The Beginning of 2009

Happy New Year for 2009. Last month lot of people is expecting the year end rally for Christmas and Window Dressing. But the whole market has no volume at all. Guess all the buyer has gone for holiday. They need a holiday to relieve their pressure?

Since first trading day of 2009, Kuala Lumpur stock exchange index and volume started increase. Is this a sign for the market recovery? Most of the market all over the world show spike up about 2%. The spike up is very fast. Some says it is for the welcoming of Obama, some says is the Chinese New Year rally. So what is after Obama officially become the president on 22 January? What will it happen after Chinese New Year on 26 January?

For this high speed rally, I will take opportunity to sell. The company restructure and retrenchment was started not long a go. There is still has some down side for the market. For big investor who wants to buy a huge amount of share, they might need to start accumulate, but not for short term trader to chase at this point.

Company: Chaoda

Name: Chaoda Modern Agriculture (Holdings) Limited

Listed: Hong Kong (HKG)

Stock Code: 682

Chairman: Kwok Ho

Description:

Chaoda Modern Agriculture (Holdings) Limited is an investment holding company. The Company, through its subsidiaries is engaged in producing and selling agricultural products. The subsidiaries of the Company include Timor Enterprise Limited, Insight Decision Limited, Huge Market Investments Limited, Worthy Year Investments Limited, Great Challenge Developments Limited, Good Add Holdings Limited, Chaoda Vegetable & Fruits Trading Limited, Fuzhou Chaoda Modern Agriculture Development Company Limited, Fujian Chaoda Green Agriculture Development Company Limited, Fujian Chaoda Livestock Company Limited and Chaoda Vegetables & Fruits Limited.

From Seeds to Fruits

I was grown up in farm. My family is doing business in agricultural sector, planting vegetables, flowers, and fruits. I grow up together with lots of plants. Plants are my friends too.

Do you ever know that how a tree grows? If you given a seed, how are you going to grow it until you get the fruit? Investment is similar to growing a tree. The different is you grow your seed capital. There are lots of knowledge involved, lots of patients needed, and lots of cares have to take in.

First, before we plant a tree, we have to prepare this not we plant today, we can get the fruits tomorrow. Therefore, choose the seeds carefully. If want to get Orange why I start with an Apple seeds? I don’t talk about the quantity here because if you want to get more, what you have to do is start with more seed and bigger land area.

When we choose a suitable seed, we have to let it germinate. Then sprout out from the ground. For investment, we choose a right company, and then we invest our capital. For those involve in the management, they have to go through lot of challenging to grow their tree or company. We as an investor, if we don’t know how to grow a tree or company, we need a good farmer or good management team.

Bear in mind, when a tree grow, there are lots of uncertainties that may influence the growth of the tree. There are climate changes, soil, intruders, resources scarcity, infection, and so on. A good partner or management team is definitely important for any kind of business.

Looking at seeds growth bigger and bigger, it starts to bloom. After flower is the fruit we get. Whether the fruit tasty or not, fruitful or not it depend on all the effort of the management.

Investment is not gambling. We don’t expect we invest today, can harvest tomorrow. If our investments suddenly shoot up so much, we can take profit because it might probably drops again due to the psychological effect. We can buy back at lower price instead of looking at our investment ups and downs.

What is Stock and Share?

Share (also referred to as equity shares) of stock represents a share of ownership in a corporation.

Here is a company call ABC, “ABC Holdings Bhd.”. For example is company listed in Kuala Lumpur Stock Exchange (KLSE), and its total properties and cash worth $100. If this company issue 100 shares, that means every share of this ABC company worth $1 per share. When you buy 1 share, you are one of the shareholders of the company ABC. In other words you own 1% (1 share out of total 100 shares) of this company.

This ownership of the company, or call “share” is trade in the stock and share market (stock exchange). When you don’t want to involve in this company, you can sell out your share to other people or you can buy the share from other people. Of course, to trade the share, you need to Remisier do it for you.

From the previous example, you own 1 share of company ABC. You bought it last year. This year they announce their company result and they total earn another $200. This means company ABC now worth $100 + $200 = $300. Divided the value to its total share issue, which is 100 shares, each of the shares REAL VALUE is $3. Bear in mind your starting investment capital is $1 and now this company earn money and worth $3. You are shareholder and you earn $2. Your investment value increase 300%. BUT, the TRADE VALUE may not same as the REAL VALUE. This share can be trades in any price in the stock market depend on the share holder (seller) and share buyer.

The CEO of the company ABC gives his speech during the company result announcement. He says company performance will be better than this year for the coming result. He forecast the company earning can increase and earn total $300 in coming year. If his forecast is correct, company ABC will total worth $300 + $300 = $600. Each share will worth $6. Some of the investor believe, some of don’t believe. Now the share traded at price $4. You want to buy? Or you want to sell? With this price.

If you are confused with your situation, let me give you a summary here. From the latest result announce, company ABC profit improve and worth $3 each share, now buyer in the market offer $4 to buy from you. You want to sell at $4 or you hold your share or you buy more from stock market? If you think next year this company will lose money, why not sell now? If you are not sure the performance yet, you can hold. If you think the performance result will increase as the CEO told, why not buy more?

In stock market, there are different types of people. These people buy or sell has their own reason. Most of the time, they play the psychological games with you, little bit similar to the TV show call “Deal or No Deal”. You have a share on hand (the brief case), buyer offer a price you buy your share (the brief case). Deal or No Deal?

Appreciation

How to appreciate your wealth in share market? It is not gambling but investing. I summarize the example of this counter, PBBANK listed in Kuala Lumpur Stock Exchange. It hits the lowest record price of 0.85 on 17th, August 1998. We don’t count from that moment. We count from the 2nd, January 2001. It is the first trading day of 2001. That time if you buy 1000 share at price RM2.90 with par value of RM0.50, you need to invest about RM2,900.

After that look at the entitlement announce from year 2001 to year 2007 by the company. There is a table above of the announcement. From here, can see total dividend you get is RM2129.19. It is already near to the starting capital you invest. Besides, look at the price on the last trading day of 2007, 31st, December 2007. The price is close at RM11.00. If you sell all your share (1015 share) of this company, you get back RM11,165.00.

Sum up all together the money you get back from the sale of the share and the dividend you get, it is total you get back RM13,294.19.

From seed capital of RM2,900 become RM13,294.19 is 458.42% increment. It is about 25% increase of the seed capital each year. This is the reward or fruits you get from the basic fundamental investment. This is why rich people invest their money rather than put their money in bank account.

Procedure to Open Trading Account

Yesterday I have a foreign client open account with me. He faces lot of problems when come to the procedure. The procedure to invest in Kuala Lumpur Stock Exchange of a retail foreign investor is different with local investor. The application form is same but the documents and the money transfer is different. Here is the procedure to open an account in my securities firm.

For local investor, the documents need to be ready to submit are:

• 3 photocopy identity card (I/C),
• fill in 1 copy of “Application for Opening of Trading Account” form (3 signatures),
• fill in 1 copy of three ply yellow form, from Bursa Malaysia Depository Sdn. Bhd. “Application for Opening Account” (1 signature)
• fill in 2 small white card from, from Bursa Malaysia Depository Sdn. Bhd. to get sample signature (total 2 cards × 1 signature)
• fill in 1 online trading application form (1 signature)
• RM10 for Bursa Malaysia Account Opening fee

For foreign investor, the documents need to be ready to submit are:

• 3 photocopy passport particular,
• fill in 1 copy of “Application for Opening of Trading Account” form (3 signatures),
• fill in 1 copy of three ply yellow form, from Bursa Malaysia Depository Sdn. Bhd. “Application for Opening Account” (1 signature)
• fill in 2 small white card from, from Bursa Malaysia Depository Sdn. Bhd. to get sample signature (total 2 cards × 1 signature)
• fill in 1 online trading application form (1 signature)
• RM10 for Bursa Malaysia Account Opening fee

Submit these documents to Remisier to get witness and continue the remaining procedure.

When the account ready, you will get a Client Code and a CDS account number. Client Code is for trading purposes while CDS account is for share transfer purposes. When you want to buy or sell shares or securities through the securities firm, you need the client code. If you want to apply Initial Public Offering (IPO) share, you need the CDS account number.

Once the account ready, you can invest any amount into your trading account and start to buy share or securities according to the money you invested. You can easily top up the trading account money or withdraw the excess money from the trading account.

Optional for open trading account, buy a drink for your Remisier. High budget can go to Starbucks, low budget can go to Mamak stall. Thanks. ☺

Seed Capital

Money saves in the bank or under the pillow which is not using urgently, can be a seed capital and potentially to grow. In business, seed capital is the initial equity capital used to start a new business or venture. The starting capital of a business is a seed being plant.

Give you an example. If the seed capital is $100, the business grows by 10% annually, after one year the capital grow from $100 to $110. In simple words, it is similar to your money put in the bank with the interest rate. If the initial saving is $100, the interest rate is 4% annually, after one year the saving grow from $100 to $104.

Global inflation is about 7.5% for the latest record. If the saving in bank is 4% for the fix deposit, this year the net capital is shrinking by 3.5%. This is why investors or company seldom put their money in bank. They do investment.

Besides putting money in the bank to get interest rate, investment of the capital can be either properties or equities. Properties can be free hold or lease hold land, house, apartment, condominium, office, factory, and warehouse etc. Equities can be mutual fund or unit trust, share, debenture, bonds, loan and derivative etc. Both of them have their similarities and differences. Before choosing the investment tools, better study and understand their advantages and disadvantages of each of them. This is because knowing little of knowledge can be kill by the market.

Money Value

I look at my pay slip. Deduct the ordinary expenses, there is not much left. Compare to last month wages, this month I get increment. I should have more for saving, but why the amount left is still same with previous month? I go back to check my expenses, it is fuel price increase. Sooner or later, other things increase price one by one due to the oil price increase. It is inflation. The money value I get from the salary, reduce! I spend same thing for same amount with more money. The value of the money is decreasing.

Life must have improvement and development. I have to buy house, car, medical fees, tour, entertainment, and luxury, etc. There are a lot of expenses. Price of everything is increasing. If increment same as inflation, that means I cannot improve anything and I have to remain as now forever? What if lost job or accident?

If the salary increment faster than inflation, life will be easier and better. This is assuming there is no interruption to this income sources. If my increment all spend to improve lifestyle, how to pass my remaining life after retire? There is no saving.

If I use the increment for saving and don’t improve my spending for my interest, I save money in bank. My saving will increase constantly but lifestyle must remain. It is for future. If I am discipline, my saving amount is increasing, but the value in the future is decreasing!

Although bank give interest rate, now it is about 3.05% for 1 month fix deposit, but the inflation is about 3.5%. This rate is for Malaysia and not taking consideration of the fuel price, toll price, rice price, cooking oil price, steel price, and cement price after election. The saving value in the back is decrease.

If my saving can grow faster than inflation, only then in the future I can get back the same value or better value of the money. For those under employment and no other income, increment is depending on employer. The saving is depending on their discipline and wisdom. For those doing businesses or sales, their income is depending on their sales and revenue. The saving of profits is depending on their discipline and wisdom too. It is because high earning with high spending or high costing is still end up low profits.

Saving is money; money is capital. Save now and spend in the future. What is the value of the money when you spend?