us to do the extraordinary.

This certainly makes it to one of the top movies of all time for me, if not the top.