Tuesday, March 29, 2011

Volume 3 Issue 12: Intelligent Investing

Berkshire and Anne Hathaway

What do these two names have in common apart from their "last names"? Well, apparently, quite a bit. Here is a link of an article which I think exemplifies how many "investors" read too much into things.

Basically, they identified how the Berkshire Hathaway stock price was correlated with the number of times Anne Hathaway's name appears in the media.

Check it out.

Sunday, March 27, 2011

Volume 3 Issue 13: Two-Cent Economics

More World Class-ness

Now, we all know Japan has been hit with one of the biggest natural disasters of all time. But this is not what today's post is about. Below are three pictures that say everything about being world class. The first picture shows how badly hit the Nippon Expressway was after the quake.

How long do you think it would take the Malaysian public service to fix something like that? The second picture below shows the roadworks four days after the quake.

And then two days later, on the sixth day after the biggest earthquake in Japan's history, the road is already open for use.

It almost seems like it was magic. One can only dream about such high quality roadworks in Malaysia. Below is a picture that probably depicts what the road conditions are like in Malaysia.

What more needs to be said?

Sunday, March 20, 2011

Volume 3 Issue 12: Two-Cent Economics

First-World Service (again)

Here is another story demonstrating first-world service:

Hats off to Food Republic
I CALLED Mr Daniel Tay of Food Republic at 313@Somerset to inquire about the possibility of ordering a large amount of satay from the foodcourt's satay stall for my daughter's birthday party. He told me it was his understanding that pre-ordering was not possible but would help to check anyway.
He called back to apologise and confirm that it was not possible to pre-order. He also provided me with the stall operator's contact details so that I could liaise with them to see if they could fulfil my request.
When Mr Tay found out I was a fan of Food Republic, he took the initiative to offer me four of the foodcourt's privilege cards. He arranged for me to use them when I visited Food Republic, saving me the trouble of making a special trip to collect them.
Mr Tay's professionalism defines exemplary customer service. He could have declined to entertain my query as he knew that pre-ordering was not possible.
He also did not have to offer me the privilege cards, and give himself that extra work of reserving them for me, as I had not even known about them. This is unlike most service staff who would wait for customers to inquire about the cards.
Sherley Servos (Mrs)

I guess the comic above depicts the Malaysian entitlement attitude pretty well. Before we even provide any service, we already believe we deserve to be rewarded.

How often do we come across such a level of service as described by Mrs Servos in the quote above in Malaysia? Such civic-mindedness would be really great. But in Malaysia, we have drivers who refuse to let you change lanes AFTER you signalled. They would naturally speed up so that you are unable to change lanes. This then leads to the next worse thing. Drivers now change lanes WITHOUT signalling, precisely because of douchebags who speed up when they see a car signalling up front. Now when that happens, accidents happen.

How are these two stories related? Well, both are about being considerate. It is not a surprise that with a third-world mentality that we would never be able to become a first-world nation.

Volume 3 Issue 11: Intelligent Investing

Return on Investments (some thoughts)

Today from the Star:

Penang Hill funicular trains to attract more tourists
GEORGE TOWN: Trips up Penang Hill by the upgraded funicular train service will be as fast as five minutes or less in air-conditioned coaches but the public will only experience that in a month when the service resumes.
Tourism Minister Datuk Seri Dr Ng Yen Yen said the faster speed and new coaches that can accommodate 100 passengers each would enable 2.4 million tourists to visit the hill annually compared to 607,198 in 2009.
She said the hill received 65,176 visitors in the first two months of last year before the service was halted for the ministry’s RM73mil-upgrade.
“With the new and faster system, we expect there will be an influx of local and foreign tourists,” she said after handing over the project to the Penang Hill Corporation (PHC) on Saturday.
She said the project was in line with the ministry’s aim to build more parks and gardens.
“Penang Hill is a unique place for botany enthusiasts who love nature. I hope PHC will fully utilise its potential and make Penang Hill an icon in the state,” she said.
Chief Minister Lim Guan Eng, who is the head of PHC’s board of directors, said they would make an announcement in a month’s time on when the train service would be reopened to the public.
“We need to sort out several matters after we take over the project,” he said.
Prior to the upgrading, it took 30 minutes to go up the hill on the funicular service with a change of train in the middle station.
No change of train is required in the upgraded service.
Here are some simple calculations about how ridiculous some of the calculations are.

The Tourism Minister believes that the number of visitors to Penang Hill will jump to 2.4 million. I suppose you can't really find any fault with her because she did not say by when. Let us estimate when that will happen with some back-of-the-envelope calculation. Assuming a 25% growth per annum, it would take a little bit more than SEVEN years for the number of visitors to reach 2.4 million per annum.

So is the investment worth it? First of all, RM73 million sounds pretty steep to begin with. Let us now estimate how long it would take for the investment to recoup itself. Based on the current ridership and a 25% annual growth as before, with the ticket priced at RM8, which is double the current ticket price, it would also take SEVEN years to break even. Now, assuming that the ticket price did not double, and perhaps raised to RM6, it would take a bit more than EIGHT years to break even.

This is not even including all the operating costs, which includes maintenance, spare parts, etc. Should they have invested in this upgrade? Probably. But should it cost RM73 million? Could we have cut the cost to a much smaller amount? I sure hope so.

Friday, March 18, 2011

Volume 3 Issue 11: Two-Cent Economics

Malaysia, North Africa and the Middle East

Tahrir Square, Egypt
The above picture shows the massive gathering of protesters in Egypt where the revolution began on 25 January 2011. Years of pent-up frustration towards the mismanagement and abuse by the government were all gathered there.

I suppose the question to ask is, "Will the same thing happen in Malaysia?"

Even better, "Should the same thing happen in Malaysia?"

Will the frustration of the Malaysian people boil over and lead to the massive protests seen in the North African and Middle Eastern countries? If a revolt does happen, what happens next? Food for thought...

Saturday, March 12, 2011

Volume 3 Issue 10: Intelligent Investing

Harrisons Holdings (Malaysia) Bhd - Part 2

In this part, we will take a look at the nature of business of Harrisons Holdings. Most of this information was extracted from their website, which I will quote in italics, but I have added some comments and observations of my own.
Better known previously as wholly owned subsidiaries of Harrisons and Crosfie1d PLC, Harrisons is one of the oldest, largest and most established sales, marketing, warehousing, distribution and services organization in Malaysia, particularly in East Malaysia where Harrisons has been in business for 91 years and has developed a very good distribution network that ranks amongst the best in the region. 
Harrisons had its beginning as a relatively modest Harrisons and Crosfield trading outpost in 1918 in Sandakan, Sabah, and has today grown into a major Malaysian distribution and services company that can proudly take its place amongst the bigger corporations in terms of profitability, sales turnover, asset backing, employee size, business spread and geographical reach.
Harrisons also has a major presence in the shipping agency industry in East Malaysia where it represents a large number of major international and domestic shipping lines. In East Malaysia, Harrisons is also one of the few companies to maintain a network of 7 fully computerized travel ticketing and sales offices.
Harrisons' income is currently derived mainly from the marketing, sales, warehousing and distribution of consumer, building materials and engineering products, fine wines, agricultural and industrial chemicals, and the operation of shipping/logistics and travel agencies. 

Chart 1 shows that the contribution from the trading and distribution segment pretty much dominates its revenue source. Over the past five years, it had consistently stayed above 98%, and in particular, the last 3 years, its shipping services did not contribute any revenue at all. The revenue from “other businesses” essentially comes from the provision of insurance and travel agency services, and investment holding, and do not really contribute much to the business.

Chart 1
However, Chart 2 shows that the contribution from the other businesses does play a larger role compared with that of revenue mainly because the profit margins are much higher. Nonetheless, it reported a loss in 2008, which should not come as a surprise seeing it was a recession year, given the nature of the business. From these two charts, it is clear that its core business is most definitely in trading and distribution. We will discuss more about its performance in another issue. 

Chart 2
These businesses are conducted through its two groups of subsidiary companies, the Harrisons Trading Sabah Group and the Harrisons Trading Peninsular Group as follows:
In East Malaysia, the Harrisons Trading Sabah Group is involved in the marketing, sales, warehousing and distribution of fast moving consumer goods, building materials, engineering products and agricultural chemicals; operation of shipping and travel agencies in both Sabah and Sarawak;
In Peninsular Malaysia, the Harrisons Trading Peninsular Group is involved in the marketing, sales, warehousing and distribution of building materials, industrial and agricultural chemicals, and import and distribute fine wines; also freight forwarding and shipping (cruise business).
Presently, Harrisons has approximately 400 principals, and distributes approximately 11,000 product items to over 10,000 accounts spread all over Malaysia. It achieved a turnover exceeding RM1 billion in 2008.
The Harrisons Trading Sabah Group and the Harrisons Trading Peninsular Group together operate a total network of 27 branches strategically located, throughout Malaysia (11 in Peninsular Malaysia, 9 in Sabah and 7 in Sarawak) as shown in the map attached.
Harrisons employs about 1,000 staff and is highly regarded as an employer of choice, enjoying relatively low staff turnover in an industry where loyal, aggressive, yet approachable, management with deep industry-specific experience and proprietary knowledge is vital to ensure continued growth and profitability. This has been achieved through a decentralized organization structure that facilitates employee empowerment and initiative (enhancing speed to market), and organizes the business regionally for profit accountability and centrally at the group level for longer term strategic development.
Highly regarded by its business partners - principals as well as the trade - Harrisons has represented major multi-nationals for considerable lengths of time: Nestle has been with the group for 75 years, GAB for 52 years, Malex for 42 years and Maerskline for 31 years, to cite a few examples. Other well known companies represented by Harrisons include SCA Hygiene (Drypers), Reckitt Benckiser (Dettol, Shieldtox), Kao (Biore, Laurier), Ngan Yin and Cocolin.
Indeed, many principals today regard Harrisons as an integral part of their sales and marketing intelligence and research which are vital to their success in the markets where they have entrusted Harrisons with special distribution rights. 

Not only are the principals are world-renowned companies, but they have stuck with Harrisons through thick and thin, most notably, Nestle, which has been with Harrisons for 75 years. This speaks volumes for the quality of service that Harrisons is providing. It would be easy for Nestle, or any of the other companies to switch distributors, but sticking out with Harrisons certainly suggests that the group must be doing something right.

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.

Friday, March 11, 2011

Police and computer system can’t cope with rush to settle summonses

This is from the Star. Naturally, this problem is not unexpected. It is well known that the government's system is always down, or insufficient to cater for the public's needs, or something or other. 
PETALING JAYA: The final deadline to settle traffic summonses was as chaotic as the last one on Feb 28 – hundreds thronged police stations frantic to settle by 10pm Thursday night.

Many went home disappointed as police stations informed them they had run out of queue numbers for traffic offenders to settle their summonses.

Supervisor Ayub Khan said he went on two consecutive days to the police station but could not get a queue number.

“The police told us to pay at the post office, but when I went to the post office they told me that their computer system was down due to the volume of transactions,” he said.

He added that the authorities should have improved the system so that it would not crash when the transaction volume increased. The Government had granted an extension on its Feb 28 deadline to March 10 after considering problems of long queues, lack of counters and a stalled computer system.

During the initial discount period, which began on Aug 12 last year, about 5.5 million summonses were paid, including the 1.5 million which were settled in the past week.

Some 17.3 million summonses remained unpaid when the last deadline expired on Feb 28.

From next month onwards, traffic offenders will be blacklisted and will not be able to renew their driving licences or road tax. A salesman, who wanted to be known as Choy, said he took a few days off to settle his summonses.

“I went to six different police stations and four post offices around Kuala Lumpur and Selangor and finally managed to pay here. Maintenance officer Ahmad Zul Hussin said he queued for three days and hoped to settle his five traffic summonses before the deadline expired.

When contacted, a spokesman from Pos Malaysia said its online services were temporarily congested due to the massive number of users trying to pay their bills online.

In GEORGE TOWN, Penang police collected RM24mil in summons payment from traffic offenders from August last year to yesterday, state police chief Datuk Ayub Yaakob said.

Police also recorded a huge increase in the number of people wanting to pay their summonses during the period, with a daily average of 500 to 600, he told reporters at the Timur Laut district police headquarters.

Ayub said from 2001 until 2010, only 57% out of 3.7 million summonses issued by Penang police had been settled. 
So, now what? Another extension? This would become likely, now that the cat is out of the bag that while many tried to pay, they were unable to. It would be unfair if they were not given the 50% discount, and much less if they were put on a blacklist.

It's amazing how one of the guys went to SIX different police stations and FOUR post offices, and still couldn't pay his summons.

Personally, I think the big push comes from the fact that election season is near. Conspiracy theorists would likely to believe so, and if another extension is given, it would increase the likelihood of such an event, simply because of two reasons. One, the government would appear to be "generous" by giving traffic offenders 50% discount. Two, they need money for the election campaign.

Tuesday, March 08, 2011

Volume 3 Issue 10: Two-Cent Economics

Why the Big Push?

Here is an article from the Star on 7 March 2011:

Despite deadline extension, only 4% of outstanding summonses settled
PUTRAJAYA: Only 4% of the 17.3 million traffic summonses still outstanding at the end of last month have been settled, despite the second extension to the 50% discount offer to clear fines, Deputy Home Minister Datuk Wira Abu Seman Yusop said.
Abu Seman said despite all the repeated calls from motorists for an further extension to the Feb 28 deadline to settle summonses at a discount, only 700,000 had been settled until Monday.
"If the offenders are genuine (in their intention to settle their summonses), then they should come forward and pay the fines.
"We urge motorists who still have 16.6 million outstanding summonses to settle their fines quickly," he told a press conference here Monday.
He was commenting on the progress of payments on the fines that had been made after the Home Minister announced last week the extension to the discount period to March 10.
The extension was granted after considering grouses by offenders that their attempts to pay were hampered by extremely long queues, not enough counters and the system being down.
During the initial discount period, which began on Aug 12 last year, a total of 5.5 million summonses were paid.

What kind of message is the government trying to send by extending the discount period a second time? Alright, so the first time, they said that offenders were hampered by long queues. You give them another six months, and they still end up not paying. Why is that?

First, has the queue problem been solved? Is JPJ genuinely interested in helping people pay the summons? If they were, why not open on Sundays as well. If you only open during office hours, do you expect people to take off work and disrupt their lives just to pay your lousy summons? What is there to gain from that?

It is not only the queue. I have myself been to JPJ to "assist in an investigation". I was made to wait 3.5 hours before anything was done. That meant that 3.5 productive hours of my workday was gone. Compare this to the Immigration Department.

They were open on a Sunday. I went over at about 8.30 am. Dropped off my passport at the kiosk, went for breakfast and read a little bit. I went back about an hour later, and I got my passport renewed. How efficient is that? Why can't every government department operate with such efficiency?

Also, the number of outstanding summons could be misleading. I wonder how many of the outstanding summons are sent to the wrong owners of the vehicles. Based on anecdotal evidence, some of the people who received the summons did not actually commit the offence, but are merely the current car owner after purchasing it second hand. Another possibility is that the previous owner of a car is sent a summons that was committed by the current owner. One only wonders how efficient this system really is.

Furthermore, why threaten the offenders by saying that they would be unable to renew their road tax if they have existing summons? If you can actually do it, you would not have to extend the deadline in the first place. The massive amount of outstanding summons alone shows how inefficient JPJ is and how toothless of an agency it is. Plus, there must be something wrong with the country if there are 17 million traffic offenses that are left unpunished.

Wednesday, March 02, 2011

Hump Day Humor

25 Guys to Avoid on Wall Street

There are lots of critical skills you need to succeed on Wall Street. It helps to understand market forces. A facility with numbers is useful. Having a feel for group dynamics is necessary to succeed on trading desks and deal teams. Superb time management, verbal acuity, and judgment are all important.

But, mostly, what you need to do is avoid the things that will destroy your career. And most of the things that will destroy your career go under the general heading of “people.”

I asked NetNet reporter Ash Bennington to look back on his years on Wall Street—where he was a vice-president at Credit Suisse and BB&T—and assemble a list of the people you need to avoid. I thought there might be three or four. I was way off. Ash returned with a list of 25 people to avoid.

You might want to print this out and carry it with you. When you meet someone new, scan the list. Decide if they are someone to avoid. Alternatively, you should take a look at the list and ask if you are on it. If you are, well, don’t be surprised when your colleagues start avoiding you. — John Carney

1. Avoid the guy who calls you 'Chief'.  He doesn't remember your name.

2. Avoid the guy who went to Hotchkiss and Yale and wears Nantucket reds during the summer. He doesn't think you belong.

3. Avoid the dim-witted back-slapping managing director. He's not as smart as you are—but he's been throwing guys like you under the bus since you were in grade school.

4. Avoid the consultant hired by the dumb managing director to do his math for him. Not only will he throw you under the bus, he's smarter than you are.

5. Avoid the guy who always wants you to be his alibi when he cheats on his wife. ("Hey man, is it cool if I tell Kathy that we're going fly fishing in Canada this weekend?"). No, dude: It's not cool.

6. Avoid the guy who keeps failing the CFA Level 1. He's looking for someone to blame.

7. Avoid the girl who cries at her desk. (You can ignore my advice on this one—but either way, you won't make that mistake twice.)

8. Avoid the guy who offers his clients 'a very special opportunity' to invest in anything. He has a problem with cocaine.

9. Avoid any man who has floppy hair after age 30—he's a complete toolbox.

10. Avoid the guy who throws his phone across the trading floor whenever his positions go south. He's an angry dude, and the more time you spend with him the more reasons he'll find to dislike you.

11. Avoid anyone who tells you that you should relax and have a couple of drinks—at 9:15 on a Tuesday morning. You're not cool enough to hang out with this guy.

12. Avoid anyone who won't relax and have a couple of drinks—at 9:15 on a Thursday night. They're not cool enough to hang out with you—and ultimately they'll resent you for it.

13. Avoid any broker who tells you his client is going to DTC in 50MM in securities from Europe and he needs to borrow a C-Note. Just for the weekend. And this is the last time.

14. Avoid the banker who never seems to close a deal but still manages to remain employed. He's got something ugly on somebody—and you don't want to be involved.

15. Avoid anyone who tells you to 'take one for the team'. He got where he is by convincing dopes like you to jump in front of an oncoming train.

16. Avoid the guy who tells you, "Seriously, all I do is work and then go home and lift." He's telling you the truth—and he's as dumb as a stone.

17. Avoid anyone who sits within eye-line of your desk: They know what time you show up and what time you leave—and chances are they think you're a lazy punk.

18. Avoid anyone who is ten years older than you are—and is still more junior in the reporting structure. He hates you more than you could ever imagine.

19. Avoid the guy who posts Facebook pictures of himself getting arrested at the Saint Patrick's Day parade. The guy is fearless—and he thinks you're a complete coward.

20. Avoid the guy who hangs his suit coat on the back of his chair to show off his suspenders. He either still thinks it's 1985 or he's trying to compensate for something.

21. Avoid the guy who can drink all night, take a shower, and come into the office as crisp as a $100 bill. He's got an oxlike constitution—and it will be fatal to your career to try to emulate his example.

22. Avoid the guy who keeps telling you: "Without the back office, you overpaid clowns wouldn't even have a job." He's right—but you don't need to hear it.

23. Avoid the guy who won't share his Adderall: It just speaks to his character.

24. Avoid anyone on Wall Street dumb enough to pick a fight with Bess Levin.

25. Avoid the guy who gets drunk and loves to brag about never losing in arbitration: He's going to get indicted. (Trust me on this one.)

Tuesday, March 01, 2011

Volume 3 Issue 9: Intelligent Investing

Harrisons Holdings (Malaysia) Bhd - Part 1

This will be the Main Streeter Portfolio's first transaction.

1 Mar 2011:
Purchase 4,000 shares of HARISON @ RM2.98: RM11,920
Transaction costs: RM71.52
Cash Balance: RM88,008.48

Note: I assumed that there was no interest earned up until now simply because I had not done anything prior to to this transaction. I reserve the reasons for this purchase for a later issue.

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.