Wednesday, April 27, 2011

Who is "Stupider"?

I can't help but wonder if something is amiss in this situation.

On one end, it is easy for the people to be angry that the government (SUPP) allegedly offered RM500 to buy the votes of the Iban people but if we pause for a moment and think about it, why do the Iban people fall for the same cheap tricks again and again? Is it really so easy to buy their votes? How does RM500 even come close to be able to compensate them for the "pain and suffering" that they would have to go through?

Something feels wrong here because I would not throw away my dignity for RM500. Something tells me that the Iban people won't feel inclined to do it as well. But then again, who knows?

Tuesday, April 26, 2011

To Engage in Fraud or Not?

According to this article,
A large number of those who commit fraud are married males with the gift of the gab and often have pretty wives, according to an expert.
I am not sure how this information is useful to anyone, but I would like to take two stabs at it. Based on my experience in statistics, I can draw two conclusions:

1. Beware of men with pretty wives. There is a high correlation suggesting they could be fraudsters. Better safe than sorry.

2. We should commit fraud because it increases our likelihood to marry pretty wives.

That is my "expert" opinion.

What You Can and Can't Eat in School

The government now decides what schoolchildren can and can't eat. Anyone else feels like we live in an increasingly dictator-led country? What's next?

Albeit the rationale is to promote healthy living, surely there is a better way. What makes Char Kuey Teow more healthy than burgers and sausages? Why not limit "canteen subsidies" to vendors who provide "healthy options", like less salt, sugar, etc.?

When is the government going to learn that quotas and restrictions only lead to "black market" activities as long as demand exceeds supply. Children who want to eat nuggets will still find a way to eat nuggets. The only way to pull them away from this is to put in place an incentive system for healthy food i.e. make them cheaper. As mentioned, this can be done through subsidizing only healthy food in school.

I am curious what the results would be from this quota/restriction system.

Sunday, April 24, 2011

Volume 3 Issue 17: Intelligent Investing

Wash Your Dirty Underwear?

On 19 April 2011, we saw the announcement of the award of the 1Malaysia email project to Tricubes a GN3 company. I already talked a little bit about it here. In the initial report, it could not be any clearer that this is a fully government sanctioned project. I mean, how else is this possible:

All Malaysians who are 18 years old and above will be assigned an email account each in order to receive statements, bills and notices from the Government.

The initiative would allow direct and secure communication between the public and the Government, said Tricubes Bhd chief executive officer Khairun Zainal Mokhtar.

Clearly the government wishes to use it to communicate with the public. Because if the public wanted to communicate with the government, all it had to do was to publish an email address in the newspaper. I am sure anyone can send them an email from their current email address. They wouldn't need a 1Malaysia emaill address to do it.

Najib must have thought that it was a very smart idea to promote his 1Malaysia gimmick. There's nothing like free publicity. Paying RM50 million to tag everyone with his 1Malaysia brand would seem like a cheap price to pay.

But now, after he realizes how stupid his idea was, given the huge amount of public backlash against this project, we now see one of the faster backtrackings ever seen.

Both the Prime Minister and Pemandu even had to clarify within 24 hours that the e-mail service would not involve public funds as it was a private initiative proposed by Tricubes.

Today, Najib said the government would leave it to Tricubes to sell the email service to the public as his government is not in the business of promoting the private initiative.

Within two days, Najib has washed his hands off this dirty underwear and hung it out to dry. Now Tricubes is left out in the cold on its own to promote its 1Malaysia image. Why is a private company promoting a 1Malaysia email that is used to communicate with the government? Do you really think you can take the public for a ride?

Volume 3 Issue 17: Two-Cent Economics

The World Economy, Simplified

With increasing volatility and connectivity, economics has become an increasingly important subject to understand. You typically hear laymen say that economics is about money, and any self-respecting economist would shudder at that suggestion.

Economics is about solving the problem of scarcity. Not so much solving, but providing the "most efficient" solution possible in allocating limited resources. Here is a somewhat interesting parable about how economics works, for those of you who are in need of basic knowledge on what economics is about.

Even if we do not go into detail on economic theory, knowing the basics on how economies function is becoming more of a necessity in the world today. We can no longer live under a rock, and tend to our farms, live on our harvest, and wake up tomorrow, thinking to ourselves, life goes on. This is simply because even in Malaysia, we can feel the effects of an earthquake that is more than 5,500 km away on the coast of Japan.

As I said, the world is increasingly connected and is getting smaller and smaller, more and more crowded. Hence, resources become even more limited, and as every second passes by, their allocation needs to be even more efficient. This is the world we live in today. So it is still not too late to learn about economics. Read this article today.

Thursday, April 21, 2011

Hot Air?

I find it disturbing that reading from two different news portals gives me two different kinds of news. It makes me wonder if the government-owned newspaper is hiding something. In the Star, the PM was quoted to have said:

Before I sleep , let me clarify that the 1Malaysia E Mail is a private sector project. No public money is involved n entirely voluntary

I seriously hope that helps him sleep soundly at night, because first of all, I would like to know who was the one who appointed Tricubes as the "implementer". In the Malaysian Insider, MP Tony Pua calls all the EPP announcements window-dressing. I don't see any mention of Tony Pua in the Star at all. Talk about balanced coverage. Here are some excerpts:

Is the Najib administration so desperate to showcase the ‘success’ of the ETP that it has now taken to announcing multi-billion ringgit worth of projects which are nothing more than hot air as at this point of time?

He pointed out that Najib had made public the RM9.6 billion Karambunai project before finalising anything, citing Petaling Tin Bhd’s filing to Bursa Malaysia yesterday stating that it had not signed any agreement to do the project yet.
Pua also criticised the prime minister for allowing loss-making Tricubes Bhd to helm the RM50 million 1 Malaysia e-mail project, a plan which has attracted widespread criticism from the public.

The Petaling Jaya Utara MP questioned how Tricubes, at risk of being delisted from the ACE market after its weak finances triggered Guidance Note 3 (GN3), would be able to finance the project. 

Well, the funding has to come from somewhere if it is not from the government. I wonder which "government-related" bank is going to be called in to help fund the project. This is probably another NPL waiting to happen.

Monday, April 18, 2011

What We Pay Them For

The headline of this story is on something completely irrelevant to what I would like to bring up. In the last few paragraphs is something that I had initially laughed at, but when it sank in, I can't help but feel angry and frustrated.

Here's the paragraph:

Meanwhile, an analysis on the computers seized from six MACC officers revealed that MACC officer Raymond Nion had also been downloading pornography on the Internet between midnight and 1.20am while Teoh was being interrogated and having his statement recorded by a colleague on July 16.

One can only wonder why he is still at the office past midnight and surfing porn no less. It must be because the Streamyx at his home is unstable. But can we really blame him? Ibrahim Ali begs to differ. Ibrahim Ali would probably say that it was because Raymond's wife was not pleasing him at home, which completely explains why Raymond was surfing porn at the office.

On another note, I have paid all my taxes since I started working, which means that I actually paid for Raymond to surf porn. This is an outrage!

For Those Who Feel the Same on Mondays

Sunday, April 17, 2011

Volume 3 Issue 16: Two-Cent Economics

Sarawak Elections

Just some quick mathematics on today's Sarawak elections. 71 seats are up for grabs in Sarawak out of 222. The voter turnout was about 672,000. Based on the last elections in March 2008, the total number of people who voted in the whole of Malaysia was about 11 million. So, the proportion of voters who voted in Sarawak is about 6% - see Chart 1.

Chart 1: Proportion of Sarawak voters to total voters in Malaysia

Yet, the number of seats that are represented by Sarawak is 32% - see Chart 2.

Chart 2: Proportion of Parliament seats allocated to Sarawak

Does anyone else see a problem with that? Is it not fishy to have 6% of the people in Malaysia determine 32% of the country's leaders? Furthermore, the government added three seats to Sarawak in the 2008 elections, as if it were not imbalanced enough. If the government wins two-thirds majority again in this coming elections, it is almost guaranteed that more gerrymandering will happen. What say you, Malaysia?

Volume 3 Issue 16: Intelligent Investing

House Prices Will Always Go Up?!

I am always curious where most people get their information. I have heard this phrase many times speaking with many friends who have thought about buying houses in Malaysia. Not only do they claim that house prices will always go up and never come down, but they believe it is the single best investment ever. Let us just take a look at Chart 1 below, which compares the growth in house price of the US and the three city states in Malaysia.

Chart 1: House Prices (1999=100)

We can all see that house prices in the US shot up from 1999 all the way to 2007 and suffered about a 10% drop during the 2008-2009 recession. What is more amazing is that the house prices in KL have grown at even higher rate compared with that in the US. House prices in Penang are also almost there. The data for Selangor is a bit biased downwards as it includes rural areas all over Selangor, so my guess is that it should probably be bumped up a couple of notches.

So, Fact 1: NOTHING can go up forever. It will only be a matter of time that house prices will experience a dent, simply because the rate of house price increases does not match the rate of income growth. House prices in KL have grown about 80% since 1999. Just imagine, if the income of a fresh graduate was about RM2,000 in 1999, judging by the same rate of growth, a fresh graduate should be getting RM3,600 today. Clearly, the surge in house prices will make affordability an issue. Of course house prices are not merely a factor of income, especially since people can just borrow money to buy houses. Better still, now, the government is propping up the demand through the "My First Home" initiative, which essentially helps "newbies" to cover their 10% down payment portion. This is artificially propping up the demand without solving the supply side issues at all.

For some of you, you may ask, what is a 10% drop in house prices in the US? Well, my guess is that it has not stopped dropping. But let us look at a more extreme example, Hong Kong - see Chart 2.

Chart 2: House Prices in Hong Kong (1989=100)

Just imagine, if you had bought a house in 1996 in Hong Kong, by 2003, you would have lost about 70% of your wealth. You would have to wait for the price of your house to TRIPLE to get back to where you were (From HKD1 million drops 70% to HKD300,000 and then to get back up to HKD1 million, the house price needs to triple). If you had bought your house in 1989, by 2003, you would be about right where you started. The housing market is not always kind. House prices also have the same kind of up and down movements just like any other investment. The only problem is, its required capital is so much more, resulting in a much lower liquidity. Not only that, for small players like you and me, buying a house is more than just an investment. We have to leverage up (i.e. borrow money) all the way to our necks. So, Fact 2: Houses are NOT the best investment around. You can read here for more on investment vehicles.

What do you think will happen if the price of our house drops by 70%? Scratch that, even if it drops by about 30%, it would take a 43% gain to get back to where you were. Will we keep paying loan instalments to a house that is no longer worth as much as when we bought it? Many people would say no, especially when their income level is low. That is exactly how all banking crises happens. When housing loans become delinquent, banks do not make any money, and become at risk of going under. When people fear their banks may go under, a run on bank happens, and this problem self-propagates, and often leads to a financial crisis.

So, next time you open your mouth and say that investing in real estate is a sure-win, please remember this post.

Tuesday, April 12, 2011

Volume 3 Issue 15: Two-Cent Economics

The F1 Dilemma?

Here is another example of how good information is really hard to come by. I have picked some of the quotes which I found rather amusing and at the same time, disgusting.

"Former prime minister Tun Dr Mahathir Mohamad said Malaysia should continue hosting the race because the international event grabbed the attention of millions of people worldwide."

While it may not be wrong, but what kind of attention are we grabbing? Barely anyone feels like driving all the way to Sepang, which is about 50-60 km away from the city, to watch an overpriced race. OK, I can't say it is overpriced these days, as they are giving tickets out for free, for fear of empty grandstands. That is the kind of attention that we are garnering from people worldwide.

Then, in the next paragraph, we see this:

"Dr Mahathir also said “it was good” to have a “Malaysian” car winning third place in Malaysia, which was a historic moment."

Signs of delusion? The only thing "Malaysian" about Lotus-Renault is through an indirect interest, where Proton holds a majority share of Group Lotus plc. There is nothing in the Renault car that has the smell of Proton or Malaysia in it.

After that, we see this:

"SIC chairman Datuk Mokhzani Mahathir said the turnout was encouraging with the number of spectators exceeding 100,000."

Bear in mind, the 100,000 turnout is over THREE days. And you would imagine that he just plucked out the number 100,000 out of thin air because, what makes 100,000 "encouraging"? Why not say that the turnout was 10 times of 10,000, and it was superb? I guess that would be too much of a lie. Let us take a look at some facts. I randomly picked out races from 2010's F1 calendar and let's see how encouraging 100,000 is - see Chart 1.

Chart 1: 2010 F1 GP Attendance

Need I say more? We have a slightly higher attendance compared with Bahrain, and Turkey, which holds the worst record for attendance. In Singapore, where the population of the country is less than 20% of Malaysia's, the number of spectators for its F1 race is about 250% of ours.

On top of that the capacity for Sepang is 130,000. So, over 3 racing days, that adds up to 390,000. 100,000 out of 390,000 is NOT encouraging. In short, the Sepang circuit was a dud, just like many of the other mega projects. Now, the Cabinet will discuss whether to pump in more money to keep the circuit afloat, since it was the brainchild of our 4th PM. Should we be paying money to boost one man's ego? But if we don't, then the circuit would be left to rot. What a dilemma. So much to think about, and yet, the PM has time to visit his Facebook friends. If the bus driver is mingling with the passengers, who is driving the bus?

Sunday, April 10, 2011

Volume 3 Issue 15: Intelligent Investing

Why Do We Have to Be Careful?

About two weeks ago, I was attending this panel discussion organized by Bank Negara. One of the panellists was from Manulife Asset Management.

One of the remarks that he made was particularly shocking. While referring to Japan as a major trading partner of Malaysia, he casually brought up that it must be because of all the Toyotas that we import. This couldn't be more wrong and irresponsible.

Why is this so bad? First of all, he was right. Japan is the largest country of origin for all of Malaysia's imports in 2010, with a grand total of RM66.5 billion exported to Malaysia. However, what is grossly wrong about his statement was that most of the Toyotas are assembled in Malaysia. What's worse, if you look at the total value of cars imported by Malaysia (CKD and CBU cars), it is only around RM4.6 billion. Bear in mind, this is the total amount of cars imported to Malaysia. Assuming that even if 70% of this comes from Japan, the total car imports would only constitute about 4.8% of the total imports from Japan - see chart 1. Now you see why that information is so misleading.

Chart 1: Import Composition from Japan in 2010

And this information comes from the CIO no less. While at that point, it may not have hurt anyone, but as a responsible and seemingly influential figure (I assume he is influential, considering he was invited as a panellist),  he must provide accurate information at all times. Perhaps today it's this, but tomorrow, what if he gives out information that costs many people a lot of money.

Good information is so hard to come by these days.

Tuesday, April 05, 2011

Volume 3 Issue 14: Two-Cent Economics

What can you buy with RM30 million and USD30 million?

Below are some pictures of ex-Selangor MB, Khir Toyo's house which is rumored to be worth RM24 million. Let us not dwell on how an MB managed to get so much money to buy a house (aka mansion) this big.

Now, for USD30 million, check out the upgrades:

USD30 million translates to something around RM90 million. The castle above is located in the US. Now, compare this to the new Istana Negara that Malaysia plans to build for its king. The estimated cost of the new palace is RM800 million. Correct. About NINE TIMES more expensive than the above palace. Surely, something does not add up.

Sunday, April 03, 2011

Volume 3 Issue 14: Intelligent Investing

NAV for 31 March 2011

For the quarter ended 31 March 2011, the NAV per share of the Mainstreeter Portfolio is at RM1.0141. So far, there is still only one stock in the portfolio. The price jumped from RM2.98 to RM3.35 as at 31 March 2011. The increase is definitely a lot faster than expected and this only goes on to show how Mr Market has his mood swings.

The valuation of the stock still looks pretty attractive, so it will still be kept in the portfolio for now. For the full details of the NAV calculation, click here.

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. The authors most likely have interests in the stocks that are discussed in this website. 

Friday, April 01, 2011

Volume 3 Issue 13: Intelligent Investing

Integrity in Research

Here are 2 completely unrelated issues about investment research and why it is important to maintain integrity at all times. The first story is about the recent resignation of David Sokol of Berkshire Hathaway, touted to be one of the possible successors of Warren Buffett at the company.

Apparently, minus all the details of the deal that transpired, David Sokol had purchased 90,000 shares of Lubrizol several weeks before Berkshire acquired the company. It was made known that Sokol was the one who proposed the deal to Buffett. Although Buffett rejected the deal initially, he finally decided to listen to Sokol for whatever reasons. Now, post-acquisition, Sokol's investments saw a gain of 29% or USD3 million.

With the legality of his actions still in debate, there is really no point speculating on what is right and what is wrong. The point that I am trying to make is that Berkshire's squeaky clean image that was built up over the past 50 years or so is now tarnished, or at best, clouded.

As Warren Buffett wisely pointed out:
"We can afford to lose money - even a lot of money. But we can't afford to lose reputation - even a shred of reputation."
Imagine if David Sokol was proven to be guilty of acting on material non-public information. From then onwards, every deal that Berkshire makes, many would ask, "Does this deal serve the interests of one of Berkshire's executives?" This kind of publicity could spell the end of some businesses.

For further reading, click here. For a more detailed write-up from the Wall Street Journal, click here.

The second story is much closer to home.

This is about RHB Research Institute's report on Perisai Petroleum Teknologi Bhd. On 30 March 2011, RHB Research released a report which questioned the integrity of one of its acquisitions. This caused a major sell-down on Perisai and pretty much forced the Securities Commission to launch an inquiry on Perisai.

One of the quotes in the article was:
"Moreover, we believe there is a corporate governance issue relating to the effective purchase of the asset at 14x premium to the original disposal price of the same asset"
Raising a flag over a corporate governance issue points towards a sketchy deal but a day later, RHB Research realized that they did not find out the appropriate facts. After Perisai clarified the matter, RHB Research realized that they had made a mistake and published a counter report on the next day, 31 March 2011, and withdrew their previous report.

This clearly shows very careless and irresponsible research on RHB Research's end. They caused a sell-down on Perisai and many people lost money on it. This brings us back to the issue of integrity. So from now on, every time one reads a research report from RHB Research, one would start questioning the quality of its research. "Could it be as bad as the Perisai case?"

Here is another of Buffett's infamous quotes:
"It takes 20 years to build a reputation and five minutes to ruin it"
To conclude, I would just like to point out that writing research reports is not easy. A lot of care and thought has to be put into it to ensure that lies and irresponsible research is not thrown around as it could have adverse effects on people's lives. This is the level of care, responsibility and integrity that we hope to aspire to at the Mainstreeter.