Thursday, December 22, 2011

The different between Fundamental and Technical Analysis

Just read one article, you know how the author describe Fundamental and Technical Analyst? In a shopping mall, a fundamental analyst would go to each store, study the product being sold and then decide whether to buy it or not.

A technical analyst would sit on the bench in the mall and watch people go into stores, then he study the patterns or activities of people going into each store.

So, we can actually combine both:
1. Fundamental analysis shows us What To Buy
2. Technical analysis shows us When To Buy
Below two eBook from CIMB, feel free to download:

1. Fundamental Analysis
2. Technical Analysis 

Sunday, December 18, 2011

Flipping the Stock

My friend ask me, how to make money in stock market? Actually, making money in stock market is not so difficult, there are many tools available today. Investment is all about plan with goal, strategies and follow by action. One of the easy strategy use by many is Buy and Hold. Some suggest to buy only when market crash.

It's true, timing and opportunity! While waiting market to crash, sometimes, we may use small percenage of our money to trade the stock. All the business actually involve in trading, buy low and sell high. The manufacturer buy raw material, process and sell at higher price to make profit The agent buy from factory and sell to consumer with higher price to make profit. Sometimes we also call this method as Flipping Strategy-  buy the stock for short term, with intention to sell it quickly on same day or few days.

The best time to trade is during the uptrend formation. We know something is hard to move, but once move, it's hard to stop! Yes, momentum, stock price also observe the same movement. Many investor would like to ask, why the stock move up? Sure got something! But it doesn't matter for investor like us, we only care how to ride on the trend and make the profit.

As I always advise my friend, stock can talk! Listen to them carefully, volume and price movement will tell you everything! For example, before the party end, usually it will follow by big volume and the price is flag or down. If you happen to buy the stock, get out of it before the music stop! Every stock can talk, if you DO Not understand their meaning, better stay out until you study and understand their language.

Saturday, December 10, 2011

Single Tier Dividend - Good or bad for retail investor?

Two years ago, Malaysia government introduce the system of Single Tier Dividend. There will be a transition period of 6 years until 31 Dec 2013 for the existing company to comply with this system. Many are so excited, because they say, oh... nice... now dividend receive no need to pay tax and no need to declare as well. Few weeks back, when I discussed with my team here and I noticed that many still unaware that we, as individual investor will lose a bit, especially for retiree. Why?

Let look first why government want to introduce this system? Many reasons given, the main one, save administration cost to refund tax to individual and individual no need to pay tax as the tax under company is a final tax. By doing that, Government can boost their tax income and save a lot of follow up work!

Imputation System
The current system for dividend pay out is call Imputation System. For example, when a company make a profit of $100, government will take $25 (25% of tax) so the profit after tax is $75. Let say, now the company want to pay out all the profit as dividend (usually the company seldom payout 100%), so the tax paid by company are passed to share holder as tax Credit. (S110) In this case, the company will have Imputation Credit of $25.

Share holder receive $75 as net, but need to declare RM100 as gross income with 25% tax deducted. In this case, many still assume they will receive gross dividend as $75, but actually the gross is RM100 and you can claim back 25% if your tax bracket below 25%...

Let study the actual case under Dutch Lady (Dlady) annual report :

In Dlady's case, the 2nd special interim gross dividend is 40 sen, but 30 sen was recorded in company's statement. So the total paid out is: 64,000k (total shares) x 30 sen = $19,200k.

For the year of 2010, total payout was $46,400k and was recorded in P&L Statement:

In above case, if investor bought the share just before Dlady declare the 2nd special interim dividend, he will receive net 30 sen, the dividend voucher will record as gross 40 sen, tax deducted 10 sen(25%). If the share holder fall under tax bracket of 19%, he is entitled to a refund of 6%.

Single Tier System
Under this system, tax paid by company (25%) is final tax. When a company make a profit of $100, government will take $25 (25% of tax) so the profit after tax is $75. Let say, now the company pay out all the profit as dividend, there will be no more Imputation Credit.

Share holder receive $75 as net, no need to declare as income.

Assume after 2013, Dlady still pay the same amount of 2nd special interim dividend, under the company's statement, it will mention as 30 sen under Single Tier Dividend. (same under company's statement)

Share holder will receive net 30 sen, it's tax exemption and not require to declare.
So, now you know the reason why no need to declare dividend under Single Tier System?
Share holder is unable ask for refund of 6% in the above case. (low income tax payer is main loser in this case)


Monday, December 5, 2011

What you have learnt from Stock Market?

One of my friend told me, he dare not invest in stock market, because he feel that market is unstable at the moment. Some day up and follow by few days down, he was unable to sleep well when he involved in Stock Market last time.

Why we invest in stock market? If a company's stock selling at one dollar today, tomorrow and one year later, what's the fun to invest in stock market? We know one thing, inflation always happen, today's asset worth 1 million, it can become 1.2 million one year latter. Yes, we want Capital Gain! This is true only for investment grade stocks! We need market up and down to make money.

The second thing I like to invest in stock market is because of liquidity. You can sell the stock you buy and take the cash within 3 working days. Hence, you need to select the right stock to invest, avoid those stock with low liquidity, unless you are very rich and willing to wait for years.

Stocks do pay dividend, if you know how to “save” high dividend stocks. We particularly like the stocks which pay dividend with the increase dividend rate every year. Many still don't know they can sleep well if choose this kind of stocks.

Try to make money when you buy. Buy on the day when market crash! Cheap sales are every where. Find the value stock, buy the value of 1 dollar with 50 cents, then you know at the time of buying, you had earn 50%.

There's no secret of creating wealth in stock market. All you need to do is find the investment grade stock, buy when market go down. Make sure the stock pay dividend of more than bank's FD rate. Invest in Stock market is high risk only in the case of you do not know what you are doing!