Family Money: Equating Risk & Return from Equities (Part 2)

By Leslie Wright

What’s a fair price?

A rule of thumb which can be applied to get an approximate idea of whether a particular stock is over- or under-priced is to add 10 to that particular market’s prevailing inflation rate, and see how the resulting figure compares to that stock’s price-to-earnings ratio, or ‘P/E ratio’ for short.

If the two figures are almost the same, it can be said that the stock is trading at a reasonably fair price.

If significantly higher, the stock - or indeed, the whole market - may be overheated. That is, too expensive, and perhaps due for a correction.

On the other hand, if the P/E ratio is significantly lower than inflation+10, then the stock might be regarded as good value, and a potential buy.

Thus a stock which is trading at 16x earnings in the U.S.A. could be regarded as over-priced and perhaps due for a correction, whilst a stock trading at 16x in Hong Kong could well be undervalued, and a bargain.

Of course, there are other factors to be considered. A particular stock may be undervalued, or it may be lousy value. Before buying any particular stock, a bit of homework is required.

Spreading the risk

Large international investment houses employ legions of economists and analysts who spend their whole time sifting through stocks and looking for fundamental value.

When they find a stock that is undervalued but seems to be a sound firm with good potential for gain, they will advise the traders or fund managers to buy it.

It will then become part of an institutional fund’s holdings, and investors into that particular fund will, in turn, have a small slice of the underlying stocks.

Sometimes these stocks are quite obscure firms which most investors would never have heard of - but will often produce a very handsome return for the fund.

So-called ‘Blue Chips’ are regarded by many as the “best” stocks to have in an equity portfolio.

Stocks like IBM and Coca-Cola keep chugging away nicely, making profits and paying dividends year after year, and even having the occasional stock-split (which can double your holdings overnight.) They are seen as non-volatile, steady performers.

‘Blue Chips’ are relatively unexciting, however, for the get-rich-quick speculators.

While it is true that over the long term, stocks outperform bonds, which outperform cash, a portfolio comprising a few ‘Blue Chips’ in one or two markets will still be affected by the overall movements of those particular markets in the short term.

You run the risk of losing money (even if only on paper, and maybe only for the short term) if that market takes a downturn because of fundamental economic changes.

After all, the index of a particular market will be made up of the major players in that market - which are usually the ‘Blue Chip’ stocks!

Direct versus indirect investment

Spreading the risks inherent in stock market trading requires spreading your investment through more than just a few well-known stocks and in more than one or two major markets. Most investors have insufficient capital to do this.

A few thousand dollars would buy just a few shares of just a few stocks. This is hardly “diversification”!

For most investors, the only way to achieve this is by pooling their resources with thousands of other investors. This means using collective investment instruments offered by large financial institutions.

Examples of this method of investing are unit trusts, mutual funds, and unit-linked insurance policies.

Because of the economy of scale these substantial institutions can bring to bear on the markets, trading costs normally involved with the buying & selling of shares are substantially reduced.

The resources behind institutional funds enable “average” investors to access stocks and the pick of the world’s stock markets relatively inexpensively and without having to spend the time, effort and money attempting to research the markets and chasing after fundamental value by themselves.

In addition, using a number of institutional funds allows individuals to build a more widely diversified portfolio - with therefore less risk - than if they invested directly into one or even several stock markets.

They can build a highly flexible, globally diversified portfolio that suits their needs, wants - and sometimes prejudices - from amongst the thousands of institutional funds that are available nowadays, and in a cost-effective manner.

It would take far more capital than most investors have available to construct a diversified, strategic balance of equity holdings such as can be acquired with a relatively small investment into a number of institutional funds.

Most investors don’t have the time or access to the relevant information needed to monitor and manage their portfolios, even if they have the interest or expertise to do so.

Institutional funds are constantly monitored and actively managed by experienced professionals who do nothing else. Also, as these people are quite often the moving forces behind sudden market movements, it makes eminent sense to ride on their coat tails.

This reduces your risk of the markets taking a sudden dive and you being caught unawares until it’s too late. The fund manager will (hopefully!) already have divested himself of his fund’s holdings in that market, and found good value elsewhere.

The problem then becomes knowing which funds to select to access a particular market - but that’s another story.

Leslie Wright is Managing Director of Westminster Portfolio Services (Thailand) Ltd., a firm of independent financial advisors providing advice to expatriate residents of the Eastern Seaboard on personal financial planning and international investments. If you have any comments or queries on this article, or about other topics concerning investment matters, contact Leslie directly by fax on (038) 232522 or e-mail [email protected]. Further details and back articles can be accessed on his firm’s website on www.westminsterthailand.com.

Editor’s note: Leslie sometimes receives e-mails to which he is unable to respond due to the sender’s automatic return address being incorrect. If you have sent him an e-mail to which you have not received a reply, this may be why. To ensure his prompt response to your enquiry, please include your complete return e-mail address, or a contact phone/fax number.

The Computer Doctor

by Richard Bunch

Last week I mentioned a study by Hofstede. His research indicated four main areas of national culture; small or large power distance, individualistic or collectivist philosophy, high or low uncertainty avoidance and finally quantity of life (materialistic), versus quality of life (relationships and concern for each other). As managers/leaders Hofstede helps us understand what we may be dealing with when we are working in a multi-racial or international group. Remember, these are ‘clues’ to potential differences in doctrines, not facts and they should only be used to help us figure out what questions it might be worth asking to explore why one individual reacts to certain stimuli differently to another. Firstly, ‘Power distance’. A few examples of small and large power distance are; inequalities among people should be minimized (small), v’s Inequalities among people are both expected and desired (large), parents and children are equal (small) v’s parents expect obedience and children show respect (large). In the classroom teachers are our equals (although experts) who transfer impersonal ‘truths’ and expect students to show initiative v’s teachers who are gurus that take all the initiative and transfer ‘personal’ wisdom.

In organisations in small distance societies, decentralized hierarchies (which bring inequality) are established for convenience only, whereas in large power distance societies hierarchical inequality with power centralized is a reflection of ‘real’ existence and it is expected to maintain this ‘natural’ inequality. Again in small distance societies, moderately paid, resourceful democratic bosses are expected to consult with reasonably paid subordinates, versus (large) where highly paid benevolent autocrats are expected to be good ‘mums’ and ‘dads’ and tell poorly paid subordinates what to do. Importantly in small power distance societies, power is based on formal position, expertise, the ability to give rewards and its use should be legitimate and subject to the criteria of good and evil. Conversely in large distance societies power is based on association with powerful individuals, family or friends, charisma, the ability to use force, where might prevails over right, that is, whoever holds the power is right and good. Imagine your managing a hotel on a small island off the coast of Malaysia and your international organisation is into staff empowerment, what do you do other than prey an exemption from the policy. How about if you start a small computer servicing company in Thailand and you want the staff to listen to the customers’ problems and come up with solutions, rather than just plug in new hard drives and hope things work. If Blanchard & Hershey’s Situational Leadership model is correct and you are a young “western” style manager heading for far flung places, best be prepared to leave your ‘democracy’ at home and abandon such catch phrases as “we don’t do business that way where I come from” or alternatively... stay home. Sound management practice suggests we ask an employee who approaches us with a problem to suggest a solution. If this is your habit and no answers are forthcoming it doesn’t mean the staff are stupid (as I have heard suggested many times), it is just perhaps that you are culturally insensitive.

If you enjoy the challenge of leading in a ‘foreign’ culture be prepared to accept a different view of the world to your own... or the frustration my well kill you.

Worth a thought... and the other issues next week!

Successfully Yours: Hans Kallen

Here’s a hoary old musical joke - What do they call people who hang around with musicians? Drummers! Boom-boom!

However, Hans Kallen, the drummer with the East Coast Band in Delaney’s would disagree. “The job of a drummer is to keep the music together, to make it shiny, sound dark or golden.” And Hans should know - he’s travelled the world with his drum kit, and made music his very reason for existence.

Hans is Swiss and completed most of his schooling there, then going on to study and work in the chemical industry in Basle. Though, even then, his heart wasn’t in it. Music was taking over his life.

Hans had heard New Orleans Jazz. “My father bought me a wind up record player and a 78 record. It was “New Orleans Function” by Louis Armstrong. It was a funeral march, and I must have listened to that record a thousand times. He was my big guru, I knew then that I wanted to play jazz . I wanted to learn the trumpet, because Satchmo was the greatest trumpet player in the world. My father didn’t take to me practicing at home, so I started to play drums instead.”

From playing with local amateur bands, Hans became a professional by the time he was 18 years old. His work began to notice a certain lack of interest. “I was working for Ciba-Geigy and the big boss called me in and said I would have to decide if I wanted to do music or chemistry. I stayed with the job but about a year later I auditioned with a band from Vienna, “The Five Elite Boys” who needed a drummer to go on tour with them. So I saw the big boss again and I resigned and he was angry - he said I couldn’t come back.” Hans never did.

“I traveled the world with my drum, one bag and a record player from aged 18 to 33. I went all over Europe, Switzerland, Germany, France, and Holland.

By then, music was everything. “I had my own band for five years, 64 - 69, called the Hit Nuts. It was successful. We were the first band to play soul music in Germany. We made records and TV shows. The band broke up in 69 and I took a years break and travelled around with some hippies. That’s when I met my wife Brigitte, and mother of my children.”

This was to be a pivotal event in Hans’ life. Settling down in one spot after roving the world and trying to play his loved music was too great a strain. Hans became a decorator. He did not turn his back totally on music, however. “I used to play in Jazz concerts at weekends, many different formations from trios to big bands. I was a free lance jazz teacher for drumming and jazz workshops.”

Following his divorce, Hans got itchy feet again. “I brought four bands to Thailand for one-month contracts, Brown Sugar in 93, the Jazz Quartet in 94 and 95 and the Star Band in 95.” Those trips were enough to convince Hans where he should be. “In 96 I came over here with no keys to return in my pocket. I had a hard time for the first six months, I had no money and it was boring with no work. Then I heard they wanted a Swiss national for a TV show. I was paid 20thousand baht to take this teddy bear from Bangkok to Switzerland. It was crazy but it was a chance to go back to Switzerland for nothing. I had an open ticket to return to Thailand and I planned on staying for 3 moths but I booked my ticket back after a week. Everything in Switzerland is either forbidden or taxed. From that moment on I knew I wanted to stay here.”

Hans played in the Dixieland band in Bangkok then at the Amari and Henry J Beans in 98. “I started to love Pattaya and I knew I wanted to live here and now I play at Delaney’s, especially with the Sunday Jazz.”

So what is success to a man who hangs around with musicians? “Being successful to me means having fun. Life is too short to have no fun. That is one of the things I like about Thailand, there must be sanuk. The important values to me are tolerance and a sense of humour. Do good not bad because what you do returns to you, this I know. Money is not important to me. It will always come as long as I am doing something I love. That is much more important to me. Music is everything to me, my first and my last love.”

Hans plans to stay here in Thailand, enjoying the good life and playing music as long as possible. “I was lucky with this band - these guys have been good friends since I started with them two and a half years ago. We have fun together. Elder from America, Ramil from Russia, Janette from the Philippines and me from Switzerland.”

At that point, the effervescent Hans became pilosophical “It’s funny you can come from anywhere and feel very close like brothers and sisters. I think all musicians from all over the world have a passport called “Musicland.”

Hans, we certainly hope your passport doesn’t expire for a long time yet!

by Mirin MacCarthy

by John D. Blyth

Last Week’s Puzzle

To almost any signalling problem there is more than one solution, but usually it is the simplest that is the most acceptable. It will have the fewest signals and so be the cheapest to install as well! Deliberately I didn’t tell you all the ‘wrinkles’ or there would be nothing new.

Firstly, the lines must be defined ‘UP’ and ‘DOWN’; this very traditional marking originally meant ‘To London’ and ‘From London, but it was not long before Britain had such a rail network that in this sense it was more or less meaningless. Never mind - it will serve our present purpose and I have put in the markings alongside the lines between boxes ‘B’ and ‘C’. Additionally I have defined the line from ‘B’ to ‘D’ as a less important one and marked a 40mph speed restriction for it on the junction. This will show two more useful facts.

For ‘A’-’B’-’C’, and vice versa, and ‘A’-’B’-’D’ and vice versa, we shall require ‘Home’ Signals to protect the junction from all directions, with an additional one for branch trains leaving the main line at ‘B’. This lesser signal will be on a bracket and at a lower level than that for the main line. We shall also need a ‘Starter’ a good train’s length in advance of the ‘Home’ signals, so that trains that have not been accepted to go forward to the required Box in advance can stand clear of the junction, which may allow another train to be accepted from the rear. (Trains thus waiting are not clear of the 400 yard ‘Clearing Point’).

And finally, we shall require ‘Distant’ or ‘Warning’ signals, a full braking distance rear of the ‘Home’ signals. I’m sure you will recall that these can be passed in the ‘On’ position - but it is very important for their position to be seen by each driver. Had there been no speed restriction for trains turning off the main line, towards ‘D’, one signal arm could perhaps suffice here, but as there is a 40 mph restriction, there will be a separate ‘Distant’ arm, which will never be pulled off to the ‘Clear’ position - in fact it will not be workable but just a signal permanently fixed to a post, horizontally and with a yellow light, to remind drivers of the restriction as well as warning them to begin reducing speed now.

In so simple a layout I have not seen a need for any Outer Home Signals, but were there a need, it would have effect of moving the ‘Clearing Point’ 410 yards towards the Box in the rear.

Two ‘ground signals’ or ‘Dummies’ finally, are needed to allow movement between ‘Up’ and ‘Down’ lines by the way of the crossover road shown adjacent to the junction. Similar signals may be used (in other locations) for the control of a number of types of shunting movement. This one would seldom be used other than for emergencies or during engineering work when one running line may be out of use.

I explained last week what ‘Track Circuits’ were; in modern signalling (which this is now!), they have acquired an importance that I could not have guessed in my time in railway service; they, with other electronic devices, have almost taken over all the old function we knew so well.

Here we could find much use for them. We would like one to the rear of ‘B’s’ Distant signal on each line with the possible exception of the branch from ‘D’, on which speed would in any case be limited. This, in conjunction with one between the ‘Distant’ and the ‘Home’ would locate the fast-moving trains for us; one to the rear of the ‘Starters’ towards ‘C’ and ‘D’, both terminating clear of the junction, will give us an additional chance to accept another train: for example although a train ‘B’s” ‘Starter waiting to go on the ‘C’ will be foul of the ‘Clearing Point’, another ‘C, simply be re-setting the junction, to go towards ‘C’. Don’t worry that this is not where he wants to go - if this train can use the alternative ‘Clearing Point’, it will have helped ‘A’ by getting a train off his patch and do no harm while it is quietly waiting at the ‘B’ junction ‘Homes’ with the road set for ‘D’, until the previous train has passed ‘A’s’ Box; all will be one stage further forward.

Track circuits can do many things: they can prevent a signalman from accepting a train while his ‘Distant’ signal is still for the previous train, prevent him from putting his ‘Starter’ to ‘Clear’ unless his Block Indicator is showing ‘Line Clear’; there is the famous ‘Welwyn’ control that prevented a signalman from placing his Block Instrument to ‘Line Clear’ unless it has been at ‘Train on Line’ for the previous train - and that train has entered and cleared a track circuit within his Station Limits. This was devised in the 1930’s when a signalman at Welwyn Garden City, north of London, ‘forgot’ a train waiting to go forward from his ‘Starter’, allowed another train into the section with a serious collision as a result.

Stop signals within track circuited areas carry a white diamond on the post; those with a telephone at the foot of the post have a circular plate with a hole in it. The presence of the first and/or the use of the second, relieves the train crew of sending one of their number to the Box, to remind the signalman of the position of the train, ensure that the signalman applies certain precautions to ensure he is not forgetful and must also sign the Train Register as evidence that the Rule(once the famous ‘Rule 55’ but lost in the maze of numbers), has been carried out.

by Lesley Warner

I read those words ‘lose wrinkles’ during my research, and I thought what a thing to look forward to. If you look at your dog or cat, have you ever wondered how they can still run and jump and carry on the same even when they’re in their last years? It seems a bit unfair that we are the species on the earth that seem to age in the worst possible way.

Maybe we don’t treat ourselves as well as we could, I know I constantly nag about alcohol, cigarettes, sun and late nights and I like to enjoy myself as much as the next person. It’s so easy in Pattaya to over indulge with a constant round of social events at night and the sun during the day. The best advice I can offer is what I try to apply to myself ‘everything in moderation’ within reason, of course!

Certain foods and plants can be used to prepare homemade treats for your skin, so here are some more do-it-yourself recipes, with ingredients that include substances such as alpha-hydroxy acid known to be beneficial.

It would be naive to expect dramatic results from such recipes, but then lets be honest, most commercial cosmetic products don’t produce dramatic changes either. My grandmother is 99 years old and has always used ‘egg whites’ as a face pack and she’s still beautiful.

Let me know how you get on with these tips and please send in your own recipes for ‘eternal youth.’

Fruit peel

Ingredients: 1 cup fresh pineapple, half a cup fresh papaya, 2 tablespoons honey.

This gentle peel is based on active substances found in two tropical fruits, pineapple and papaya. Pineapple contains bromelain and papaya contains papain. Both are proteases, natural enzymes that can break up proteins. When applied to the skin in small amounts (the amounts naturally found in pineapple and papaya), these enzymes help gently remove dead cells from skin surface producing mild peeling effect. Pineapple and papaya also contain modest amounts of alpha-hydroxy acids that provide additional benefits. Honey is added to increase the moisturizing effect of the treatment.

So here’s how to do it. Puree pineapple and papaya in a blender and add the honey and mix thoroughly. Wash your face, and then apply the mixture to your skin, avoiding the eye area. Leave on for no more than 5 minutes (less if you have sensitive skin), and then rinse with cool water. When done, apply a moisturizer. Don’t use more than once a week. Note: when using this peel for the first time, keep for only 1-2 minutes to make sure there is no skin irritation.

Yogurt-oatmeal masque

Ingredients: 2 tbsp. plain yoghurt; 1 tbsp. oatmeal; 1 tbsp honey Yoghurt contains lactic acid (an alpha-hydroxy acid) and a number of nutrients that may mildly stimulate collagen production in the skin. Oatmeal and honey act as moisturizers.

Simply mix ingredients together to form a paste. To avoid clumps, you may grind oatmeal into a powder (using a coffee grinder, for instance) before mixing it with other ingredients. Wash your face. Massage using the paste in a circular motion. Keep on for a minute or two then rinse off.

Yoghurt-aloe healing masque

Ingredients: 1/2-cup plain yoghurt; 2 tbsp aloe gel (or a fresh aloe leaf) Yoghurt contains lactic acid (an alpha-hydroxy acid) and a number of nutrients that may also mildly stimulate collagen production in the skin. Aloe is a good moisturizer, and contains anti-inflammatory substances. This masque is good for sensitive skins.

Mix ingredients together to form a paste. Aloe gel can be purchased in a health food store. Alternatively, you can take a fresh aloe leaf, remove the skin and mash the pulp. Wash your face. Massage with the paste in a circular motion, keep on for a minute or two then rinse off.

Plenty has been written about the rule forcing ogling dens and beer boozers to close in the 24 hours or so leading up to an election. I heard of one tourist whose holiday commenced in Pattaya on the day before the Mayoral election last February and was due to finish the day after the bars closed for the Senate election in March. He effectively had the equivalent of three to four days knocked out of his holiday and it will be no surprise if he doesn’t return to the Land of ‘Dry’ Elections.

The official line is that the rule is a blanket one and covers the entire country and therefore places like Pattaya - who owe their very existence to the tourist trade - are not exempt. The British handed over Hong Kong to the socialist - but nonetheless pragmatic - government of China which understands that rules that apply in China do not carry weight in Hong Kong because of the special nature of the former British colony. A national election is currently in the offing but surely Pattaya, and probably places like Phuket and Koh Samui, should be granted some form of leniency, even if it means restricting the hours of opening from 6:00pm to midnight on the day before the poll?

In the Hotspots: A new boozer the Jasmine Emery is opening in Soi 7 this Saturday the 5th, proprietor Rob is also celebrating his birthday and invites everyone for nosh and booze in a double celebration.

Out of the Rumour Mill: The English soap opera ‘Coronation Street’ has been appearing on TV in the UK since 1959 and, much to the chagrin of some and the delight of others, shows no signs of ever coming to an end. It has an absolutely avid group of addicts across the planet and even Pattaya has its afficionados. So, to cater for these soapie desperadoes, Kim the Delaney’s publican who was formerly scathing in his comments about the program but is now also an addict, is intending to show the celluloid syrup on the big screen in the bar, probably on Sunday afternoons. Before being pestered by Coronation groupies wanting to know when this will happen, all I can suggest at this stage is: watch this space.

For the Hungry: The McDonald’s franchise in Pattaya (Royal Garden Plaza, Beach Road end) has - according to one of its managers - the largest turnover of any of the ‘Scottish’ nosheries in the kingdom followed by the Phuket and Patpong outlets. With the opening of a Burger King franchise right next door to Maccas it will be interesting to see if the increased competition for the burger Baht will result in the Pattaya operation losing that number one status.

In the Hot Spots: Last week I mentioned that some outside beer boozers were charging prices up around 80 and 90 Baht for Lady Drinks. I happened to find the mother of all rip-offs in the beer boozers next to the upstairs ogling den named after a famous American female movie star: 110 Baht for a Lady Drink. Makes you wonder how the motley collection of boozers manage to stay in business.

TIP (This is Pattaya): A restaurant struggling for patronage was recently approached by an advertising salesman and asked if they would like to participate in a unique promotion to provide a positive boost for their business. The restaurant declined with the excuse, “We don’t have customers. When we have customers, we will advertise.” I ask you!

In the Hot Spots: When the girls who work in the ogling dens are asked what they do, they almost invariably say,”dancers”. However, in many places it is hard to tell whether they are ‘dancers’ or merely auditioning for future roles as dummies in a wax museum. One partner in a particularly spicy ogling den was reported to have said, “we’ve got some poles that are a bit loose, and they move more than the girls!”

My e-mail address is: [email protected]

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