Stock Review: AMWAY (6351)

In my previous article on stock selection criteria, I am using stock grading system as advocated by Infinite Wealth, which is basically based on fundamental analysis. According to Infinite Wealth grading system, a stock with grading of 9 stars and above is worthy of investment. A quick recap on the stock grading system is as follow:

• Turnover
• Net profit after tax (Net PAT)
• Net profit margin (NPM)
• Cashflow from operation (Cashflow Ops) 
• Cash ratio (= Asset/Liabilities)
• Average net dividend yield (Net DY)
• Average ROE (ROE)

My Stock Selection Criteria

Referring to the previous article on my investment philosophy, I focus my stock investment on high growth dividend stocks that yield at least 5% p.a. as well as REIT stocks. To further narrow down the list of investment grade stocks, I will highlight the criteria that i use to filter through the stocks in this article.

One resource that i use extensively in my quest to find my investment grade stocks is Stock Performance Guide from Dynaquest. This book provides segmental information, corporate structure, business activities, latest developments and future prospects of listed companies in Bursa Malaysia. It also contains investment and financial statistics data about each listed company. The data that i most commonly use from this book is Dynaquest rating and 5-year dividend yield range. You may get this book from here or any other major book stores in town.

Schroder: Go for dividends

A convergence of global and domestic influences makes 2012 an opportune time to invest for dividends in Asia.

Schroder Investment Management Ltd said its research showed that Asia, besides boasting the strongest economic fundamentals in the world currently, also had one of the highest dividend yields globally. It was second only to Europe, where the unfolding debt crisis continues to raise questions about dividend sustainability.

“Despite the market's obsession with share price appreciation, historically almost two-thirds of long-term equity returns in Asia have come from dividends,” Lee King Fuei, a Singapore-based fund manager for Asian equities at Schroder, argued in his latest report on the outlook for Asian equities for 2012.

My Stock Investment Philosophy

As mentioned in the previous article, I've started my journey into stock investment, starting from year 2010. When i first started, I invested into some hot stocks at that moment like all newbies. So over the next few months, I was basically trading from one hot stock to another without much objective and direction. Over time, there were times when i won some pocket money and lose tons more.

Then, I stumbled into a book by Lai Seng Choy called "Infinite Wealth". This book will teach you HOW to select an investment grade stock and WHEN to buy your chosen stock. I personally find the criteria that Mr Lai used to narrow down the list of stocks for investment very useful. Since i consider myself a long term investor, I do not think the WHEN to buy section is really applicable to me too much. However, it is still a good read for traders. I highly recommend that you buy this book and have a good read. It's light enough for casual reading, but yet packed with useful information.

Over the past one year, I'm still trying to figure out the set of criteria that is working for me, as well as the type of stocks and risks that I'm comfortable with. There will be lots of finetuning over time to find out the best methods that works for me.

The Journey into Stock Investment

When i first made my investment into unit trust in mid 2008, I have the confidence that i have the necessary knowledge, know how and platform to contruct a balanced portfolio for long term investment. However, half year through the investment jorney, I have to face with the greatest financial downturn in history in the mould of 2008 Global Financial Crisis (GFC). My balanced portfolio dived to a negative 22% territory but i stuck through it and pump in more money into my portfolio and yet still managed to achieve postive returns of 7% to date. I know that my portfolio still under perform my objective of annualized return of 8%, but unit trust investment is a long journey, so i will have to monitor and tweak the portfolio to enhance the performance in due time.

Bursa Malaysia e-share payment service

Bursa Malaysia has launched e-share payment service today that allows the share buyer to transmit money electronically to the stockbroker when they purchase shares/make payments or allow the stockbroker to auto-debit from the bank account. It also allows the stockbroker deposit share proceeds/profits into the buyer's bank account directly when the buyer sells the shares.

The service is provided FOC by the stockbrokers and you need to apply at the individual stockbroker. Basically, you need to fill in the form, and provide photocopy of NRIC and your bank statement/passbook. Original copies of NRIC and bank statement/passbook are required for verification purpose.

For more details about this new service, please visit here.

First Foray into Stock Investment

Recently, I've made some investments into stock market, in particular Sunway REIT (SUNREIT) and Capitamalls Malaysia Trust (CMMT). SUNREIT IPO-ed at RM0.88 for retail investors while CMMT IPO-ed at RM0.98.


While the price movement has been very mild since the IPO, I do not expect such stocks to have high appreciation as these stocks are mainly dividend stocks.

Why do i invest in REITs:

1. Exposure to REIT sector, apart from existing investments in equity and bond unit trust funds.
2. High Yield: the expected dividend from these stocks of around 7% is much higher than prevailing annual fixed deposit rates.
3. Low volatility: Since i do not have much time to monitor the stock movements, these stocks are suitable for me due to its lower volatility.

I recommend our investors to have a good look at REIT since they are high yielding investments with potential of capital appreciation. In fact, the yield for M-REIT (Malaysian REIT) is one of the highest in the region.

What causes stock prices to move?

Knowing the answer to this will enable you to buy and sell at the right time.

STOCK investing is perhaps the most talked about form of investing. Stocks create hype because they are volatile and sensitive to various factors. With the current economic landscape and dismal performance of bourses worldwide, we can observe that stock prices are affected on a much larger scale than usual. So, if you are wondering what makes stock prices go up or down, read on to find out.

Knowing the answer to this will enable you to buy and sell at the right time. Unfortunately, there is no one definite answer to this simple question. Various factors influence stock price movements. However, certain primary factors have a major impact on the movement and as an investor, you need to pay attention to these factors as guidance in making the right call to "buy" or "sell".

Demand and Supply

This golden rule of economics holds true even when it comes to the stock market. When demand for stocks is greater than supply, stock prices will go up. This happens when everyone starts to chase after stocks but only very few are willing to sell. This in turn, pushes the prices of stocks up further. On the flip side, when supply is greater than demand, everyone rushes to sell off their stocks, but only a few buyers are interested. This results in stock prices being depressed.

Bearing this in mind, you then need to know what causes the demand or supply to go up or down.

* Economic situation

* Economic situation Stock market performance is actually a leading indicator of our economic situation. This means that the stock market will reflect the market expectations of our economy a few months down the line. As such, if the market expects the economy to boom, you will start to see stock prices increasing much earlier than the actual boom and the opposite applies when recession hits. Bearing this in mind, as investors, you need to be sensitive to signs that provide any form of indication on the future direction of the economy.

For example, when inflation rate creeps up; there is a possibility that the interest rate will go up as well to help cool the economy. The stock market in turn, will react negatively given such an expectation. On the other hand, when the economy is at the bottom of its cycle and the interest rate is lowered to stimulate economic activity, you will see that stock market will react positively to it. This positive reaction is attributed to the expectation that the economy is on the road to recovery.

* Company performance

* Company performanceLogically, the stock price of a company should go up if its financial performance is good, and vice versa. However, you will notice that most of the time, when the financial results are announced, as long as they reflect analysts' expectations, regardless of whether the reports bear good or bad news, stock prices will usually not show much movement. It is only when the results come as a surprise to the market that you will see a blip in the price. Basically, this is because the existing stock prices already reflect the current market expectation. This tells you that you need to pay attention to the company's business fundamentals, as this is the critical factor that is going to influence the company's stock price in the long run. As an investor, you should be mindful of the company's business direction and projects that it is involved in, that have the potential of bringing growth to the business. You have keep a watchful eye on its financial performance and management's strength, in order to make a good investment decision.

* Market rumours

* Market rumoursThis is a major contributor to the stock market's short term volatility. There is a famous saying in the stock market, 'buy on rumours, sell on facts'. Investors tend to over-react or react hastily to the slightest market rumours. Often times, they will panic and rush to sell on negative rumours, resulting in the drop of the stock price. Investors could take the opportunity to buy at that particular time if they know that the company is fundamentally strong and the likelihood of the negative rumours being accurate is low; or the situation is not as bad as it is made out to be. By carefully scrutinising market rumours, you are able to make sound investment decisions instead of just following the crowd, that could lead to dire consequences.

* Political instability

* Political instabilityNaturally, if a country is experiencing political unrest, the stock market will inevitably have to deal with some setbacks. In cases of instability, foreign investors react by pulling out their funds which may trigger panic selling from all parties. You will need to assess whether the unrest is just a short-term event or carries with it a longer lasting impact. This is crucial in assessing your risk should you choose to continue holding on to your position, as opposed to taking quick action to leave the market.

The above are only a few major drivers that will cause the stock prices to move. However, most of the time, the investor psychology effect of over reacting makes market movement more prominent than it should be. One of Benjamin Graham's investing principles encourages us to look at market fluctuations as our friend rather than our enemy, as market movements sometime create buying opportunities for true investors. Therefore, as an informed and knowledgeable investor, avoid getting into "panic mode". Always remember, understand and evaluate the situation by using your own judgement to ensure that you make intelligent investment decisions.

Source: Business Times