Sunday, November 15, 2009
"Right now, I would pay a hundred-thousand dollars for 10 percent of the future earnings of any of you. So, if anyone wants to see me after this is over ... (laughter and applause). If that's true, you're a million dollar asset right now, right? If ten percent of you is worth a hundred-thousand? You could improve on that, many of you, and I certainly could have when I got out, just in terms of learning communication skills.
It's not something that's taught, I actually went to a Dale Carnegie course later on in terms of public speaking. But if you improve your value 50 percent by having better communication skills, it's another 500-thousand dollars in terms of capital value. See me after the class and I'll pay you 150-thousand. (Laughter and applause)"
CNBC TRANSCRIPT: Warren Buffett & Bill Gates - Keeping America Great
QUESTION: I'd like to know your perspective on whether greed and immoral behavior, unethical behavior, were key causes of the recent financial crisis.
BUFFETT: It certainly played a part. We have always had greed. That didn't get invented in the last few years. And greed, fear in the third quarter -- I mean, the American people were really panicked there for a while. And it affected their -- it started out on Wall Street but then spilled over into the general economy subsequently. But we're never going to get rid of greed. We're never going to get rid of fear. What we do have is a system, as Bill said, a market system where we have the quality of opportunity and the rule of law combined to unleash human potential in this country over the last couple of hundred years to the degree nobody would have believed possible a few centuries before that. There's nothing that's gone wrong with that system. Our economy was sputtering and still is sputtering some. But we've got the greatest engine ever devised. And it's just beginning. Greed will continue. Don't worry about that. Oliver Stone is putting out a second film here pretty soon. Probably get mentioned again in this one with Gordon Gekko making a return. But that is not what drives the American system. What drives the American system is the quality of opportunity in a market system and the knowledge that when you get out of here, you're going to enjoy the fruits of the knowledge you have gained. And it will keep working. I'd love to trade places with any of you.
On what you should do after graduation.
BUFFETT: Find what turns you on. Find what you have a passion for. If somebody said to me when I was getting out of Columbia, you know, that Bill's business was going to be the one that would be exciting, you know, I don't think I'd have done so well. [LAUGHTER] But I knew what turned me on. I had a professor, Ben Graham, I offered to go to work for him for nothing. He said, "You're overpriced." Nonetheless, I went into the business. [APPLAUSE] I will guarantee, you will do well at whatever turns you on. There's no question about that. Don't let anybody else tell you what to do. You figure out what you are doing. [APPLAUSE]
Full transcript here: Warren Buffett & Bill Gates - Keeping America Great
Friday, November 6, 2009
The price is right. Buffett think he can earn meaningful return from the investment over the long term. I think Burlington is worth more than $200 if it is still listed. (Buy with wide margin of safety, or return of at least 100%)
Management is the key to business success. Buffett is very very good at evaluating management. Passion, honesty, integrity are some of the important traits in a great leader.
The business itself. Even though railroad businesses were not popular investment in the past, things changes over time.(something 2 ponder: railroad businesses are of high capex, why Buffett still buy? It can make higher return on assets?)As oil prices increase due to diminishing oil resources, demand for transportation through railroads will increase due to competitive pricing. As Buffett knows it best, rail transportation consumes significantly less fuel than other types of transportation. Read the pieces below to know more. Last but not least, it is a boring but great business.
Buffett’s Buy Includes CEO Who Engineered Railroad (Update2)
Nov. 5 (Bloomberg) -- Warren Buffett didn’t just buy a railroad when he announced his purchase of Burlington Northern Santa Fe Corp. He hired the engineer, too.
“It’s a bet not only on the company but on talent,” said Gary Bradshaw, portfolio manager at Hodges Capital Management Inc. in Dallas, which owns 150,000 Burlington Northern shares. “I can’t imagine anything changing. That’s Buffett’s style. He’s always bet on management and let those guys run it.”
Chief Executive Officer Matthew Rose has led Fort Worth, Texas-based Burlington Northern to the top of the U.S. industry in sales. Revenue almost doubled through 2008 from 2001, his first full year at the helm. That growth outpaced the 50 percent rise at Union Pacific Corp., his biggest competitor. Becoming a part of Buffett’s Berkshire Hathaway Inc., with its AAA credit rating from Standard & Poor’s, may make Rose’s job easier by lowering his company’s borrowing costs.
Berkshire has been building its stake since 2006, giving Buffett a glimpse of Rose, 50, a 16-year employee who has been CEO since December 2000. In a Nov. 3 statement, the Berkshire chairman and chief executive said the deal was an investment in the railroad, “Matt Rose and his team.”
Buffett didn’t return a message left with his assistant Carrie Kizer.
Berkshire’s largest purchase will cost the company $26 billion, or $100 a share in cash and stock, for the 77.4 percent of the railroad it doesn’t already own. Including the previous investment and debt assumption, the deal is valued at $44 billion, Omaha, Nebraska-based Berkshire said.
What may have attracted Buffett to Burlington Northern is the company’s reduction of expenses as it expanded capacity, said Anthony Hatch, an independent railroad analyst based in New York.
“One of the ways they’ve improved is taking a high percentage of their variable costs down,” including by using longer and fewer trains, which has increased average velocity across its system, Hatch said.
Hatch also cited Burlington Northern’s development of its intermodal business, beginning in 1989 under Rose’s predecessor Robert Krebs. Intermodal refers to containers that move by a combination of rail, road and sea. Krebs, now a director of General Motors Co., set up a partnership with Lowell, Arkansas- based J.B. Hunt Transport Services Inc., now the third-largest U.S. trucking company.
Since taking over as CEO, Rose has continued the strategy, Hatch said.
“In my nine years we’ve probably laid out $25 billion worth of capital for our railroad,” said Rose, who earned $15.6 million in total compensation last year, according to a Securities and Exchange Commission filing.
Those investments include new locomotives and adding tracks alongside existing ones, he said. Operating parallel tracks boosts train speeds. On the single-track lines that are the most prevalent in the industry, a train heading in one direction must pull off on a siding to let oncoming traffic pass.
During a quarterly earnings call on Oct. 22, Chief Financial Officer Thomas Hund said spending on tracks, equipment and other improvements would remain at $2.6 billion for 2009. Being owned by Berkshire probably won’t change those plans, said Jason Seidl, analyst at New York-based Dahlman Rose & Co.
“If he was buying a railroad that was small and capital- constrained, there would be a big change if you’re with Berkshire,” Seidl said of Buffett’s deal. “But Burlington generates an enormous amount of free cash flow.”
The railroad will probably have lower borrowing costs as a unit of Berkshire, even if Standard & Poor’s strips Buffett’s company of its AAA rating, said B. Craig Hutson, a Chicago-based railroad debt analyst at Gimme Credit LLC. S&P said yesterday Berkshire’s rating may be cut to as low as AA because of the acquisition. That’s still six levels higher than Burlington Northern’s BBB.
“It would be safe to assume that Burlington will have a broader access to capital and a lower cost of capital than they would have had on a stand-alone basis,” Hutson said. “They haven’t really held back per se on spending on growth opportunities recently. It gives them the ability to invest for the long-term without being asked every quarter how those investments in their infrastructure are doing.”
Burlington Northern has $10 billion of long-term debt and paid $462 million in interest expense this year through Sept. 30, according to its most recent 10-Q regulatory filing.
Rose said Buffett has been a “hands-off” shareholder who phones “fairly infrequently.” The two met before Berkshire began buying Burlington Northern shares, Rose said.
“We have a large operation in Omaha, so I had a chance to meet him through some charity events,” Rose said in an interview yesterday. “It’s been very friendly, and he’s always told me he wouldn’t do anything hostile that we weren’t aware of (see how Buffett changed his behavior compared with the past!). The biggest change is that instead of having quarterly analyst meetings, I’ll go to Omaha every once in a while. Warren told me one requirement is I have to go to his annual meeting.” :D
Buffett, 79, while not immersed in industry intricacies, understands that railroads stand to benefit from rising diesel fuel prices because they can transport goods more efficiently than trucks, Rose said.
“I wouldn’t call him a detail guy on the railroads,” Rose said. “But he clearly understands the U.S. economy very well.”
Burlington Northern fell 12 cents to $96.98 at 4:15 p.m. in New York Stock Exchange composite trading. The stock climbed 28 percent this year before today and has jumped almost fourfold since December 2000, when Rose was promoted to CEO.
Berkshire’s Class A shares increased $370 to $101,900.
Rose, who lives with his wife in the Fort Worth suburb of Westlake, is the father of two children, a trustee of Texas Christian University in Fort Worth and serves on the board of Fort Worth-based AMR Corp., parent of American Airlines.
Berkshire Buys Burlington in Buffett’s Biggest Deal
Nov. 3 (Bloomberg) -- Warren Buffett’sBerkshire Hathaway Inc. agreed to buy railroad Burlington Northern Santa Fe Corp. in what he described as an “all-in wager on the economic future of the United States.”
The purchase, the largest ever for Berkshire, will cost the company $26 billion, or $100 a share in cash and stock, for the 77.4 percent of the railroad it doesn’t already own. Including his previous investment and debt assumption, the deal is valued at $44 billion, Omaha, Nebraska-based Berkshire said today in a statement. The railroad’s stock closed yesterday at $76.07.
Berkshire has been building a stake in the Fort Worth, Texas-based railroad since 2006 as Buffett looked for what he called an “elephant”-sized acquisition allowing him to deploy his company’s cash hoard, which was more than $24 billion at the end of June. Trains stand to become more competitive against trucks with fuel prices high, he has said.
“It is Warren being Warren, taking advantage of a market that is soft at a time when the possibility for competitive bids is relatively low,” said Tom Russo, a partner at Gardner Russo & Gardner, which holds Berkshire shares. “He looks at this as a business that has advantages against other forms of transportation.”
At $100 a share, Buffett is paying 18.2 times Burlington Northern’s estimated 2010 earnings of $5.51, according to the average analyst projection in a Bloomberg survey. That compares with the 13.4 multiple for the Standard & Poor’s 500 Index as of yesterday’s close. Shares of Burlington Northern, the largest U.S. railroad, dropped 13 percent in the 12 months through yesterday.
Union Pacific, CSX
Competing railroad Union Pacific Corp.’s ratio was 13, while Jacksonville, Florida-based CSX Corp.’s was 13.1, Bloomberg data show.
Union Pacific rose $4.35, or 7.9 percent, to $59.41 at 4 p.m. in New York Stock Exchange composite trading. CSX climbed 7.3 percent. Burlington Northern surged to $97. Berkshire Class A shares rose $1,700, or 1.7 percent, to $100,450.
The deal culminates a search by Buffett, 79, that sent him to Europe looking for possible acquisitions and lamenting in letters to shareholders that he and Vice Chairman Charles Munger couldn’t find companies they considered large enough to meaningfully add to annual earnings.
Buffett needs “elephants in order for us to use Berkshire’s flood of incoming cash,” he said in his annual letter to shareholders in 2007. “Charlie and I must therefore ignore the pursuit of mice and focus our acquisition efforts on much bigger game.”
Burlington Northern, with pretax income of $3.37 billion on revenue of $18 billion last year, would be Berkshire’s second- largest operating unit by sales. The McLane unit, which delivers food to grocery stores and restaurants by truck, earned $276 million on revenue of $29.9 billion in 2008.
Berkshire’s largest business is insurance, with units including auto specialist Geico Corp. Buffett, who is the company’s chairman and chief executive officer, has said he likes insurance because he gets to invest the premiums paid by customers until the cash is needed to pay claims. The insurance businesses last year collectively earned $7.51 billion on revenue of $30.3 billion.
Buffett will use $16 billion in cash for the deal, half of which is being borrowed from banks and will be paid back in three annual installments, he told CNBC. Berkshire will have more than $20 billion in consolidated cash after the purchase, he said.
“It doesn’t mean we’re out of business, but it does mean that we won’t be making any huge deals for a while,” Buffett told the network today. He said earlier this year the company needs at least $10 billion in cash to be ready for unforeseen events such as catastrophe claims at its insurance units.
Berkshire would get $264 million from Burlington Northern if the railroad’s board accepts a higher bid, according to a regulatory filing today.
Buffett built Berkshire into a $150 billion company buying firms that he deems to have durable competitive advantages. His largest purchases include the 1998 deal for General Reinsurance Corp. for more than $17 billion. Buffett expanded into power production with the purchase of MidAmerican Energy Holdings Co., and last year bought Marmon Holdings Inc., the collection of more than 100 businesses, from the Pritzker family. Marmon’s Union Tank Car unit manufactures and leases railroad cars.
He expects the economy to recover, he said in an interview in September with his company’s Business Wire unit.
“We are still tossing out 14 trillion worth of product a year,” he said. “It will return. It’s already returned with most people in most ways, but it’s not back 100 percent. It’ll get there.”
The U.S. economy returned to growth in the third quarter after a yearlong contraction as government incentives spurred consumers to spend more on homes and cars. The world’s largest economy expanded at a 3.5 percent pace from July through September, Commerce Department figures showed last week.
“It’s a pretty simple bet,” said Mario Gabelli, CEO of Gamco Investors Inc., which has holdings in Berkshire and Burlington Northern. “Warren knows the assets. He’s been involved in basic businesses like this for years.”
Buffett is increasing his stake in an industry that doesn’t have any competitors for certain types of freight. Federal law requires some chemicals to be moved only by rail.
Railroads burn less diesel fuel than trucks for each ton of cargo carried, giving companies such as Burlington Northern and Omaha-based Union Pacific a grip on bulk commodities such as coal. That fuel-efficiency advantage also gives railroads a share of the profits from moving goods such as Asian imports of cars and other consumer goods sent to U.S. West Coast ports.
From ships, containers are loaded onto railcars to be hauled to so-called intermodal terminals, where they’re transferred to trucks for the final leg of their journey.
Buffett said in 2007 that railroads may prosper at the expense of trucks. “As oil prices go up, higher diesel fuel raises costs for rails, but it raises costs for its competitors, truckers, roughly by a factor of four,” Buffett told shareholders in 2007 at his company’s annual meeting. “There could be a lot more business there than there was in the past.”
Berkshire’s board approved a 50-to-1 split of its Class B shares as part of the acquisition plan, the company said in a second statement. Berkshire will schedule a shareholder meeting to vote on an amendment to the company’s certificate of incorporation that’s needed to split the stock. B share typically trade for about a thirtieth of the price of A shares.
Most of the shares exchanged for Burlington Northern stock will be Class A shares, Berkshire said. Splitting the B shares is designed to accommodate the smallest holders who elect for a tax-free swap of the railroad’s stock, it said.
Goldman Sachs Group Inc., Evercore Partners Inc., and Cravath Swaine & Moore LLP are advising Burlington. Berkshire didn’t disclose a financial adviser and said Munger Tolles & Olson LLP furnished legal advice.
Matthew Rose, the chief executive officer of Burlington Northern, said he struck the deal with Buffett after the two met in Texas. Buffett, named by Forbes as the second-richest American, was visiting because he has other business interests in the state, Rose said.
“We spent a couple hours talking about the economy and the business,” Rose told Bloomberg Television. “The next day I got a call. He asked me to meet on a Friday night down in downtown Fort Worth. It was a relatively short conversation; he told me what he wanted to do. The next day we fired up the process.”
Burlington Northern operates 32,000 miles of track, with 6,700 locomotives, according to its Web site. Most of the carrier’s network is west of the Mississippi, where it competes with Union Pacific.
The U.S. Department of Justice will conduct an antitrust review, which Burlington expects to be completed by the first quarter of next year, the company said today in a conference call with analysts and investors.
Burlington Northern said two-thirds of the shares that aren’t held by Berkshire must vote in favor of the transaction for it to proceed under Delaware law. The railroad said it anticipates a shareholder meeting in the first quarter of 2010 and the completion of the transaction “very shortly thereafter.”
Transcript: Warren Buffett on FOX Business Network today with Liz Claman
But I -- you know, I like the business very much. I think the management is the best there is, and, like I say, when I didn't get thrown out of the office, I made it specific, and it was a good offer from their standpoint. And they decided to accept it. And now we're going to own a railroad. And we never fool around on things, Liz. I mean, I tell the lawyers, get this thing done, you know.
Well, the rails move a freight at a much more environmentally friendly (the future way) way than the truckers do. And they also only use about a third of the fuel. So, it's helping -- it helps our trade balance in the long run. It helps in terms of the atmosphere. It is a very, very efficient, effective, environmentally friendly way of moving freight. And, you know, our rail system is a huge asset to the country.
Well, they haul a lot of coal and coal from the Powder River Basin in the West -- is more competitive, it's lower-sulfur coal than in the East. So, it will be around a long time. But coal, over the long run, coal will diminish in relative importance.
BUFFETT: It's true. I didn't have to listen to that, but it's true any company that has long-life assets is replacing assets that they bought many years ago with things that cost more money now. That's true of our utility business, that's true of any business. It's true -- if you build a plant that 30 years ago had a 30-year life. When you go to replace that same plant, it's going to cost you more money. That's a fact of life in an inflationary economy.
Wednesday, October 14, 2009
Friday, September 18, 2009
Here's the link: http://www.cnbc.com/id/32867249
Happy Raya! Drive safely :)
Saturday, August 29, 2009
The improvement is mainly due to increased billing from new projects secured during FY2009, gain from forex as USD appreciated vs RM, and contribution from educational division which was launched during FY2009.
However, Scicom’s full year performance was significantly affected by a net loss of RM 0.88 million in 3Q09 due to the provision for doubtful debts on outstanding receivables amounting to RM 4.607 million for debts deemed to have high recoverability risk in the current economic crisis. Another provision was allocated in 4Q09 albeit at a smaller amount of RM 0.478 million, thus bringing the total provision for doubtful debts to RM 5.085 million for FY2009. Risk remains where Scicom may record more provision in the following quarters as current economy still remain in shambles.
But according to Scicom in its 3Q09 report, "The current global financial crisis has also resulted in an increase in recoverability risk for the Group’s receivables. The Group has made sufficient provision for debt that is deemed to have a high recoverability risk."
For 2010, Scicom has a positive view - "The Group continues to intensify its business development activities in all of its business divisions and is confident that the Group will have robust growth for 2010."
FY2009 - ROE at 18.3%, D/E less than 2%, CR at 3.95x
NPM at 10.47% in 4Q09, compared to 7.62% in 4Q08 and 4.47% in 1H09
NPM at 6.01% in FY09 vs 5.12% in FY08
For FY 2008, though sales up 9.14% yoy, Scicom's NPAT declined 46.46% yoy, mainly due to the depreciation of USD vs RM (clients are billed in USD previously), reduction in operating margins by some of the major clients due to cost-cutting measures, and longer than expected sales cycle for major new business. Before that, Scicom had a good track record with increasing sales and higher profits. NPM was 10.38% in FY07 and 11.67% in FY06.
A final dividend of 1.5sen is expected to be paid out in October/November, adding to the 1sen interim dividend paid in March. Total dividend is 2.5sen for FY2009, up 25% from 2sen paid in both 2007 and 2008.
Thursday, August 20, 2009
The Greenback Effect
By WARREN E. BUFFETT
Published: August 18, 2009
IN nature, every action has consequences, a phenomenon called the butterfly effect. These consequences, moreover, are not necessarily proportional. For example, doubling the carbon dioxide we belch into the atmosphere may far more than double the subsequent problems for society. Realizing this, the world properly worries about greenhouse emissions.
The butterfly effect reaches into the financial world as well. Here, the United States is spewing a potentially damaging substance into our economy — greenback emissions.
To be sure, we’ve been doing this for a reason I resoundingly applaud. Last fall, our financial system stood on the brink of a collapse that threatened a depression. The crisis required our government to display wisdom, courage and decisiveness. Fortunately, the Federal Reserve and key economic officials in both the Bush and Obama administrations responded more than ably to the need.
They made mistakes, of course. How could it have been otherwise when supposedly indestructible pillars of our economic structure were tumbling all around them? A meltdown, though, was avoided, with a gusher of federal money playing an essential role in the rescue.
The United States economy is now out of the emergency room and appears to be on a slow path to recovery. But enormous dosages of monetary medicine continue to be administered and, before long, we will need to deal with their side effects. For now, most of those effects are invisible and could indeed remain latent for a long time. Still, their threat may be as ominous as that posed by the financial crisis itself.
To understand this threat, we need to look at where we stand historically. If we leave aside the war-impacted years of 1942 to 1946, the largest annual deficit the United States has incurred since 1920 was 6 percent of gross domestic product. This fiscal year, though, the deficit will rise to about 13 percent of G.D.P., more than twice the non-wartime record. In dollars, that equates to a staggering $1.8 trillion. Fiscally, we are in uncharted territory.
Because of this gigantic deficit, our country’s “net debt” (that is, the amount held publicly) is mushrooming. During this fiscal year, it will increase more than one percentage point per month, climbing to about 56 percent of G.D.P. from 41 percent. Admittedly, other countries, like Japan and Italy, have far higher ratios and no one can know the precise level of net debt to G.D.P. at which the United States will lose its reputation for financial integrity. But a few more years like this one and we will find out. (lets wait and see what will happen)
An increase in federal debt can be financed in three ways: borrowing from foreigners, borrowing from our own citizens or, through a roundabout process, printing money. Let’s look at the prospects for each individually — and in combination.
The current account deficit — dollars that we force-feed to the rest of the world and that must then be invested — will be $400 billion or so this year. Assume, in a relatively benign scenario, that all of this is directed by the recipients — China leads the list — to purchases of United States debt. Never mind that this all-Treasuries allocation is no sure thing: some countries may decide that purchasing American stocks, real estate or entire companies makes more sense than soaking up dollar-denominated bonds. Rumblings to that effect have recently increased.
Then take the second element of the scenario — borrowing from our own citizens. Assume that Americans save $500 billion, far above what they’ve saved recently but perhaps consistent with the changing national mood. Finally, assume that these citizens opt to put all their savings into United States Treasuries (partly through intermediaries like banks).
Even with these heroic assumptions, the Treasury will be obliged to find another $900 billion to finance the remainder of the $1.8 trillion of debt it is issuing. Washington’s printing presses will need to work overtime.
Slowing them down will require extraordinary political will. With government expenditures now running 185 percent of receipts, truly major changes in both taxes and outlays will be required. A revived economy can’t come close to bridging that sort of gap.
Legislators will correctly perceive that either raising taxes or cutting expenditures will threaten their re-election. To avoid this fate, they can opt for high rates of inflation, which never require a recorded vote and cannot be attributed to a specific action that any elected official takes.
In fact, John Maynard Keynes long ago laid out a road map for political survival amid an economic disaster of just this sort: “By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.... The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”
I want to emphasize that there is nothing evil or destructive in an increase in debt that is proportional to an increase in income or assets. As the resources of individuals, corporations and countries grow, each can handle more debt. The United States remains by far the most prosperous country on earth, and its debt-carrying capacity will grow in the future just as it has in the past.
But it was a wise man (and my best partner) who said, “All I want to know is where I’m going to die so I’ll never go there.” We don’t want our country to evolve into the banana-republic economy described by Keynes.
Our immediate problem is to get our country back on its feet and flourishing — “whatever it takes” still makes sense. Once recovery is gained, however, Congress must end the rise in the debt-to-G.D.P. ratio and keep our growth in obligations in line with our growth in resources.
Unchecked carbon emissions will likely cause icebergs to melt. Unchecked greenback emissions will certainly cause the purchasing power of currency to melt. The dollar’s destiny lies with Congress.
Warren E. Buffett is the chief executive of Berkshire Hathaway, a diversified holding company.
Saturday, July 11, 2009
He remains pessimistic about the economy's short-term prospects, saying the latest numbers from his Berkshire Hathaway companies show that consumer spending remains very weak.
Buffett also says a second economic stimulus will probably be needed, but he warned that no one should expect any stimulus plan to be a "panacea."
For a summary, see the WBW post Warren Buffett Tells CNBC Consumer Sales Remain "Very, Very Soft"
This is a video clip and preliminary transcript of Julia's entire conversation with Buffett:
JULIA BOORSTIN: Warren Buffett, thank you so much for talking to us here in Sun Valley. I want to start off with a question about what happened today. We got some same-store sales numbers. And Costco's [COST 44.97 -0.53 (-1.16%) ] numbers were down despite some of those rebate checks, and I was wondering, you have a lot of consumer-facing businesses, what's your take on the consumer economy? Is it as bad as it seems?
WARREN BUFFETT: I think it is. I haven't seen the figures you're referring to but I had heard ahead of time, not from Costco, they were going to be very poor. Over Father's Day, I don't know whether America's families rebelled against their fathers that day, but sales were bad. Apparel sales were bad. We're in the underwear business. We see how they're moving every day and, wives are not buying underwear for their husbands. (Laughs.) It's still very, very soft.
JULIA: The underwear indicator is bad.
BUFFETT: Yeah, right, underwear is going down. (Laughs.)
JULIA: Looking across the consumer businesses you own, do you have a sense of when the consumer economy will pick up?
BUFFETT: No. I will know when it does. I get very, very contemporaneous figures on it. So when it happens, I'll know. But there's nothing in the figures today that tells me what's going to happen tomorrow. What they do tell me is that today it hasn't picked up yet.
JULIA: The global economic downturn is a big topic of conversation here. Yesterday I know there was a big panel discussion on it. From everything I've heard, it sounds like the mood was very glum. I've heard somber. I've heard glum. It was not a positive mood. Do you agree with that sentiment?
BUFFETT: Well, I would say that right now we're in a very, very tough period. We've been in it - it really took off last September, mid-September, when it hit the financial world like nothing we've ever seen, and that's gotten spilled over into the economy. And it's a tough period now. On the other hand, this movie will have a good ending.
JULIA: Now, good ending over what sort of time period?
BUFFETT: (Laughs). I don't know how long the movie will be. I know the ending will be good but I don't know whether its a two-hour movie or a four-hour movie.
JULIA: Well, you've said that the stimulus has done little, not enough, to get the economy moving. Do you think that people here agree with you on that?
BUFFETT: Well, I don't know about people agreeing with me, but yeah, I think they probably, generally. But the stimulus was never designed to act fast. People hoped it would start trickling in. In general, I think, and this is no criticism of the administration because I believe in the stimulus and would probably believe in another one, they may be overrated in terms of their ability to end the recession fast.
JULIA: But if you're advocating another one, are they overrated?
BUFFETT: I think they're useful, but I think that anybody who looks on them as a panacea is making a mistake. But they're useful, they're useful.
JULIA: What do you think should be done now in terms of, do you think there should be another stimulus right now?
BUFFETT: I think there probably should be. But I wouldn't expect miracles out of it.
JULIA: But so little of the 800-billion dollar stimulus has already been spent. Does it make sense to do another stimulus now, or do we want until some of that money, or more of that money, is out there?
BUFFETT: Well, I would. If you had another one you'd try to load as little on the Christmas tree as possible for specific constituencies, and you would try to get it spent fast. But the President said that originally, let's try to go with the shovel-ready projects. And then Congress got into the act and I think watered it down some.
JULIA: So if the stimulus is, a stimulus is, multiple stimuli, not a panacea, what is the solution?
BUFFETT: There is no silver bullet. I mean, the original cause of this was the housing bubble. Now a lot of things were contributing to it and flowed out of it and all of that. We built a couple million housing units a year. We formed a million, three-hundred thousand households a year, surprise, we had too many houses at a point. You can't work that off in a day, or a week, or a month. The best thing we can do is not to be building a lot of new houses now. I mean, we will work off the excess inventory faster. If you want to end the recession as soon as possible, you do nothing to encourage new housing construction. Very tough on the home builders but that is the prescription for getting supply and demand back into balance.
JULIA: And so what does that mean in terms of interest rates?
BUFFETT: Well, you want low interest rates. The more affordable houses are, I mean people have to have a job too, but low interest rates are a boon to housing in that they mean people qualify for owning housing of a given type that wouldn't otherwise. But we still have too many houses. And the only way to do that, we can either form more households, get all the 14-year-olds to start living together, which they would probably like, (laughs), or we can blow up a bunch of houses, which I don't think any of us would like, or we can produce more than the household formation and we will use up the inventory and we will get back to a vibrant economy.
JULIA: You supported President Obama -
BUFFETT: 100 percent.
JULIA: And what do you think of his behavior, his decisions since he's been in office?
BUFFETT: He's been terrific. I think it's very important that the people in the country, just as in the 30's, that they have a leader they believe in. And they've got good reason to believe in him. Plus he communicates extraordinarily well so they can understand what he's doing and why he's doing it and what the timetables may be and all that sort of thing. So we have the right person in the White House.
JULIA: But you feel like the stimulus hasn't done enough, so do you agree with the way he's handled the financial crisis?
BUFFETT: Well, the Congress wrote the stimulus bill. Yeah. (Smiles.)
JULIA: You've mentioned that you're not worried about inflation right now. You're concerned about inflation down the line. What can the government and the Fed do right now to minimize that risk?
BUFFETT: Well, right now they're pouring the medicine on. Unfortunately the medicine will have an after-effect, and it will be inflation, and the question is how much and how extreme? We're going to apply a lot of medicine, and we're likely to get a lot of inflation down the road. But it's better to have the patient recover than to sit there and say I'm worried about the after-effects of the medicine so we'll just ignore it.
JULIA: Oil prices have come way down over the past six weeks. I think they're now around 60 dollars. Will that help the situation?
BUFFETT: Well, it always helps. I mean, we are importing 10-million plus barrels a day of oil and that's a tax that the rest of the world imposes on us. We give them goods and services that we produce, or IOUs, in exchange for that. And the cheaper we buy oil, the better off we are.
JULIA: And where do you think oil prices are going to head in another year?
BUFFETT: (Laughs.) If I knew it, I wouldn't tell you, but I don't know it. (Laughs.)
JULIA: So President Obama spent a lot of time recently overseas dealing with international relations. Obviously he has a lot of issues on his plate. Is that where he should be focusing his attention?
BUFFETT: Well, it's important that he do that, obviously. The number one job is the economy but that doesn't mean you ignore the rest of the world. Plus he has this, he is favorably regarded by the rest of the world and he should take advantage of that. He should establish relationships that are better with important countries than has been the case in the last eight years.
JULIA: So do you think the biggest issue that Obama is facing right now is the U.S. economy?
BUFFETT: For sure. I mean, if you're unemployed, your most important job is to get another job, and get an income. And the country is becoming unemployed to a degree. And it's very important the economy gets, comes back. It will come back. Government has less influence on how fast that happens than a lot of people would like to hope that it would. But government is a player, but it has no silver bullet. The economy will come back, though.
JULIA: It seems like one of the big issues facing the economy, and also a big topic of discussion here, is health care. I know that there were a number of panels on health care here today. How grave a problem do you think is, do you think the U.S. health care system is, and what do you think the solution is?
BUFFETT: Well, (laughs), I know how big a problem it is but I don't know what the solution is. If I knew the solution I wouldn't hesitate to offer it. But I don't bring anything to that party that hundreds of thousands of other people don't know as much or more about it than I do. But it's obviously a huge problem when it's using up whatever it may be, some people say it's as high as 17 percent of GDP. But we can't go on with health care accelerating at a faster rate than GDP. We've done it for a long time, but we need a solution, and there are better people, people better qualified than I.
JULIA: One of the ideas that Senate Democrats are talking about is a surcharge tax on individuals earning over 200-hundred thousand dollars. What do you think of that as an idea to help address the health care cost issue?
BUFFETT: Well, I wouldn't do it in respect necessarily to the health care specifically, but I think that on balance the rich have been undertaxed compared to the middle class and the lower class. I mean, over the last decade in particular, the tax law has been tilted in favor of guys like me and we don't need any help. And there are plenty of people in this country that do.
JULIA: So what would you advocate in terms of the future of taxes?
BUFFETT: I would have something that hits guys like me harder and hits the people that served us breakfast this morning a little less.
JULIA: So where is that dividing line? Is it 200-hundred thousand dollars? Does that make sense as a -
BUFFETT: I think it should be more progressive the higher up you go. But I think it's ridiculous when my tax on capital gains is less than the payroll tax on what you're earning today.
JULIA: What do you think some of the other people here would say about that?
BUFFETT: Well, you'll have to ask them. (Smiles.) Some of them would agree. No, a lot of them would agree. They wouldn't like it. Nobody likes having their taxes increase. I don't like having my taxes increase. But on the other hand, we're raising 2.3, something like that, trillion. We may spend four-trillion. There's going to have to be some adjustment made someplace and I think it's better to adjust it, to some degree, on guys like me rather than on the people who gave me breakfast this morning.
JULIA: How long -- do you think taxes will go up in the near future?
BUFFETT: I don't know about the near future, but they will go up over time because we're not going to bring spending down from four-trillion to 2.3 trillion, and we're not going to take up revenues unless we -- it will be helped some when we get a recovery, but we'll need somewhat higher taxes someplace.
JULIA: So back to the health care issue. Speaking of taxes, one of the questions is whether to tax employer-provided health care. And this is a big issue of debate. What do you think?
BUFFETT: It will all be, there will be so many tradeoffs involved, it won't be a perfect bill. Nobody could design a perfect bill. So, you can't really look at one part of it until you're looking at other parts of it. So I don't have any magic answer on that.
JULIA: Another thing that we're hearing a lot about is the hospital industry has agreed to a lot of cost cuts. We've seen the pharmaceutical industry agree to a lot of discounts. Together, that amounts to hundreds of millions of dollars. How much are those kinds of compromises going to be to finding a health care solution?
BUFFETT: Well, they're going to be important. But they problem you have is you have a health care situation now where more than two-trillion dollars a year is being spent. That means two-trillion dollars is going to somebody, whether its doctors, nurses, hospitals, pharmaceutical companies, you name it. Everyone is going to look at that bill and they're going to say, 'Am I getting more or less?' It's like a tax law change. Every line in the tax code has a constituency. Well, every dollar in medical expenses has a constituency, and that's the tough thing at the end. It will take a lot of leadership and some statesmanship on the part of people to get something. But it is a question that needs to be addressed.
JULIA: Now, in addition to health care, this year digital media and distribution of media and monetization of media has been a big topic of conversation here. Last year we talked about the Kindle and you were really enjoying your Kindle. What do you think is the big topic this year?
BUFFETT: Well, I'm here as part of their outreach program. I'm the village idiot in terms of this stuff. So they try everything out on me, if it gets past me any three-year-old can do it. I'm the wrong guy to ask ..
JULIA: Have they tried to get you to use something this year?
BUFFETT: People are always trying to get me to use things. Like I say, I will be the last guy around using a landline phone and reading a newspaper and doing all those things.
JULIA: Have you tried Twitter?
BUFFETT: I have not tried Twitter, although I met the fellow who, one of the co-founders of it, he's from a little town in Nebraska called Clark and he went to the University of Nebraska for a couple of years. So can't be all bad. (Laughs.)
JULIA: It can't be all bad. Now one question, since we're hearing a lot about watching television on the internet, have you ever watched TV on the internet?
BUFFETT: I haven't watch TV on the internet, but I have used the internet a lot. A lot.
JULIA: So, here, talking to media CEOs, talking to CEOs from a big range of businesses, the CEO of Coca-Cola [KO 48.31 -0.40 (-0.82%) ], American Express [AXP 23.22 0.42 (+1.84%) ], they're all here, what is the sense you're getting from them about the state of the economy?
BUFFETT: Well, they would see it the same way. The economy, they would probably say that the decline has stopped, most of them would say this in their business, but there's been no rebound. Now that doesn't mean there wouldn't be a further decline. It doesn't mean the rebound won't start tomorrow. But what they are seeing in their businesses is sort of a flat line after a big descent.
JULIA: Is there anything that you've heard here from these CEOs that surprised you?
BUFFETT: No, I wouldn't say that at all. They're seeing the same things I see. We're in about 70 businesses ourselves, and I've got CEOs of every one of those companies , so I've already talked to a lot of them before I got here.
JULIA: So I have to ask you a question --
BUFFETT: Uh oh. (Laughs.)
JULIA: I know that you are friends with LeBron James. I know he's a huge fan of your's. Yesterday I was chatting with him and he said he'd be game for a game of pickup basketball with any CEO, anyone here who is interested. Are you going to play pickup basketball with LeBron James?
BUFFETT: I've already done it. I played him in basketball a couple of year ago. We played for hours, and maybe I'll even reveal the results of that --
JULIA: Who won?
BUFFETT: Well, I will play him any game he wants to play as long as I get to keep score. (Laughs.) But I won't tell him my scoring method ahead of time.
JULIA: So there's no match here that's been planned?
BUFFETT: We're going to play golf, but not basketball.
JULIA: Is he a good golf player?
BUFFETT: He tells me he's never played. I've played 65 years and if you want to place a bet on either one of us, bet on him. (Laughs.) He's got a special set of clubs, though. Phil Knight at Nike [NKE 51.30 0.24 (+0.47%) ] gave him this special set of clubs, so who knows what it's going to be like.
JULIA: Maybe he'll be a big pro. Well, thank you so much for talking with us. I really appreciate it.
BUFFETT: It's been a pleasure. Thanks.
Current Berkshire stock prices:
Class A: [US;BRK.A 85125.0 -475.00 (-0.55%) ]
Class B: [US;BRK.B 2745.0 -25.79 (-0.93%) ]
Friday, June 26, 2009
BUFFETT: Well, it's been pretty flat. I get figures on 70-odd businesses, a lot of them daily. Everything that I see about the economy is that we've had no bounce. The financial system was really where the crisis was last September and October, and that's been surmounted and that's enormously important. But in terms of the economy coming back, it takes a while. There were a lot of excesses to be wrung out and that process is still underway and it looks to me like it will be underway for quite a while. In the (Berkshire Hathaway) annual report, I said the economy would be in a shambles this year and probably well beyond. I'm afraid that's true.
BECKY: We hear people on our air all the time who talk about the 'green shoots' that they're seeing. Are you seeing any of those green shoots?
BUFFETT: (Laughs.) I looked. I wasn't seeing anything (Thinking "Green shoots, what green shoots? Nonsense!"). I had a cataract operation on my left eye about a month ago and I thought maybe now I'll be able to see green shoots. We're not seeing them. Whether it's retailing, manufacturing, wherever. We have a big utility operation. Industrial demand is down like we've never seen it for a simple thing like electricity. So it hasn't happened yet. It will happen. I want to emphasize that. But it hasn't happened yet.
When u think the market is going to go up, sometimes it wont. Today is a good example. Dow and S&P up by more than 2%. Everyone expects our market will go up, so will you buy today? Isnt it better to buy when the market is going down? Buy low, sell high. Or buy high, sell low? When you have nothing to buy, do your homework and be prepared for the next selldown. Dont follow the herd. Fear not missing the boat because it will come back one day. Fear you must for taking the overloaded boat, for it will collapse while you're sleeping.
Thursday, May 14, 2009
Dow falls 184 on weak retail sales
Asian Stocks Decline on U.S. Retail Sales, Commodity Prices
Stocks drop on economy worries
Dow inches up on energy; but Nasdaq, S&P off
Dow up 50 as investors wait for key data (what a lousy headline!)
Dow up on Apple results
Retail, foreclosure reports drive down Dow
Dow drops 778 as bailout bill fails
US stocks down on swine flu worries (LOL)
So, do you agree with them? These guys are paid to write interesting headlines to attract readers. You cannot blame them. Here's why! Stock prices go up or down simply because of changes in supply and demand. Stock prices go up because demand is more than supply. And stock prices go down because supply is more than demand. Well, you cannot expect the same headlines on every trading days: Dow up on higher demand for stocks! Dow drops as supply exceeds demand. Are you interested in these headlines? Hence, you need to be able to interpret and understand the logic behind the interesting headlines.
Moving to the next topic. Stocks on the bull run in April (started in March)! Why investors are buying?? Most investors are, in my opinion, impatience (if you are a patience guy, you have some advantage over the rest). They are among the first to enter the market (only after the big funds started buying and dump to them) and the last to stay in the market (the last fools theory?). They certainly can make money in the market during bull runs. But in the long run, most of them suffer big losses. Why? These retail investors are very emotional (You simply cannot get emotional with stock. It doesnt know you own it, and how much u pay for it!!). I think it is hard for them to make big money, but only small profit for every transaction.
I give you an example here. A bought 100 lots of ABC at 20sen. The stock goes up to 21sen. A is happy. He is thinking to sell the stock, afraid that it will go down. But he decided to hold on after listening to some "pro advice" from his broker. The next day, ABC goes to 19sen, A was afraid (that it will go down further) and blamed his broker. But he thought, at 21sen, he didnt sell, why need to sell at 19sen?. The following day, ABC goes to 22sen, A immediately ask his broker to sell the stock! A made a net profit of about rm 150. The following days, ABC gradually move up to as high as 40sen. A was damn sad (emotionally disturbed) watching the stock he sold at 22sen few days ago, thinking he made a loss of 1800 in additional profit!! Lesson: You cannot watch your stocks like a HAWK! Set your target price and dont look at it every single minute or hour of the day!
A has another stock in his portfolio, lets call it DEF. He bought 100 lots of DEF at 40sen. He is thinking to sell at 44sen, or a profit of 10%. The first week, DEF didnt move a lot, trading within 38-43sen, and ended at 42sen. A keeps monitoring every single day (ask yourself what can you learn by monitoring every day?). The second week, DEF started to move to 44sen, but seeing high volumes, A decided to hold on for larger profit! (Greedy?? Disciplined?) DEF managed to trade as high as 48sen in the morning session and A said to himself "I will sell at 50sen and told his broker to q at 50sen." When the evening session started, A continues what he does best, looking at his computer screen on the movements of his now beloved stock DEF.
DEF started strong at 49sen, A is very happy and get excited like watching a horse race and shouting repeatedly at his lucky number! (if d normal heart beat is 120, it goes to 200!! getting emotional again..) On that day, DEF goes as high as 49.5sen, before closed at 47sen. As a result, A was not able to sell it. The next day, thinking the day before DEF went up 5sen, A thought it could at least match that increase. A woke up at 7am (too excited, cant sleep well) and getting well prepared for his next round of "stock monitoring session". At first, DEF did not dissappoint him. It managed to open at 48sen. As time goes by, DEF started to decline (why? demand is less than supply - people like A is not buying, but waiting to sell. that is why the market needs to correct sometimes.) and closed at 44sen. A blamed himself for not selling at 49.5sen. Now at 44sen, do you think he will sell? The following days, DEF slowly decline to as low as 20sen. A, without doubt, is still holding his once beloved stock. His unrealised loss is around rm2,000!!
Back to the question. Why investors are buying when the economy is still in bad shape? Many stocks have dropped to very low levels, mostly down between 40% and 80% (at record low levels, investors are sitting on enormous unrealised losses, then who wants to sell? But when investors see their holdings, once declined over 50%, making a comeback now, who wouldnt sell at a small loss or profit?). During the bear market period, these stocks decline substantially due to the massive selldown especially by foreign investors. Other possible reason: institutional investor selling their underperforming stocks at the end of the year - known as window dressing.
Why the comeback? This round of bull market (or bear market rally) is possibly caused by the injection of money into the stock market by institutional investors especially PNB and Khazanah. Remember the issuance of a total of 5.33 billion new units of ASM and ASW 2020 recently?? And the stimulus package of RM 10 billion to Khazanah for equity investment in 2009-2010??
When the market is hot, you dont need to be a magician like David Copperfield to know that the retail investors will make a return (read here: Higher retail participation in stock market in April). Are they the last fools to stay in the market?? I dont know. What I do know is that when somebody buys, someotherbody must sell (So do you think you know what others dont know?). Thats the equation. Is the worst over for Malaysia? I dont think so. BNM will announce the 1Q 2009 GDP on May 27, expect the unexpected!
Wednesday, May 6, 2009
Berkshire’s Munger Sees ‘A Lot of Agony Ahead’ in U.S.: Voices
May 1 (Bloomberg) -- Berkshire Hathaway Inc. Vice Chairman Charlie Munger said losses in commercial real estate will cause “huge agonies” in the U.S. as the recession continues.
Munger spoke today in an interview with Bloomberg Television in advance of Omaha, Nebraska-based Berkshire’s annual shareholder meeting at the city’s Qwest Center tomorrow. A record 35,000 people are expected to attend.
On how much longer the U.S. recession will last:
“It’s far from over, yet a lot of very intelligent intervention has already occurred. We don’t know exactly how it will play out.” (Attention: The recession is FAR from over!!)
“I can see that agony spreading. Commercial real estate is in a state of paralysis and when it reopens, it’s going to reopen at lower levels in terms of prices, and those lower levels are going to cause huge agonies. That lies ahead. There is a lot of agony ahead. That’s not all in the past.”
“This is not going to pass like a summer shower.”
On the U.S. government’s reaction to the recession:
“I think in terms of promptly supplying massive liquidity, nationalizing Fannie Mae and Freddie Mac, they get an A-plus. I think a lot of intelligence and vigor has been displayed. When it gets into the regulatory battle, which lies ahead, I would expect the result to be not as good.”
“There is an old saying that lawyers sometimes use. They talk about those wise restraints that make men free. I would argue that we need wise restraints that dampen enormously the inevitable bubbles.”
On the influence of investment banks on national policy:
“We need to remove from the investment banking and the commercial banking industries a lot of the practices and prerogatives that they have so lovingly possessed. If they are too big to fail, they are too big to be allowed to be as gamey and venal as they’ve been -- and as stupid as they’ve been.”
“There is a huge vested interest in investment banking -- and commercial banking -- in the system as it presently exists, partly because it enables such large pay. The people who have been making all this money don’t want the system changed. They would like to get back as closely as possible to business as usual, and they have enormous political power. The top 10 investment banks and banks over the last 10 years have spent $500 million on political contributions and lobbying. This is an enormously influential group of people, and 90 percent of that influence is being spent to gain powers and practices that the world would be better off without. That’s what I mean when I say that it will be very hard to accomplish the kind of surgery that would be desirable for the wider civilization, because these people don’t want surgery.”
On credit-default swaps:
“Do you think it would be desirable if everybody in America could buy life insurance on any person they wanted to buy life insurance on, so you had a vast number of people who would make large profits if that person died? You would think that would be pretty dangerous for the person who is insured. And some of that danger exists once people get this vested interest in the destruction of some business. They also get a vested interest in manipulating the liquidation and distress process to maximize the destruction because what they get on the derivative contracts is based on what happens in the default. The whole mass of incentives created is quite counterproductive. I don’t think we needed this huge market in credit default swaps.”
“If I were the governor of the world, I would eliminate it entirely -- 100 percent. That’s the best solution. It isn’t as though the economic world didn’t function quite well without it, and it isn’t as though what has happened has been so wonderfully desirable that we should logically want more of it.”
On why Berkshire participates in the credit swaps market:
“We think that the national policy that allowed the derivative markets to develop as they did was a stupid policy and we think the derivative markets as they evolved have done more public damage than public benefit. That said, if they exist and they are legal and some opportunity therein is presented to us that we think makes sense to the shareholders of Berkshire, we would seize that opportunity. That’s all that’s happened, is that we made our investments because we thought they were intelligent investments and we made them in a system that the nation would have been more intelligent if they avoided creating at all.”
Berkshire Chairman Warren Buffett “made the decisions, but I think the derivative transactions that we did engage in were intelligent transactions on behalf of Berkshire and ultimately we will make a lot of money.”
On Moody’s Investors Service and Fitch Ratings cutting Berkshire’s credit rating and what it will mean for the company:
“I don’t think they will affect it very much, if at all. After all, who has better ratings?”
“We would prefer to have a triple-A. You’re right about that. But we’re not tearing our hair out by the roots.”
“We would naturally prefer the rating we formerly had from the people who rated us down, and we think Berkshire is a marvelous credit, so if you ask me if I personally agreed with the downgrade, I would say no. That said, we are not going to berate some process that judges us because we would have made a different decision if we had been the rater. At least it shows they’re independent.”
On why Berkshire retains its 20 percent stake in Moody’s parent company:
“We take these big positions in things. It isn’t like the position the size we have in Moody’s is some easy thing to trade, so on those larger positions, they tend to have an element of permanence when they are made by Berkshire.”
On Chinese battery and carmaker BYD Co.:
“BYD is one of the most interesting small companies in the world. If you stop to think about it, battery technology is one of the most important subjects affecting the technological future of man.”
Wednesday, April 29, 2009
AirAsia partners Scicom
AIRASIA Bhd (5099) has tied up with outsource contact centre operator Scicom (MSC) Bhd to service passengers worldwide.
The collaboration streamlines and fully integrates AirAsia's customer service and contact centre operations.
The two companies have equal partnership in the joint-venture company, Asian Contact Centres Sdn Bhd, located in Kuala Lumpur.
Asian Contact Centres, which began operation on February 16, serves AirAsia's customers from Malaysia, Singapore, Thailand, Indonesia, China, Australia and the UK.Operations will soon expand to serve customers in Japan, South Korea, the Philippines, the Middle East and India.
The centre can manage more than five million transactions a year in English, Bahasa Malaysia, Thai, Mandarin, Cantonese and Bahasa Indonesia.
DETAILS OF THE JOINT VENTURE
The eventual authorised and issued paid up share capital of ACCSB shall be RM1,000,000 comprising 1,000,000 ordinary shares of RM1.00 each to be subscribed in equal proportions by Scicom and Air Asia.
In addition, Air Asia and Scicom shall each advance RM525,000 to ACCSB for its working capital requirements. The foregoing advances shall be free of interest and shall be repaid by ACCSB to Air Asia and Scicom respectively over a 24-month period on a proportionate basis. Any further financial support required by ACCSB from its shareholders shall be based on commercial terms and be mutually agreed upon by both parties.
Scicom shall for the duration of the Joint Venture provide to ACCSB such expertise and resources as is necessary for ACCSB to undertake an expansion of business and operations upon terms and conditions to be mutually agreed upon.
Subject to there being no event of default by Scicom or ACCSB which is continuing, Air Asia undertakes that it shall:
(i) at all times during the continuance of the JV Agreement channel and direct all of its current and future contact centre requirements to ACCSB including that of its group of companies;
(ii) agree to contract with and utilise ACCSB exclusively for its entire contact centre, back office and outsourcing requirements of Air Asia including that of its group of companies; and
(iii) use its best endeavours and do all acts and things as may be necessary to undertake business development and market development activities to provide the client base for the business of ACCSB and to assist ACCSB to source for customers and contracts worldwide.
The JV Agreement also contains provisions such as events of default, reserved matters and pre-emption rights of the parties.
INFORMATION ON AIR ASIA
Air Asia is principally engaged in the provision of budget air transportation services and currently owns and operates call centres in Thailand, Indonesia, China and Malaysia. Air Asia was listed on the Main Board of Bursa Malaysia Securities Berhad under the trading/services sector on 22 November 2004.
INFORMATION ON ACCSB
ACCSB was incorporated under the Companies Act, 1965 on 3 November 2008 with an initial authorised share capital of RM100,000 comprising 100,000 ordinary shares of RM1.00 each, of which two (2) ordinary shares are issued and credited as fully paid-up. The intended principal activities of ACCSB will be to provide end to end solutions for customer contact management and contact centre services.
RATIONALE FOR THE JOINT VENTURE
Scicom and its subsidiaries (the “Scicom Group”) is involved in the provision of customer contact centre within the business process outsourcing (“BPO”) space, provision of customer contact centre outsourcing services, customer services training products as well as contact centre consulting and marketing services.
The Joint Venture is in line with the Group’s expansion strategy and is expected to enable the parties to leverage on their mutual strengths to increase earning contributions.
As stated in Section 1, the Joint Venture is expected to consolidate and streamline Air Asia’s existing contact centres into a single call centre located in Malaysia vide ACCSB. With Scicom making available its resources and call centre expertise to ACCSB, Air Asia is able to leverage on the partnership to better optimise its resources.
Friday, April 17, 2009
"Personally, Im amazed at how little conviction most investors have in the stocks they buy. Instead of putting 20% of their portfolio into a stock, as the Kelly Formula might say to do, they'll put 2% into it. Mathematically, using the Kelly Formula, it can be shown that a 2% position is the equivalent of betting on a stock has only a 51% chance of going up, and a 49% chance of going down. Why would you waste your time even making that bet? These guys are getting paid $1 million a year to identify stocks with a 51% chance of going up? Its insane." - Mark Seller in his article "So You Want To Be The Next Warren Buffett? How's Your Writing?"
How about that? If something is not worth doing at all, its not worth doing well. Familiar? The next time you invest in a stock, think about it. Is it worth investing 2% in this stock? Or not at all? Or is this one of the few good opportunities to put in 20%? If you cant do it now, when do you expect to do it? Think about it.
Time to ponder:
We continually look for ways to employ large sums in each area - ownership of business and marketable securities. But we try to avoid SMALL commitments - "If something is not worth doing at all, its not worth doing well". -Warren Buffett, 1981
Monday, March 30, 2009
We dont buy and sell stocks based upon what other people think the stock market is going to do (I never have an opinion) but rather upon what we think the company is going to do. The course of the stock market will determine, to a great degree, WHEN we will be right, but the ACCURACY of our analysis of the company will largely determine whether we will be right. In other words, we tend to concentrate on WHAT should happen, not on WHEN it should happen.
In our department store business I can say with considerable assurance that December will be better than July. (Notice how sophisticated I have already become about retailing.) What really counts is whether December is better than LAST December by a margin greater than our competitors' and what we are doing to set the stage for future Decembers (always try to widen your competitive advantage).
However, in our partnership business I not only cant say whether December will be better than July, but I cant even say that December wont produce a very large loss (investment in stocks and we cant control the stock prices). It sometimes does. Our investment are simply not aware that it takes 365-1/4 days for the earth to make it around the sun. Even worse, they are not aware that your celestial orientation (and that of IRS) requires that I report to you upon the conclusion of each orbit (the earth's - not ours). Therefore, we have to use a standard other than the calendar to measure our progress.
This yardstick is obviously the general experience in securities as measured by the Dow. We have a strong feeling that this competitor will do quite decently over a period of years (Christmas will come even if it's in July) and if we keep beating our competitor we, we will have to do something BETTER than "quite decently". It's something like a retailer measuring his sales gains and profit margins against Sears - beat them every year and somehow you'll see daylight.
Source: Buffett Partnership Limited - Letter to Partners - July 12, 1966
my views are highlighted
Friday, March 27, 2009
Someone (lets call this someone Forecaster) told me last year that stock A, listed on Bursa Malaysia, will go up to RM2-3 in 2 years time, when it was selling at RM0.88. I asked "How do you know that?" Then Forecaster explained to me, "Based on technical analysis, I believe A will go up to RM2-3 in 2 years time." In my mind, I was thinking, "Wahh, looking at a chart can tell you about the future of the stock price, unbelievable! If that's the case, I better stop working and look at charts all day long to become rich faster."
Forecaster further explained to me that one reader in a blog also has the same thinking and is very confident with his forecast (this reader sounds like fortune teller)! After doing some fundamental analysis on stock A, I told Forecaster "This stock has poor fundamental - high debt ratio, making losses, inconsistent profits, poor management etc.. I think you shouldnt buy at first (thinking if directly asking him to sell will result to dissent)." But he argued and fought back, pouring more of his energy in protecting his selection of stock. Well, human behavior is like that, I didnt blame him. Maybe my way of explaining/advising was incorrect. Nobody like to be criticized or condemned, remember this.
It has been more than six months since Forecaster bought stock A. Today, it hovers around RM0.20 (-77%). The stock needs to increase more than 4 times its current level JUST to break even! And more than 10 times to reach RM2! Of course you can say short term performance is not important and you still have about 1.5 years to prove that you are right. But to HOPE for a company with POOR fundamental to increase 10 times in value is like a wishful thinking to win the Sport Toto 6/52 jackpot.
To choose the right stock to buy, technical analysis is not the way. Heed Warren Buffett advice, "I realised that technical analysis didnt work when I turned the chart upside down and didnt get a different answer." The next time before you decide to buy a stock, make sure you do your homework. Analyse the figures and facts of the company. You are not right because some important individuals agree with you. You are right because of your FACTS and REASONS.
Tuesday, March 24, 2009
The US market went up about 7% yesterday. Every investor and speculator, i believe, expect the local market to follow the huge rally in US (but of course not the same percentage point). KLCI up 2.5% yesterday. Today, maybe the market can go up much more, 3-4%?? I said "maybe" because I dont know whether the market will go up or down. Honestly, I also "think" it will go up (lol). The result? This morning the market went up 1.4%! I am right (proud?), so does everyone out there. So what?? Why should you be happy when the market goes up? Do you have any shares to sell? Then why so excited?
Time to ponder: "Price fluctuations have only one significant meaning for the true investor. They provide him with an opportunity to BUY wisely when prices fall sharply and to SELL wisely when they advance a great deal." - Benjamin Graham
As a buyer, shouldnt you be excited when the market goes down? The low prices provide you the opportunity to buy more of the same stock. Just like shopping, you should buy more when there is SALES. Why are you not buying when you see - Sales!! Discount up to 90%!! 50% off !! 70% off !! In my opinion, the best time to buy stock is when the market goes DOWN, not UP. Like this, you can buy LOW and sell high; not buy HIGH, sell higher (or LOW)!
Time to ponder: "Our business is making excellent purchases - not making extraordinary sales." - Warren Buffett
In the first half, the market closed at 877.4, down 0.90 points or 0.1%. Now you should be happy if you dont have shares to sell.
Saturday, March 21, 2009
- Buy high, sell low @ Buy when everyone is buying and vice versa. Lets say you invest when KLCI is at 1,300 (even every coffeeshop aunty and uncle is actively buying stocks). Why not you buy when KLCI is at 800 (when the same group of people is inactive in the market)? Plus dont buy when stock price suddenly goes up a lot and sell when it goes down significantly. Nobody can predict short term stock price movements.
- Averaging down even after the fundamentals of the company are deteriorating.
- Listen to your broker or friends - decide for yourself, and dont blame others for your losses - because its your own action and money, not others.
- Never cut loss - easier said than done, most investors just couldnt afford to cut loss. Set your cut loss price and just do it. Short term pain is better than long term pain.
- Buy without target price in mind. You have to set your target price and sell some, if not all, when the stock price triggers your target price. Make sure your target price is way above the stock price, preferably above 100%. I am talking about long term investment, 5-10 years, not 6 or 12 months.
Recommended reading for weekend:
Seven pitfalls to avoid in stock investing
Mistake No. 1: Ignoring catalysts
According to Curtis, the No. 1 mistake is ignoring catalysts that drive companies’ earnings. He says proper valuation, calculating price/earnings (PE) ratios, and running cash-flow spreadsheets only provide half the picture when selecting a stock, as they merely depict where a company stands at that point in time and not, more importantly, where it is heading.
Therefore, in addition to a quantitative evaluation of a company, investors need to do a qualitative study to determine which catalysts will drive future earnings.Take for example, Astro All Asia Networks plc. The counter, not unlike countless others, has been on a steady downtrend since January 2008.
It seemed to matter little that it was offering a dividend yield of some 7%, had cash of RM1.06bil and achieved record domestic subscriber base of 374,000 as of January this year.
While from a valuation perspective, one may deem the counter an attractive buy, but its share price kept falling. Why? Because investors were more concerned over its operations in Indonesia and the high provisions it has had to make. It recently announced a wider-than-expected loss of RM529mil for financial year ended Jan 31, 2009, largely due to losses from its Indonesian venture.
However, some analysts believe the company will return to the black in the current year (no further writedowns expected) and that it may declare higher dividends in the absence of any major capital expenditure requirement.
Mistake No. 2: Catching the falling knife
Buy when everyone is selling. That is easier said that done. Too often, investors buy in before all of the bad news is out, or before the stock stops its freefall.
“New lows in a company’s share price often beget further new lows, as investors see the shares dropping, they become disheartened and sell their shares. Waiting until the selling pressure has subsided is almost always your best bet to avoid getting cut on a falling-knife stock,” says Curtis.
In Malaysia, remember when crude palm oil prices were plunging alongside crude oil? Plantation heavyweights saw their share prices fall, which has yet to subside even now.
This time last year, Sime Darby Bhd was at RM9. Today, it hovers at RM5.55. Asiatic Bhd too was trading at RM7.40 a year ago while today it is RM4.04. IOI Corp Bhd has seen its share price drop from RM6.65 to RM3.82 on Thursday.
For investors who had started accumulating commodities or commodities-related stocks last October, they would have seen their portfolios dip by an average 30%.
For those who accumulated Resorts World Bhd last December, thinking its downside was close, especially since it hit its 52-week low of RM2.15 on Dec 12, how wrong they must have been.
The stock is now trading at its new low of RM1.92 despite its cash pile of RM4.55bil. It continues to be haunted by corporate governance and related-party transaction issues.
Looking purely at the historical PE ratio of a stock can be deceptive. More so when trying to buy a stock at its lowest historical PE. (imo, it is ok to buy a good stock at historical low PE, but it must comes with long term proven record of profitability. Why?? It is usual for every businesses, even good businesses, to experience hiccups in earnings for a year or two. And the future earnings of good businesses are going to be greater than before after a few tough years.)
“This is because if price is constant and earnings continue to drop, then the PE ratio will rise and distort the picture. You never know if you’re buying at the lowest price,” says a head of retail research at a local brokerage.
He says it is better to buy a stock when the related sector bottoms out.
“The way to gauge this point of inflection will be to compare the sectoral data with historicals during previous economic crisis,” he says.
Mistake No. 3: Failing to consider macroeconomic variables
Mistake No. 4: The issue with dilution
Another red flag to look out for are companies that issue millions of shares, hence causing a dilution in earnings per share.
Malayan Banking Bhd (Maybank) fell below RM4 on Monday, the first time in more than a decade, on concerns over its proposed RM6bil cash call and potential hefty impairment losses.
Following the announcement of a rights issue on Feb 24, the stock price has fallen 26% to RM3.98 from RM5.40.
Recall that Maybank has offered a rights issue of up to 2.2 billion new shares on the basis of nine-for-20.
The issue price for its proposed renounceable rights issue is fixed at RM2.74 per share, which represents a 34% discount to the theoretical ex-rights price of RM4.17 per share and a discount of 43% to the closing price of RM4.82 on Feb 24.
AmResearch says Maybank’s estimated earnings per share for the year ending June 30, 2010 will be diluted to 38 sen from 52.2 sen previously.
“The general perception of a company that raises capital during difficult times is that it is desperate and this will have a negative effect on its stock price,” says the retail head.
Curtin instead advises to try seeking companies that are repurchasing stock and, therefore, reducing the number of shares outstanding. This process not only increases earnings per share but also tells investors that the company feels there is no better investment than its own company at the moment.
Mistake No. 5: Not recognising seasonal fluctuations
Most sectors go through booms and bust. In other words, they are cyclical. Investors looking for stocks to buy, need to take into account the sectors that are at present in vogue.
For instance, would it be a good idea to invest in the semiconductor sector, knowing full well there’s a major slowdown in chip sales and a case of layoffs and inventory building up?
In the case of the retail and consumer sector, their sales go up and down depending on which part of the year it is. The year-end school holidays and festivities normally see sales picking up. At other times, sales are fairly staid.
Similarly, would it be wise to invest in a property company when the sector has gone through a five-year bull market, and will probably need to undergo a period of correction before it rises again?
“The fact is that many companies, such as retailers, go through boom-and-bust cycles year-in and year-out. Luckily, these cycles are fairly predictable, so do yourself a favour and look at a five-year chart before buying shares in a company,” says Curtis.
Mistake No. 6: Missing sector trends
While stocks can buck the larger trend, this behaviour usually occurs because there is some huge catalyst that propels the stock.
For the most part, companies trade in relative parity to their peers. This keeps the stock price movements within a trading band.
Let’s say an investor owns a banking stock in Malaysia. While Malaysian banks are not exposed to the huge debts and toxic assets of Citigroup, American International Group or Bank of America, Malaysian banks may likely be affected in a protracted downturn.
Not surprisingly, Public Bank Bhd, Maybank and Bumiputra-Commerce Holdings Bhd have come under heavy selling pressure on negative newsflow and a worsening economic outlook.
Financial valuations in Malaysia have pulled back substantially from a peak of 2.5 times price-to-book (P/B) in January 2008 versus 1.2 times P/B currently.
Hence, if other banks are experiencing certain negative perceptions or problems, most likely the Malaysian banks will also be affected. The same is true if the situation was reversed.
Mistake No. 7: Avoiding technical trends
Learning basic technical analysis can be very useful when deciding to take a position in a stock. For instance, would you bet heavily on stocks on Bursa Malaysia when the Dow Jones Industrial Average is trending down every day? Curtis says investors don’t have to be a chartist to be able to perform technical analysis.
“A simple graph depicting 50-day and 200-day moving averages as well as daily closing prices can give investors a good picture of where a stock is headed,” he says.
He advises investors to be wary of stocks that trade close to their average as it usually means it can sink even lower. The same can be said to the upside. Also, when volume trails off, so does the stock price.
“Sticking purely to fundamental analysis can be detrimental to one’s portfolio,” says the retail head.
He says technical analysis measures the real demand and supply for a particular stock. “It helps guide investors to determine the exit and entry points,” he says.
Can we use technical analysis to predict future stock price movements? Or technical analysis is just useless? More on my mistake using technical analysis in the next article.
Thursday, March 19, 2009
"As we have noted, we evaluate single-year corporate performance by comparing operating earnings to shareholders' equity WITH securities valued at cost. Our long-term yardstick of performance, however, includes all capital gain or losses, realized or unrealized. We continue to achieve a long-term ROE that considerably EXCEEDS the average of our yearly returns. The major factor causing this pleasant result is a simple one: the retained earnings of those non-controlled holdings we discussed earlier have been translated into gains in market value."
"We believe that short-term forecasts of stock or bond prices are USELESS. The forecasts may tell you a great deal about the forecasters, they tell you NOTHING about the future."