HEADLINES [click on headline to view story]:

Family Money

Snap Shot

Modern Medicine

Heart to Heart with Hillary

A Slice of Thai History

Social Commentary by Khai Khem

Women’s World

Family Money: Taking a technical look at income & growth stocks

By Leslie Wright,
Managing director of Westminster Portfolio Services (Thailand) Ltd.

If you’re a sophisticated direct investor who does his own stock-picking, or a clever young fund manager whose focus is the same objective, do you go for growth stocks or income stocks?

In theory one or the other shouldn’t exist. Shares should not offer both a high dividend yield and high capital growth.

If a company is expected to deliver sustainable profits growth, its shares ‘ought’ to trade on a relatively high multiple of earnings, so the dividend it pays out of those earnings will consequently be a low percentage (yield) of its share price. But after a three-year bear market, that theory has lost favour since some companies out there with good prospects for low price-earnings multiples are paying rather nice big dividends.

Squaring the circle

Financial theory also states that shares offering high growth should not exist because if a company is growing that quickly, it ought to be pouring its profits back into finding more growth, not handing out cash to shareholders.

That one too has been turned on its head by the recent downturn. Many companies offer the prospect of profit growth not because they’ve been investing in exciting new products and services, but because they’ve been doing the opposite: cutting costs and getting back to what they know works. Now, touch wood, they stand to benefit from a stabilisation or modest recovery in sales, on top of a new slimline cost base.

Admittedly, profit growth created by cost-cutting is hardly the same thing as creating value in an expanding market (if you can find a high-yielding share where the company in question is also profitably riding a high-growth market, it’s time to re-mortgage the house and fill your boots, as they say), but it’s growth nonetheless.

Nobody wants to invest in a company that’s only means of growth is cost-cutting. There’s got to be the prospect of some topline growth too. But, when you put the two together, you can find high-yielding shares that also offer the recovery story needed to underpin capital growth.

It’s all about finding shares that have been oversold on the back of bad news during the current global economic slump. You’re looking for companies where overly sceptical investors have failed to price-in recovery properly; leaving the shares trading on depressed multiples of depressed earnings. That’s the way of squaring the high income high-growth circle.

At this stage, you might be thinking this all sounds rather unlikely. After all, you’re attempting to spot something everyone else has missed. It’s the equivalent of saying: “I’m right, and the thousands of clever, experienced investors who constitute the market are wrong.”

If it is possible to find high-growth, high-yield shares, the market must currently be guilty of systemic undervaluation. There’s a fairly compelling story – investors could be suffering from excessive pessimism as a response to the excessive optimism of the internet bubble. But compelling-sounding rationalisations are 10-a-penny (remember the internet productivity miracle?).

Matters of fact

So rather than rely on comforting stories, look at hard fact: the market has an appalling track record of predicting earnings’ growth. As mentioned above, if a company’s shares trade on high P/E multiples, it ‘ought’ subsequently to experience high earnings’ growth, and vice versa. In fact, history shows no correlation between P/E multiples and subsequent earnings growth. There are plenty of examples of failed growth stocks (12 of the 25 top-rated companies saw earnings fall) but it’s the other end that interests us. Five years ago, Peterhouse Group, to cite one example, was trading on a P/E of 6.3 and it went on to grow earnings by 104%. Bloomsbury Publishing was on a P/E of 7.7 and grew earnings 147%. T. Clarke traded on 8.4 and grew earnings a mere 3,511% (which sails nicely off the top of my graph!)

In fact, 11 of the 25 companies with the lowest P/E ratios five years ago went on to grow earnings by more than 50% over the intervening years. The market clearly has a habit of applying low P/E ratios – low enough to allow hefty dividend yields – to companies that are destined to grow profits and deliver share price gains.

Other measures back this up. Income portfolios, of one form or another, generally do better than other forms of investing – with the exception of anomalous periods like the internet boom. There has been an extraordinary divergence over the last century between the cumulative return from high-yield investing and investing in a straight market index.

A ฃ1 investment in 1900 in a high-yield index would have turned into ฃ61,235 by 2000, compared with ฃ16,160 from the market index. That’s the magic of cumulative interest. Those figures are for total return (including dividend income) but the same holds true for pure capital returns.

The average performance is marginally better. It’s notable that high-yielders (or ‘old economy’ stocks) underperformed during the TMT bubble, then dramatically outperformed when it burst. It’s also notable that high-yielders underperformed during the recession of the early 1990s.

The strong share price performance of dividend-paying companies is potentially explained by the discipline of having to pay a dividend. It encourages management to concentrate on profitability and cash-generation, hence avoiding overly risky growth strategies.

What’s more, the valuations of unglamorous high- yielders don’t have unrealistic growth expectations built in, so share prices aren’t overcooked and vulnerable to earnings disappointment.

Snap Shot: How Deep is Depth of Field?

by Harry Flashman

The Depth of Field in any picture can often make or break the entire photograph. Knowing how to manipulate the depth of field improves your photography instantly!

The term Depth of Field is really an optical one and depends solely on the lens being used and the aperture selected. Altering the shutter speed does not change the Depth of Field.

Depth of Field really refers to the zone of “sharpness” (or being in acceptable focus) from foreground items to background items in any photograph.

The first concept to remember is “One Third forwards and Two Thirds back.” Again this is a law of optical physics, but means that the Depth of Field, from foreground to background in your photograph can be measured, and from your focus point extends towards you by one third and extends away from the focus point by two thirds.

For those of you with SLR’s, especially the older manual focus SLR’s, you will even find a series of marks on the focussing ring of the lens to indicate the Depth of Field that is possible with that lens (and you probably wondered why there were all those extra marks on it!).

Take a look at this week’s photograph, which is really two shots, taken seconds apart, of the Chinese lion statue. More importantly, look at the background. In one you can clearly see the leaves on the bush and the fountain spray, while on the other it is a soft blur. How did I change this Depth of Field sharpness? Answer, with a flick of the wrist!

You see, for each lens, the Depth of Field possible is altered by the Aperture. The rule here is simple - the higher the Aperture number, the greater the Depth of Field possible and the lower the Aperture number, the shorter the Depth of Field. In simple terms, for any given lens, you get greater front to back sharpness with f22 and you get very short front to back sharpness at f4.

For example, using a 24 mm focal length lens focussed on an object 2 metres away - if you select f22, the Depth of Field runs from just over 0.5 metre to 5 metres (4.5 metres total), but if you select f11 it only runs from 1 m to 4 m and if you choose f5.6 the Depth of Field is only from 1.5 m to 3 m (1.5 metres total).

On the other hand, using a 135 mm focal length lens focussed at the same point 2 metres away, you get the following Depths of Field - at f22 it runs from 1.9 m to 2.2 m (0.3 metres) and at f5.6 it is 1.95 m to 2.1 m (a total of 0.15 metres).

Analysis of all these initially confusing numbers gives you now complete mastery of the Depth of Field in any of your photographs. Simply put another way - the higher the Aperture number, the greater the depth of field; the smaller the Aperture number the smaller the Depth of Field; plus the longer the lens, the shorter the Depth of Field, the shorter the lens, the longer the Depth of Field.

Now to apply this formula - when shooting a landscape for example, where you want great detail from the foreground, right the way through to the mountains five kilometres away, then use a short lens (24 mm is ideal) set at f22 and focussed on a point about 2 km away.

On the other hand, when shooting a portrait where you only want to have the eyes and mouth in sharp focus you would use a longer lens (and here the 135 is ideal) and a smaller Aperture number of around f5.6 to f4 and focus directly on the eyes to give that ultra short Depth of Field required.

As said before, while initially confusing, it can soon become second nature. Try it out this weekend, but when you are doing it, keep a note of what you have done to compare with the prints later.

Part One

by Duncan steam

The world’s first post office was established in Britain in 1619 and in 1840, regular mail received a boost when the first commercial postage stamp was issued. In Thailand, prior to the establishment of an organised postal service, internal messages were divided into two classes: ordinary and urgent. An ordinary message was delivered by a regular, but slow, service from province to province. A special courier conveyed urgent messages as fast as possible.

Changes were implemented in the message and letter delivery system. Initially, major cities and towns were staffed with regular couriers, meaning, for example, that a Bangkok courier need only go as far as Saraburi where he handed his mail on. The message would then continue to each major city or town by regular courier until it reached its destination, a very slow and laborious process.

Ordinary correspondence destined for overseas was entrusted to traders who were going in the direction of the letters or messages in question. Hardly a regular or even efficient method of maintaining contact with the outside world. If no traders could be found, special messengers had to be employed for the task. Important correspondence was necessarily handled by specially employed couriers.

All foreign mail destined for Thailand arrived under an arrangement with the British-controlled Straits Settlements in Singapore and Hong Kong. The British Consulate in Bangkok acted as the intermediary.

In 1875, the government decided to begin the distribution of its newspaper Court to citizens in Bangkok, rather than require them to come to an office in the Grand Palace and pick it up. Stamps were attached to the wrapper of the newspaper and couriers were hired to deliver Court to subscribers. This marked the beginning of a postal service.

By 1876, stamps were being used for letters to subscribers and delivered by mail carriers. The cost of a stamp was one Att, approximately three satang. For deliveries within Bangkok, the price was one Att, anywhere outside the city it doubled to two Att.

Court failed soon after and with its demise, stamps and postmen also became redundant.

However, four years later the issue of a postal service was again raised and in 1881 King Chulalongkorn noted that ‘...the introduction of modern postal and telegraphic systems for using (sic) in the country would greatly help to develop trade and commerce as well as to ensure and accelerate the dispatch of official and individual correspondence...’

The monarch appointed one prince and one high-ranking official to oversee ‘...the organisation of a Local Letter Post for the City of Bangkok as an experiment with a view to expanding same throughout the country.’

The first major hurdle to overcome was house numbering. Previously unknown in Bangkok, residences had to be numbered or identified in some unique way to simplify the delivery of mail.

There was also a problem of public resistance to house numbering, as many people were afraid that they would be compelled to contribute funds to the fledgling postal service. Others were worried that they would be taxed more.

The public acquiesced after the government issued a statement clarifying the aims of the new postal system, outlining the reasons for its inception, and assuring the public that they would not be subject to new or increased taxes.

With the public onside, the Department of Postal and Telegraphs was established in 1883 with Prince Bhanarungsi as director-general. A number of Europeans were employed as officials in the initial stages to oversee the service. Thais gradually replaced them.

The main post office was located on the Chao Phrya River, near the mouth of the Ong Ang Canal, with a series of postage stamp shops dotted about the city and countryside serving as postal branches. In the early years there were no postal boxes and people wanting to post a letter had to go to their nearest postage stamp shop. Shopkeepers were paid four baht per month to take care of the postal box in their shop.

The postal service proved very popular and within a short time an average of 127 letters a day was being posted. In 1885, the postal service was gradually extended throughout Thailand with the first up-country branch established at Samut Prakan. Others were soon set up at Bang Pa-in, Nakhon Pathom, Samut Sakhon, Samut Songkhram, Ratchaburi, and Phetburi among others. A letter took two days to go from Bangkok to Nakhon Pathom and four days between Bangkok and Phetburi. Parcels and registered mail were included in the system from the very beginning, although there were restrictions on certain items. For example, dynamite and other explosives were prohibited and any person found violating the law could be fined up to 800 baht.

A new growth industry in Thailand - build more prisons and hand down longer sentences

Corruption and dishonesty is so ingrained in many societies that attempts to root it out and replace it with moral ethics and respect for law and order will demand more than propaganda campaigns and lip-service from community and national leaders.

Generations of ordinary citizens who are born into and grow up under the knowledge that they are powerless in the face of forces that undermine the laws that govern their nation learn to avoid getting involved, or adapt the old adage; if you can’t beat them, join them.

Thailand, like many other countries around the globe, is facing a dilemma. How do we keep the rabble of criminals and delinquents at bay since they now pose a threat to all of us - rich, poor, powerful or inconsequential?

Crime is on the rise in Thailand and it’s no secret outside our borders. But more alarming is the viciousness of the perpetrators and the alarming statistics of senseless murder and assassinations motivated by petty revenge, small amounts of money, drug deals gone sour, romantic quarrels, territorial disputes, and daylight robbery.

What has changed so drastically in the past few years that triggered this blatant disrespect for law, order and human life in a Buddhist nation that supposedly bases its primary guidelines for social and moral behavior on teachings that hold most dear the respect for all living things?

Contempt (like wisdom, knowledge, and wealth) is accumulative. Decades of corruption, lack of law enforcement, lazy and dishonest officials running the show, poverty and indifference toward modern education adds up - and eventually a huge number of citizens simply take matters into their own hands and the outcome is small-scale anarchy.

Because of neglect, a huge proportion of our population lacks the knowledge and instruction for rules that govern a civilized society. Left to their own devices the masses act on basic primal principals. That doesn’t mean that all ordinary Thais are born thieves and killers. However, it does send a signal through the years that if and when individuals feel thwarted and realize they will never have access to opportunities which would improve their lot, criminal activities which will either enrich them or empower them are very tempting options.

With this in mind, we can deduce that entrenched corruption in law enforcement and political administration is certainly more an advantage than an impediment to anti-social behavior. In other words, the criminal elements in our society are pretty sure they can get away with it because their so-called ‘role models’ have already written the handbook entitled, “How to make a killing without getting caught”.

To be fair, the central government in Bangkok has finally conceded this whole crime thing has gotten out of hand and without some tough laws and cooperation from authorities round the nation, things look set to get a lot worse. New legislation needs to be expedited since the laws on the books are outdated and address a Thai society which doesn’t exist anymore.

One of the most heartbreaking ramifications of rapid social changes taking place in Thailand during the past decade is the perpetration of brutal crimes committed by our young people. Traditional Thai values were effective in the days when the kingdom was basically an old fashioned agrarian society and kids on the farm were trained and supervised by their family and community.

These old ways don’t connect with our youngsters anymore. The chasm between the old teachings and the reality of modern life makes a mockery of these outdated methods. Our young people are too informed and savvy to be fooled into absorbing what they interpret as ‘fairytales’. What we are experiencing here in Thailand is a ‘generation gap’.

There is another highly visible factor that has to be added to the equation in our increasing social problems which crosses all income, class and educational boundaries. It is obvious that the mental health of our citizens is deteriorating. And the system is completely inadequate and unprepared to address and provide aid to fix this problem.

Mental illness and emotional disorders have always been with us. Although Thai medical services, expertise and access have improved to the level of proud achievement, the area of mental health care has been noticeably neglected.

Schools do not provide psychological councilors, most of the clergy is not equipped to help mentally disturbed people in their districts, and law enforcement agencies are already overwhelmed and undermanned.

The present crime rate involving young people signals a serious escalation of personality disorders and psychopathic misfits. Left untreated and ignored, these wayward youths grow up to be hardened criminals with long rap-sheets, and eventually become assassins, gangsters and even powerful members of our own communities.

There is no one solution to this long list of social ills because of the variations and complications. Even if we could find a ‘quick fix’ we need to concede that some individuals are just not going to be rehabilitated, no matter what. What we really need to consider is taking this dangerous element of society off the streets and locking them up for a very long time. It’s called ‘zero tolerance’.

A little more than a decade ago the USA was fed up with its evil reputation for crime and its negative consequences. A growth industry was introduced which allowed states to compete to submit tenders to build more prisons to house the rising population of hardened prisoners which either would not or could not successfully re-enter society.

Thailand’s jails and prisons are overflowing and convicts are being released to prey on the innocent public simply because of the massive turnover. We really ought to think about building more prisons. Does Thailand really need another 5-star hotel or shopping center, or another low cost, ill built housing estate? Think about it. It did wonders for regional economies in the USA and definitely lowered the crime rate.