Wednesday, October 29, 2008

Panic 2008!

"Market Crashes", "Dow Plunges", "Global Recession".

Its enough to make you feel like Edvard Munch on a combination of speed and cocaine.

Headlines blaring across the worlds financial and main news organisations are saturating investors brains to the extent that they can hardly see their way out of all the gloom.

Of course there are practical and real reasons why most of these headlines exist and we haven't seen the worst yet but lets face it the world ain't going to come to an end.

All things must pass!

I am fed up with all the negative stuff and I am looking past the drama of "Panic 2008" and "Black October"(whats up with October for down stockmarkets?) and towards what lay on the other side of it.

We are coming close to the bottom of the down part of a financial cycle and the big economic impact is likely to hit soon and last until well into 2009/early 2010-of course the reactions by politicians to it may delay growth -at the same time though the seeds of an economic recovery are being planted.

The New Zealand dollar has been decimated and will continue to fall and this of course will help an export led recovery, one that is sustainable, rather than the tax and spend merry go round we have been on for the last 9 years.

Lower New Zealand interest rates, and US ones in particular will lead to an increase in business growth through cheaper lending and a pick-up in job numbers and in home lending this will lead to all the knock-on industries benefiting as a result.

Lower asset values will lead to more prudent buying by investors and a gain for those who have bought in a falling market and for those who haven't had to sell their house, stocks or rental property.

Lower commodity prices for oil, grain, sugar and a whole host of other staples that make economies tick will be a welcome relief for citizens lumbered with less employment or problems with high debt.

My point is that with every downside associated with the current financial and economic turmoil there is a mirror upside in the future and that is just how economic cycles work.

The fact that the upwards cycle has been a steep one unfortunately means the downside will be reasonably lengthy but in the process of movement back towards the top there are opportunities to be had for investors to capitalise on by buying cheap assets and benefit from their foresight when things inevitably get better.

All we need now is a little more faith in the future to make the upside a reality sooner rather than latter.

Panic 2008 @ Share Investor

Why I am optimistic about the Global recession
Learning from History
Strap yourself in baby!
Will the stalactites hold?
Follow the Monopoly Board
Free Market to Pollies: We don't want you
The $700 Billion question: How much will the bailout affect your investment?
Not so sweet Fannie Mae
Financial weapons of mass destruction
Global credit squeeze: There is no free lunch
The Global economy looks bad now? But wait there's more
Current Credit crunch a blessing in disguise
Lenders must come clean over losses to restore faith in credit markets
Watch for dead cats bouncing
Global Market Meltdown: I can smell the fear from here
Warren Buffett's The Intelligent Investor
Global Market's dropping and your portfolio
Global Market Meltdown: What is Warren Buffett doing?
A sensible approach to global market volatility



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c Share Investor 2008

Thursday, October 23, 2008

Long-term portfolio view wins the investing battle

Carrying on from last weeks look at my Portfolio and how it is getting a pasting, I have to make a point to those that have poked their ignorant little tongues at my propensity to invest in companies for the long-term.

As many who follow the Share Investor Blog might know I follow Warren Buffett's approach to investing as much as I can; buy stocks at a price that I consider value for the long-term, in good companies that have a competitive advantage, a good track record, excellent prospects for growth and good dividends.

The bulk of my portfolio is around 6 years old, but I have added some more stocks with additional money and dividend income.

My portfolio is currently up by around 7% when tax credits are included and in my not so humble opinion, considering the pasting global stockmarkets have been getting over the last year and especially in the last month a stockmarket meltdown rivaling the 1987 crash and yet my portfolio has performed extremely well.

This is principally because I have taken a long-term view to my stockmarket investing, received healthy dividends, re-invested most of them and haven't sold and because of that it has put the portfolio in good stead during the inevitable current downturn.

Of course, short-term things could get worse but long-term you will wish you didn't sell up because I will still be there when you start buying again.


Recent Share Investor Reading

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c Share Investor 2008

Wednesday, October 22, 2008

Shareholders should look for companies with fiscal disaster plans

One thing to consider for shareholders with stocks in New Zealand listed companies is managements planning for and reaction to the current credit crises and its associated recession-the one we are currently experiencing is the work of Michael Cullen, New Zealands Finance Minister.

The current recession is going to get worse because of the downturn in the global economy and that is clearly going to affect business in this country and our business leaders, CEOs and directors are going to be soundly tested over the next couple of years as they try to manage their businesses through a recession that could be worse than the one in the 1970s if not managed properly and may very well last longer.

How well have our CEOs prepared for this?

The recession in New Zealand has been indicated by the economic numbers for more than 6 months, so as shareholders we should expect that prudent managers have put the necessary groundwork into a business plan that will get them through the hard years coming.

What plans should they have made?

Well, clearly cutting any unnecessary costs first would be a priority, but there are a number of other things that could and should still be done and you should do some thorough research into our NZX listed companies above and beyond the normal facts and figures one looks at. How management have spent their shareholder dollars in the past and whether they even have plans to get them through a recession are a couple of good points to start on.

Pay down that outstanding debt as much as possible and cut back dividends (I know, that is hard to say) to shareholders and use that to pay down debt in the future-interest rates are set to rise and the terms of lending and the ability to borrow will be tougher.

Cull company middle management as much as possible, little is done by middle management anyway so they wont be missed and the company team will be able to communicate better and more efficiently without them.

Forgo massive directors fee price hikes. Now isn't the time for a pay rise and the next reporting season in February isn't likely to make shareholders think you deserved a rise anyway.

On average, of the 18 odd companies that I have shares in, directors are asking for around 25% more than last year. They don't deserve that much based on the August reporting season, let alone next years results.

Contact Energy for example are asking for 100% more in directors fees! I know, its more over the top than a pregnant Dolly Parton.

Re-visit contracts with suppliers and negotiate lower prices for future contracts where possible. The current economic climate will mean that some companies will do better deals just to do business-hopefully not the one that you own shares in though.

Put off non-core related capital spending-those company Commodores will last another few years more and image isn't everything if it means there is no company left because you just bought or leased 50 spanking new Toyota Prius'.

Good management will be cost conscious even at the best of economic times and that is clearly the best preparation for the tough times.

Some Kiwi listed companies that have done this well are Mainfreight, Freightways, Michael Hill International and Hallenstein Glasson.

Companies that have done this poorly include Sky City Entertainment, Auckland International Airport ,The Warehouse and Contact Energy.

I am a little annoyed that along with the vast amount of shareholder correspondence that we have all received this reporting season, scant column inches have been devoted to mapping out a plan for individual companies and how they will deal with a long economic downturn.

Yes, it would be nice to know our companies have a plan.

Good fiscal management should be a matter of course for all companies, countries, finance Ministers and individuals because living beyond ones means can get one into trouble and planning before a downturn hits can be crucial for company survival.

But even as we continue our way through the recession continued financial prudence is needed, even by those who have already prepared.

For those who haven't?

Well, some are definitely going to fail and that is just the way it should be.

Disclosure: I own Mainfreight, The Warehouse, Michael Hill, Freightways, Sky City, Auckland Airport and Hallenstein shares.

c Share Investor 2008

Thursday, October 16, 2008

Revisiting Telecom New Zealand

I have been a much vocal basher of Telecom New Zealand [TEL] for a long time.

It has been poorly managed for more than a decade; management didn't invest in the company, they despised their customers, often purchased the wrong technologies and have been reactive rather than proactive to competition, especially to their main mobile competitor Vodafone.

While all this has happened, the share price of the company has slid from a high of nearly 10 bucks NZ to $2.42 at close of the NZ stockmarket today.

The 2009 net profit could be as low as NZ$485 million, after a $713 million profit for the 2008 year.

The company is faced with big upgrade costs to modernise their aging fixed line network, their mobile capability and the roll out of a decent broadband offer.

All this negative news, in conjunction with current global market volatility, is clearly going to put further pressure on the share price and we are likely to see a market price closer to 2 bucks before we see the share price go above $3.

I don't say this because of my Telecom bias, I simply mention it because there are currently fundamental reasons why the stock price should slide.

All is not lost though!

If one has the testicular fortitude to buy the stock as it gets closer to 2 dollars, one could well be rewarded when the capital investment starts to pay off.

Telecom isn't about to go out of business-people will always need to communicate- it will still pay a reasonably healthy dividend and a culture movement towards helping their customers will eventually hit home.

It is well worth a punt.

From Amazon

Managing the unmanageable: with 43,500 Intranet pages to oversee, Telecom's manager information services, Sally Myles, manages what is probably New Zealand's ... sities ): An article from: NZ Business

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c Share Investor 2008

Tuesday, October 14, 2008

Share Investor Portfolio: Taking a beating

I haven't visited the old Share Investor Portfolio for a while to see how it is shaping up over all this global turmoil in our stockmarkets but I suspect it has taken more than a battering.

It might be good to share this with my readers so they can compare how well or indeed how badly they have done.

The biggest part of the portfolio, Sky City Entertainment [SKC.NZ] has dropped to NZ$2.91 as of today, Mainfreight Ltd [MFT.NZ] hovers just above 5 dollars , Fletcher Building Ltd [FBU.NZ] is below 5 bucks. Pumpkin Patch Ltd [PPL.NZ] is well below its IPO price of $1.25 and everything else bar Fisher and Paykel Healthcare [FPH.NZ] has had a good thrashing.

Including dividends, brokerage costs and tax credits the portfolio is down 0.75% .

So far it has withstood the riggers of the market rort but more bad news could come yet.


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Looking back @ the Share Investor Portfolio

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c Share Investor 2008

Sunday, October 12, 2008

Learning from history


I haven't been purposely looking for an explanation of what is happening to global stockmarkets and what might happen to economies around the world but I stumbled on the following article from the Wall Street Journal when I was googling around for some info on Warren Buffett.

For me the following article puts the whole market frenzy and it current fear mode into sharp focus and gives some perspective, from history, about where we could be heading.

Here is a n extract from the article discussing Benjamin Graham's analysis of the US stockmarket in 1932:

Just eight days before the Dow hit rock-bottom, the brilliant investor Benjamin Graham -- who many years later would become Warren Buffett's personal mentor -- published "Should Rich but Losing Corporations Be Liquidated?" It was the last of a series of three incendiary articles in Forbes magazine in which Graham documented in stark detail the fact that many of America's great corporations were now worth more dead than alive.

More than one out of every 12 companies on the New York Stock Exchange, Graham calculated, were selling for less than the value of the cash and marketable securities on their balance sheets. "Banks no longer lend directly to big corporations," he reported, but operating companies were still flush with cash -- many of them so flush that a wealthy investor could theoretically take over, empty out the cash registers and the bank accounts, and own the remaining business for free.

Graham summarized it this way: "...stocks always sell at unduly low prices after a boom collapses. As the president of the New York Stock Exchange testified, 'in times like these frightened people give the United States of ours away.' Or stated differently, it happens because those with enterprise haven't the money, and those with money haven't the enterprise, to buy stocks when they are cheap."

After the epic bashing that stocks have taken in the past few weeks, investors can be forgiven for wondering whether they fell asleep only to emerge in the waking nightmare of July 1932 all over again. The only question worth asking seems to be: How low can it go?

Make no mistake about it; the worst-case scenario could indeed take us back to 1932 territory. But the likelihood of that scenario is very much in doubt.

WSJ.com

The great Crash of 1929 was not the low for the Dow though, that came 3 years latter, when on July 9 1932 the index hit 41.63. It was down 91% from its level exactly 3 years earlier.

Out of the 1929 crash came Benjamin Graham and David Dodds Security Analysis, the handbook or bible for subsequent Wall Street practitioners. It is a shame that modern Wall Street types seem to have ignored the main message of this book though:

While we were writing,we had to combat a widespread conviction that financial debacle was to be the permanent order; as we publish,we already see resurgent the age-old frailty of the investor-that his money burns a hole in his pocket. But it is the conservative investor who will need most of all to be reminded constantly of the lessons of 1931-1933 and of previous collapses.

Security Analysis - From the preface to the 1934 edition

Graham went on to say that "fixed value investments" can only soundly chosen if they are approached form a viewpoint of "calamity".

The last part of Benjamin Grahams advice is perhaps the most poignant and relevant to today's situation:

In dealing with other types of security commitments, we have striven throughout to guard the student against overemphasis upon the superficial and the temporary...this overemphasis is at once the delusion and the nemesis of the world of finance.

Quaint English but nevertheless well worth remembering.

I will finish this piece with something that I was watching on Voice of America last night.

It was from an individual which I cant remember but a female who has studied the 1929 crash and the subsequent depression.

She said that the crash itself needn't have caused a depression but the reaction of President Herbert Hoovers administration did. At first the government did nothing and then when it realised things might be bad it did all the wrong things.

It will be interesting if the current Bush administration has learnt from history and whether the next President, probably Barack Obama, will copy Democrat President Roosevelt's blanket socialism of the 1930s and spend taxpayers money to stimulate future prosperity.

Given this it would be curious to know why the current Labour Government in New Zealand are doing nothing in the face of massive economic uncertainty.


Related Links

Graham and Dodds Security Analysis: A review- buy it or download a free copy


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c Share Investor 2008




Friday, October 10, 2008

Warehouse bidders ready to lay money down

If you were reading the Share Investor Blog last Sunday you would have read my latest opinion over the long running The Warehouse [WHS.NZ] takeover saga.

I basically pointed out the news that came out today that The Warehouse have finally officially kicked their "Extra" format grocery stores into touch.

Personally I don't think The Warehouse gave the Extra format enough time and scale to succeed, at 3 years and 3 stores, though at least the cost of withdrawal will not be too cumbersome for the company and shareholders.

The focus now lay on what the two predators Foodstuffs and Woolworths Australia [WOW.ASX] will now do.

Late night meetings in both camps will be par for the course and we may see a bid next week subject to advice from legal counsel for the two companies and lawyers from the Commerce Commission.


Disclosure: I own WHS shares

The Warehouse @ Share Investor

The Warehouse set to cut lose "extra" impediment
The Warehouse sale could hinge on "Extra" decision
The case for The Warehouse without a buyer
Foodstuffs take their foot off the gas
Woolworths seek leave to appeal to Supreme Court
Warehouse appeal decision imminent
Warehouse decision a loser for all
Warehouse Court of appeal decision in Commerce Commission's favour
MARKETWATCH: The Warehouse
The Warehouse takeover saga continues
Why did you buy that stock? [The Warehouse]
History of Warehouse takeover players suggest a long winding road
Court of Appeal delays Warehouse bid
The Warehouse set for turbulent 2008
The Warehouse Court of Appeal case lay in "Extras" hands
WHS Court of Appeal case could be dismissed next week
Commerce Commission impacts on the Warehouse bottom line
The Warehouse in play
Outcomes of Commerce Commission decision
The fight for control begins soon

Related Links

Warehouse results

Annual Results 2008 - Audio Webcast


Audited Results for the financial year ended 27 July 2008.pdf (1MB)
Warehouse Corporate profile
2008 Interim Report
Shareinvestorforum.com -Discuss this company


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c Share Investor 2008

Wednesday, October 8, 2008

Why I am optomistic about the global recession

I have worked very hard for the last 15 years to accumulate the assets that I have.

I have sacrificed a social life, a family life in the early years and have saved well during the "good" years.

I get the working like a dog part from my Dad and the saving part from my Mum-my Dad was a hopeless saver.

It is hard to watch those assets lose value from day to day but the corollary of that of course is the years that those same assets increased in value.

That is the risk and reward from investing. I know that. Asset values fluctuate from day to day and year to year and there are economic and business cycles that affect our wealth as well.

The latest global banking problems though are new to me but in the back of my mind when I wrote this back in March, I had the feeling something like this might happen.

I have been investing in the stockmarket for 10 years and I am 42 years old, so have lived through a big recession in the 1970s, one in the early 1980s, the early 90s and an impending global something.

I clearly knew nothing about the first two recessions and only had a vague inkling of the 1987 crash which caused an economic meltdown in New Zealand that took ten years to recover from.

Speaking to a 92 year old the other day who lived through the depression of the 1930s, she seemed to think things "were not so bad", her dad kept his job and they were well fed and cared for, so I think we will all be okay whatever happens.

At the end of every downturn is the beginning of an upturn and another economic boom.

Clearly the US and European banking collapses are going to have severe impacts on a New Zealand economy that is already in a dire state, thanks to the profligate spending of the current government, and that is just the way it has to be. There are no free lunches.

My sacrifice over the last 15 years has put me in good stead though. I didn't buy a flat screen TV, I didn't buy another new car, an investment house and all those lovely new consumer goods that others now have financial indigestion from.

I bought items related to productive investment, made my money off them and invested it and I am now in a position to profit from others greed and stupidity.

Unfortunately some of those that took risks are going to be bailed out of their stupidity and greed via taxpayer moola but that is another story. Don't get me wrong, I feel sorry for them but this is what capitalism is about-the exchange of assets for an agreed price.

I have cash ready to buy assets. I don't think the low is going to be reached any time soon but my history of frugal living has put me in a position now when I am excited by the potential bargains that will be put up for sale by those in debt.

I will be looking for more shares and a nice cheap house and will be looking in my home region of Hawkesbay for something.


The Global Market Meltdown @ Share Investor

Strap yourself in baby!
Will the stalactites hold?
Follow the Monopoly Board
Free Market to Pollies: We don't want you
The $700 Billion question: How much will the bailout affect your investment?
Not so sweet Fannie Mae
Financial weapons of mass destruction
Global credit squeeze: There is no free lunch
Current Credit crunch a blessing in disguise
Lenders must come clean over losses to restore faith in credit markets
Watch for dead cats bouncing
Global Market Meltdown: I can smell the fear from here
Warren Buffett's The Intelligent Investor
Global Market's dropping and your portfolio
Global Market Meltdown: What is Warren Buffett doing?
A sensible approach to global market volatility


c Share Investor 2008

Sunday, October 5, 2008

The Warehouse set to cut loose "Extra" impediment

The Warehouse Group [WHS.NZ] will make a decision mid October as to whether to ditch their "Extra" format stores, the major stumbling block for a possible sale to either Woolworths Australia [WOW.ASX] or Foodstuffs. It is looking likely that Warehouse management will cut the 3 trial stores lose.

It must also be close for a decision in the Supreme Court to grant Lawyers for Woolworths a right to appeal the Court of Appeal's ruling to deny any sale of the retail giant on the grounds that the Warehouse could be "possible competition", in the supermarket sector.

I am of the opinion though, that given the removal of the impediment of the Extra format stores, the format that the Commerce Commission said would provide supermarket competition and their main opposition to the sale, that any hearing in the Supreme Court would be swift and a decision could be made quite quickly.

That is contrary to my previous view that the Supreme Court process would be drawn out and tedious but hey the rules have now changed and therefore my original scenario I can now throw in the trash.

I wouldn't be surprised if Woolworth's lawyers made a submission to the Commerce Commission based on The Warehouse sans the Extra format.

It is worth a try, has been done before, and would certainly get the bidding process going before Christmas.

On the bidding process.

Clearly given the current credit crunch, and financial market turmoil, the bids for The Warehouse are going to be lower than they would have been since US financial system almost fell over the edge-it still hangs on a slippery precipice-so shareholders may have to carefully consider any substantially lower bids least they get shafted.

Looking forward, and of course preempting any court decision, as shareholders we should look to the longer term and reject any opportunistic bid because of any weakness in the global economy or how much we might need the money.

I am picking a green light for Woolworths or Foodstuffs to buy the big red sheds.


Disclosure: I own WHS shares

The Warehouse @ Share Investor

The Warehouse sale could hinge on "Extra" decision
The case for The Warehouse without a buyer
Foodstuffs take their foot off the gas
Woolworths seek leave to appeal to Supreme Court
Warehouse appeal decision imminent
Warehouse decision a loser for all
Warehouse Court of appeal decision in Commerce Commission's favour
MARKETWATCH: The Warehouse
The Warehouse takeover saga continues
Why did you buy that stock? [The Warehouse]
History of Warehouse takeover players suggest a long winding road
Court of Appeal delays Warehouse bid
The Warehouse set for turbulent 2008
The Warehouse Court of Appeal case lay in "Extras" hands
WHS Court of Appeal case could be dismissed next week
Commerce Commission impacts on the Warehouse bottom line
The Warehouse in play
Outcomes of Commerce Commission decision
The fight for control begins soon

Related Links

Warehouse results

Annual Results 2008 - Audio Webcast


Audited Results for the financial year ended 27 July 2008.pdf (1MB)
Warehouse Corporate profile
2008 Interim Report
Shareinvestorforum.com -Discuss this company


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c Share Investor 2008