WHAT MAKES YOU THINK YOU CAN WIN? THE CASE FOR THE TRUE VALUE INVESTOR – LTC CORPORATION & S I2I LIMITED

Well written...
A very good analysis of LTC CORPORATION & S I2I LIMITED

Put These Charts on Your Wall…and LOOK at them everyday

Very intriguing charts by Charlie Bilello. He is the Director of Research at Pension Partners, LLC, an investment advisor that manages mutual funds and separate accounts. He is the co-author of four award-winning research papers on market anomalies and investing. Mr. Bilello is responsible for strategy development, investment research and communicating the firm’s investment themes and portfolio positioning to clients. Prior to joining Pension Partners, he was the Managing Member of Momentum Global Advisors and previously held positions as a Credit, Equity and Hedge Fund Analyst at billion dollar alternative investment firms.

Mr. Bilello holds a J.D. and M.B.A. in Finance and Accounting from Fordham University and a B.A. in Economics from Binghamton University. He is a Chartered Market Technician (CMT) and a Member of the Market Technicians Association. Mr. Bilello also holds the Certified Public Accountant (CPA) certificate.

Love the first chart....

Did Hyflux Make Money for its Ordinary Shareholders?

Interesting post on how Hyflux ordinary Shareholder is losing money even when the company reported a Net Profit  

The perils of calling the peak of the equities bull run

Current market is a time where PE ratio is close to the Great Depression in 1929...

   http://www.multpl.com/shiller-pe/

The US fired the first shot in a trade war with China

The risk of a full-blown trade war between the US and China is rising

What are at stakes?

ASSESSING LISTED COMPANIES - THE LESS LOANS THE BETTER?

Yong Chia Win May 2, 2017

When you buy a company’s shares, do you wish that the company has made as little loans as possible?

If your answer to the above question is “yes”, you might be a conservative investor. But in actual fact, when it comes to loans, we cannot always assume that “less is more”.

Two ways that companies raise capital
Companies need funds to operate and develop their businesses, and they typically raise funds through two ways: 1) Loans (from banks or by issuing bonds), and 2) Issuing shares.
Theoretically speaking, a company may have a better credit if it takes a smaller loan. Less interest is incurred too, and that can translate to more money issued to shareholders through dividends. On top of that, keeping the debt level low also reduces the risk of the company facing financial problems.
Analysing a company’s debt situation

We will not be able to gauge if a company has a high or low debt level just by looking at its amount of loans. In order to get a better idea of a company’s financial situation, we can look at the following two ratios:

1. Debt/equity ratio
The formula for calculating debt/equity ratio is simply total liabilities/shareholders’ equity, where total liabilities = non-current liabilities + current liabilities.

This ratio indicates how much debt a company is using to finance its assets relative to the amount of value represented in shareholders’ equity.

In his book, Fu Zu Zi You Ren 2 (which translates to He who is Financially Free), investment expert Dr Chan Yan Chong also pointed out that this ratio can tell us for every dollar of shares owned by the shareholder, how much of it actually belongs to the creditor.

A higher debt/equity ratio would mean that the company has a higher amount of loans relative to capital provided by shareholders. It is not so much of a problem if the company has sustainable profit to pay off interest. But if earnings and profits were unable to meet the borrowing cost, the company would likely land in a problematic financial situation.

For instance, if we look at Hong Kong-listed China Evergrande Group, which the Wall Street Journal referred to as the “world’s most indebted developer”, has a debt to equity ratio of 3.40 as of Dec 2016, according to gurufocus.com. If not including the revaluation gains on its invested properties, the company would not have made profits last year.

Even though the share price of China Evergrande Group rose sharply last month, there was no solid basis for its gains.

2. Debt Ratio
Debt ratio also referred to as debt-to-assets ratio, is calculated by dividing total debt by total assets. Generally speaking, if a company has a debt ratio of more than 50 percent, it has a high level of debt.
However, whether a debt ratio is considered high or low may vary widely across industries. According to Investopedia, a debt ratio of 30 percent may be too high for an industry with volatile cash flows, whereas a debt level of 40 percent may be easily manageable for a company in the utility sector, where cash flows are stable and higher debt ratios are the norm.

The debt ratio is also something that investors in Real Estate Investment Trusts (REITs) are concerned about, as the Monetary Authority of Singapore (MAS) imposed a 45 percent leverage limit on REITs.

Companies with fewer loans are not necessarily better for investors.
Why is that so?
Assuming that a company chooses to raise funds through issuing shares, each investor’s stake might be diluted. If the company’s business flourishes and its earnings growth are higher than interest rates, then debt financing is a more reasonable choice, which is also more beneficial to shareholders.
Also, in an environment where the inflation rate is high but interest rates are low, the actual cost of borrowing is lowered, and in this case, companies should consider borrowing money too.

Enterprise Value from ValueWalk

Enterprise Value = Market Cap + Debt - Cash
(EV/EBIT)/ROE for PEG

China is focusing on the wrong things to fix its economy, says economist

• China's capital controls have helped avoid a crisis, but it needs to fix fundamental problems
• Property prices, meanwhile, have "a long way to fall"

China should focus on fixing fundamental problems that may trigger a financial crisis instead of witch-hunting, an economist said Friday.

Speaking to CNBC's "Squawk Box," independent economist Andy Xie said China has managed to avoid a financial crisis now by tightening capital controls, but there's more to be done.

"Any other country would've collapsed, but China had started with that big cushion (of foreign reserves). Still the government had to crack down on capital flight. Without bottling up the country, China would be in a crisis now," Xie said.

Chinese companies and individuals have been snapping up overseas assets, prompting authorities to tighten controls on outflows such as limiting offshore investments.

Recently, several of China's largest overseas asset buyers were scrutinized on instructions from the banking regulator.

"Unfortunately, China is focusing on who's going to trigger the crisis; they are not talking about the fundamental conditions for the crisis, rather they focus on the technical aspect, on who's going to trigger the crisis," said Xie.

The recent actions from Chinese authorities, he said, are more about: "The people who took the money out last year, let's check them out, maybe send some to jail."

Experts have expressed concerns over high debt levels and the frothy property market in China, which was an issue that Xie also took issue with.

"Half of the loans in China are exposed to the property sector, that's even higher than Japan in 1989," said Xie. Japan's asset price bubble in the 1980s popped in the early 1990s.

In tier-1 cities like Beijing and Shanghai, for instance, the price for 1 square meter (10.8 square feet) could cost a buyer a year of his income.

In a "normal" city like New York and Tokyo, it would cost buyers a month of income for the same area, he added.

"So if you want 100 square meters to start a family, that means 100 years of income," Xie said.

Chinese property prices have "a long way to fall," he said, likening it to Japan 25 years ago.

CNBC Explains: Why do we have the Fed?

What is Last Twelve Months (LTM) or Trailing Twelve Months (TTM)?

How do we adjust for Last Twelve Month (LTM) or Trailing Twelve Month (TTM)? Is the adjustment the same for Balance Sheet?

Check out the graphic below to understand more:

BERKSHIRE 101: An introduction to Warren Buffett's $400 billion empire

Very well written summary of how Warren Buffett and Charlie Munger grow this 'GIANT' (by Yahoo Finance)

Berkshire Hathaway (BRK-A) (BRK-B) was a struggling textile company when Warren Buffett first invested in it in 1962.

Today, it’s a $400 billion behemoth. In Buffett’s own words, it’s a “sprawling conglomerate, constantly trying to sprawl further.”

The companies in Berkshire’s portfolio vary greatly. But one thing ties them all together: Buffett says they’re about “maximizing long-term capital growth.”

Here’s a brief introduction to Berkshire Hathaway.

The insurance business is the backbone of the company

After it acquired National Indemnity in 1967, Berkshire relied on its insurance businesses to power much of its expansion.

As Berkshire has gotten bigger and diversified its businesses, its insurance operations have become a smaller contributor to earnings than in the past, currently making up 26% of total company earnings. But they remain an important part of the company’s access to a permanent capital base by generating what’s known as “float.”

“Float” is money collected up front that is not paid out until later. In Berkshire’s property & casualty (P&C) insurance businesses, premiums are collected up front, but claims are paid out often years or decades later, allowing the float to be used for investments.

Today, Berkshire’s insurance group consists of four segments: GEICO (auto insurance), General Re (reinsurance), BH Reinsurance Group (retroactive reinsurance through subsidiaries), and BH Primary (focused on commercial markets, led by National Indemnity Co).

The property and casualty insurance business has faced headwinds—including deteriorating pricing and margin compression. But 2016 posted solid performance, with GEICO in particular making a comeback. Last year, GEICO suffered from higher personal auto claims (as a result of more low gas prices and more driving), and this year it accelerated new business efforts.

Berkshire’s insurance float was only $1.6 billion in 1990, and sat at $91.6 billion as of 2016. It is now over $100 billion, including the $10 billion reinsurance deal with AIG (AIG).

Equity portfolio

Berkshire’s investment portfolio represents Buffett’s long-term conviction ideas.

At the end of 2016, about 60% of his equity portfolio was invested in five companies—Wells Fargo (WFC), Coca-Cola (KO), IBM (IBM), American Express (AXP) and Apple (AAPL), a position he initiated last year and built up even more recently

Buffett also made a big bet on airlines last year, diverging from his position in the past. He significantly increased his positions in Delta (DAL), United Airlines (UAL) and American Airlines (AAL) while adding a big stake in Southwest Air (LUV).

Shift to non-insurance businesses

Berkshire has evolved from its early years, when it was an insurance-driven company driven by outperformance on investments. It is now a large conglomerate that includes many non-insurance businesses.

The railroad business now comprises 22% of Berkshire earnings. Burlington Northern Santa Fe Railroad (BNSF), which Berkshire acquired in 2009 for $44 billion, is one of seven major railroads in North America and carries 17% of all inter-city freight. Berkshire has been investing heavily in this business.

Utilities businesses comprise 10% of Berkshire earnings. BH Energy owns four utilities servicing customers in 11 Western/Midwestern states, two electricity distribution companies in England, two interstate pipelines, a renewable energy business, and a residential real estate brokerage firm.

Berkshire’s manufacturing, service and retailing (MSR) operations, 35% of total earnings, include everything from candy to jets. Companies include food supply chain company McLane, manufacturing businesses (like specialty chemicals company Lubrizol, industrial components company Marmon, flooring company Shaw Industries, and paint and coatings company Benjamin Moore), service and retailing businesses (including NetJets, See’s Candies, Borsheim Jewelry Company, the Pampered Chef, and Oriental Trading Company), recently acquired battery maker Duracell, and aerospace components manufacturer Precision Castparts, which Berkshire bought in 2015 for $37 billion.

Its finance businesses, 8% of earnings, focus largely on the manufacturing and financing of homes and the leasing of transportation equipment. They include Clayton Homes, UTLX, XTRA, and other leasing and financing activities.

Acquisitions accounted for about 60% of Berkshire’s earnings growth in the past 20 years, according to Morgan Stanley.

As Morgan Stanley’s Kai Pan points out, Berkshire has a “managers as owners,” mentality, a decentralization that allows each unit to focus on long-term goals. Additionally, Pan highlights, each unit maintains an economic “moat” in its respective industry, separating it from competition to some degree.

More acquisitions are likely on the horizon for Berkshire, which has an estimated $60 billion in excess capital.

Valuation

Buffett’s preferred method for evaluating the attractiveness of investments and businesses is intrinsic value, which represents the sum of all of discounted cash flows that can be taken out of a business during its remaining life.  The investor Whitney Tilson sees the current intrinsic value at $300,000 per share, significantly above the recent share price of $247,520.

Book value is another approach used to value Berkshire. However, Buffett has noted that the metric has underrepresented Berkshire’s intrinsic value because of the number of operating businesses Berkshire has acquired, which are held on the books at cost.

A book value calculation does, however, provide a floor for investors. Berkshire has an open-ended share repurchase program that authorizes management to repurchase shares if the stock price drops below a price-to-book ratio of 1.2x.

Beneficiary of stimulus

As Morgan Stanley’s Kai Pan points out, Berkshire has large exposure to Industrials and Financials and thus will be a major beneficiary of the administration’s “pro-growth” policies and tax reform, if they pan out.

“Given Berkshire’s outsized exposure in Industrials and Financials, it is not surprising that BRK shares have rallied +22% post-election vs. +14% for the S&P 500,” Pan wrote on March 20. “A potentially lower US corporate tax rate would also aid earnings. A 20% tax rate could boost BRK earnings by ~14% vs. its current ~30% consolidated tax rate,” he added.

The bottom line: Berkshire’s business has transformed over the years, but remains focused on long-term return and the efficient use of capital.