A look at investing behaviours

There is a long held view that by taking a contrarian view to investing, investors can profit. In essence this is what the professionals do as they buy shares in good companies when no one wants them and then they sell them when the market has peaked. Historically the amateur investor does the opposite and in so doing reduces the ability of their portfolio to generate good returns.

In the current market conditions, many companies have been oversold as investors sell out through fear of losing, with many companies trading at prices well below their true value. The professional investor knows that this presents great opportunity for long-term gains and in our market these opportunities are likely to come from the energy, resources, healthcare and materials sectors.

Adapting to Changing Markets

It seems that investors are failing to acknowledge that the market has changed and would prefer to cling to how they have done things in the past. But as we all know, the market has changed and so must the investor’s expectations if they want to get reasonable returns in the future. Prior to 2003 most investors were happy if they received a 10 per cent return on their investments. But as a result of the bull market in recent years, investor’s expectations are continuing to remain high.

In my opinion, investors now need to become much more realistic in their expectations and more selective in the stocks they hold. While good returns are still possible, we now have to work smarter to achieve them.

The above is based on reports from Dale Gillham, chief analyst of share investment company Wealth Within.

The fallout in Australian infrastructure funds

During the 90's and in the early part of this decade, infrastructure funds and their management companies were booming. The key beneficiary of this was Macquarie bank (MQG) which managed and spun out a number of infrastructure funds and led to the bank being called the "Millionaires Factory". Babcock and Brown (BNB) joined the party earlier this decade and reaped enormous gains following a similar model. However over the last year, with the credit crisis and tightening of borrowing standards, many of these debt laden funds and their management parents have suffered quite badly. The table below, based on one from Reuters, shows how much value some of the leading infrastructure companies have lost relative to their Net tangible Asset value (which is the book value or value of all the company assets, less debt and intangibles).

* Share Price discount to NTA value is based on data as of June 24.

Unfortunately I hold a number of the above stocks - MAP, MIG, AIO - so have seen a big hit to my portfolio. However I am not selling any of them yet as I believe the companies themselves are fine and that they have been caught up in the fallout from the credit crisis. While not adding to my positions, I do believe the best value stock in this group is Macquarie Airports (MAP) and if you haven't got a position in this stock then it is worth looking into as it is trading at a significant discount to NTA.

As as side note, the share price management companies Macquarie Group and Babcock & Brown have declined by 45% and 80% respectively - much worse then the infrastructure companies they manage.

My Coffee habit I am not giving up on

Many personal-finance sites and authors talk about the need to cut your day-to-day expenses so that you can boost your savings. Good simple advice, but some who propose concepts like the obligatory measure of eliminating your daily cup (or two or three) of coffee and investing what you would have spent on it - are going too far. Yes, if you save $3 a day, for $720 a year, you will have some number like $10,000 in 20 years saved. A lot of money no doubt. However, in life you got to live a bit, for which you need to spend a bit. In my view, life's daily little pleasures like my morning cup of coffee have an intangible value to me which far exceed the $3 or so I spend on it. Maybe it's the caffeine or the simple experience of taking the time out to get the coffee and the 5-10 minutes to catch up with fellow workers, but I have found the returns of that daily cup of coffee to far exceed what I spend on it....

Saving where you can is great, but remember to ensure you don't deprive your life of the simple little pleasures along the way. I rather be happy and well-off, as opposed to a miserable millionaire!

This post is republished with permission from Savingtoinvest.com

What happened with Babcock and Brown (BNB)

The steep share price fall in Babcock and Brown (BNB) last week has really caught me by surprise. I own almost $15,000 worth of stock which I bought at $25, so am down big time. The share price has been falling over the last few months, but as I am a long term holder of the stock, I felt that it would recover and weather the current market turmoil driven by falls in the US markets. However with the stock under $6 now, I am not so sure it will be able to recover. Especially given the perception that it's creditors (banks) will demand early loan repayments. Here is a recap of what has happened with the stock last week as reported in the Australian:

AUSTRALIA's second biggest home-grown investment bank, Babcock & Brown, has been forced into emergency talks with its bankers following a massive share price plunge that put it in breach of loan covenants. Shares in the company collapsed by 28 per cent yesterday, slicing its stock market value to $2.3billion in the kind of selling frenzy that in the past year has crippled companies such as ABC Learning Centres and the Allco Finance Group.

The plunge forced Babcock into talks with the bankers behind a $2.8billion loan. If the company cannot restore its market value to above $2.5billion within four months, the syndicate of 25 banks, led by the Bank of Scotland and including Australia's big four retail banks, have the right to demand early repayment of their loans to the company.

Babcock executives yesterday insisted the company remained "robust" and said its business was sound."We have just got to show by our actions over the next couple of days and weeks that our business model remains completely intact, that we are developing and growing our business," the company's head of capital markets, Trevor Lowensohn, told The Australian.

Debt-laden Babcock, which has about $46 billion in debt across 20 separate listed and unlisted funds, is Macquarie Bank's biggest imitator. Like Macquarie Bank, it buys businesses, such as infrastructure assets, packages them together in one fund and charges a fee for managing them.

Babcock's stock market slump unnerved many shareholders. "They're obviously very nervous as many bought at higher (share price) levels," ABN AMRO Morgans adviser Lisa Jarvis said yesterday. "Certainly people have ridden the stock up from $7 (to $34) and not sold it and it's all the way back there now."

So based on the above and other media reports, should I sell my shares and take some money while I can? My heart tells me yes, but my head still thinks that Babcock and Brown will make it through given the quality of its assets and management. I'll be closely watching what the company executives and analysts say today when the shares resume trading. What are your thoughts?

Should you hire an accountant to do your taxes?

When it comes to doing your taxes, one question that most people have asked themselves at some point is, “Should I do my own taxes or hire an accountant?” When I first started filing tax returns they were very basic and I used to do them myself. However once I started working full time, investing and undertaking further education I started using an accountant to file my taxes. They make life much easier and unlike in most countries (e.g. the USA) your accountant fees are tax deductible. If you are in the higher tax brackets, that’s like getting a 40% discount. However you need to weigh up your own situation to determine the best and most cost-effective way to prepare your taxes.

So how do I know if need an accountant? The more complicated your taxes are, the more likely it is you need a tax professional. The easiest way to determine this is to first try to do your taxes on your own. If you find it’s too difficult, or if you feel like you’re making mistakes, seek out an accountant or a tax preparation company.

Though I did my own taxes for a long time, I gave up once they became complicated and too much work. My brother referred me to his friend (whom I knew as well) who was an excellent CPA, and am pleased to pay him to do my taxes for me. Living overseas, this is an added benefit as he is able to greatly assist with my family’s local taxation affairs and has provided sound advice on a number of occasions.

From my experience — and this may not be true for everyone — having an accountant prepare my taxes has paid for itself. Though I’m a relatively smart guy and follow directions well, there are things I miss when I do them myself. Further, the tax code is updated every year and most of us non-accountants don’t have the time or background to keep up with all the changes and possible deductions. Accountants normally have tax preparation software and tax checklists that enable them to file taxes quicker, with much fewer errors and to try and get back as much as legally possible for you. For example, did you know you can claim the fuel /driving costs to and from training classes/courses you go to using your own car? For multiple days or year long programs that can add up to hundreds of dollars in deductions most of us wouldn't know about if doing taxes on our own.

A good accountant will do more than just file your taxes, they will actually save you taxes and provide sound tax related advice. The other thing is to always choose a qualified accountant you are comfortable with, trust and has good referrals. I’ll write another post shortly with more details on how to find and select a good accountant.

Related articles:
1. Ten useful tax deductions
2. Investment Property and taxes
3. Ten Tips for Using Your Tax Refund
4. Guide to Choosing the Right Financial Planner

Top 25 Stocks by PE ratio

The table shows that top 25 stocks by P/E ratio. The P/E ratio is defined by Wikipedia as follows "The price-to-earnings ratio of a stock (also called its "earnings multiple", or simply "multiple", "P/E", or "PE") is a measure of the price paid for a share relative to the annual income or profit earned by the firm per share. "

A higher P/E ratio means that investors are paying more for each unit of income. A low P/E means the stock is potentially undervalued. However when evaluating the P/E ratio always compare the stocks to others in its industry or sector. Similarly it is misleading to compare P/E ratio's for stocks in different sectors; for example, technology shares normally have much higher P/E ratio's than industrials due to the nature of their business and earnings.



With the sharp fall in share prices a number of stocks in the above table have very low P/E ratios (e.g. CNP, BNB and BOL) and may look like great deals. However companies only report earnings every 3 to 6 months, so until their earnings are reported (which will most likely be much lower), the P/E ratio can give a false impression. Still in a normal market environment they provide a good starting point to narrow down a list of stocks for evaluation. I prefer the PEG ratio, which I wrote about here.

Market Report (from Dale Gillham)

The share market has been quite challenging this year with the All Ordinaries Index down 10.08% to 31 May 2008. The worst performing index is the Mid Cap index which includes shares ranked from 51 to 100 by market capitalisation which has fallen by 15.77% for the year.

In 2007 all of the indices, with the exception of the top 20 rose between 11% and 12% but the poor performance of the market this year has essentially wiped out these gains. The good news is that in the 26 years since 1982 the All Ordinaries index has only ever closed lower than it opened for the year on five occasions and it has never had two consecutive down years. Given this, probability suggests that the worst of the volatile market is behind us.

How to claim your lost superannuation

There's roughly $12 billion in unclaimed superannuation money, some of which could be yours if you have lost track of your super over the years. There are 4.3 million Australians with unclaimed or lost Superannuation. Like most people, you have probably had multiple jobs and unless you were "super" organized (especially before everything was computerised) you may have some unclaimed super sitting around. Recent estimates show that the fund managers of this "lost" super take up to $250 million in fees every year from unclaimed retirement savings. Workers on temporary visas are believed to make up a big proportion of lost super.

What is "lost" superannuation

Australia was home to 5.16 million lost or unclaimed superannuation accounts (one person can have multiple accounts if they had more than one (job) - known as eligible rollover funds (ERF) - at the end of June 2007. Super is transferred into one of these ERF accounts if a contribution has not been made for two years or someone has failed to reply to mail. Another $6 billion in lost super is tied up in mainstream funds that have not transferred the super into an ERF.

How do I find out and claim my lost superannuation

The Australian Taxation Office (ATO) and the superannuation industry have set up a FREE system, called the Lost Members Register, to help people claim lost super. The easiest way to search for your lost super is via SuperSeeker, the ATO's online search tool. Using your Tax File Number (TFN), SuperSeeker will look for your lost superannuation and instantly provide you with possible matches. It will also search Tax Office records, such as the Superannuation Holding Accounts Reserve (SHAR) and any unclaimed superannuation guarantee vouchers in your name.

Remember this system is free to use and is available 24 hours a day, 7 days a week. So if companies try and sell you this service, all you are paying them for is to enter your TFN number into this system on your behalf.

The current system though can be improved and is not as comprehensive as it could be. Superannuation Minister Nick Sherry has indicated the federal government is devising a system with the Australian Taxation Office so consumers will, in 12 to 18 months time, be able to more easily find lost or unclaimed super.

Australian Stockbroker links

Ever want to know what Australian stock brokers are out there. Well here is a list I put together. I have used Comsec, Westpac, Etrade and HSBC. All are good and if you link a cash account or are a frequent trader you get even lower brokerage rates.

» ABN AMRO Morgans (http://www.abnamromorgans.com.au/)
» Andrew West (http://www.andrewwest.com.au/)
» Austock (http://www.austock.com.au/)
» Baker Young (http://www.bakeryoung.com.au/)
» BBY (http://www.bby.com.au/)
» Bell Potter Securities (http://www.bellbroking.com.au/)
» Burrell Stockbroking (http://www.burrell.com.au/)
» Commonwealth Securities Ltd (http://www.commsec.com.au/)
» D.J. Carmichaels (djcarmichael.com.au)
» Delta Securities (http://www.deltasecurities.com.au/)
» Direct Shares (http://www.directshares.com.au/)
» E*Trade (http://www.etrade.com.au/)
» Gillion Securities (http://www.gillon.com.au/)
» HSBC Stockbroking (http://www.broking.hsbc.com.au/)
» Intersuisse (http://www.intersuisse.com.au/)
» Joseph Palmer & Sons (http://www.jpalmer.com.au/)
» Kinetic Securities (www.kineticsecurities.com.au/)
» Leyland Private Asset Management (http://www.leyland.com.au/)
» Maquarie DirecTrade (http://www.macquarie.com.au/)
» Morrison Securities (http://www.morrisonsecurities.com/)
» Netwealth (http://www.netwealth.com.au/)
» Reynolds Stockbrokers (http://www.stox.com.au/)
» Sanford Securities (http://www.sanford.com.au/)
» Shadforths (http://www.shadforths.com.au/)
» Smith Barney Citigroup (http://www.smithbarney.com.au/)
» Taylor Collison (http://www.taylorcollison.com.au/)
» Tolhurst Noall (http://www.tolhurst.com.au/)
» Westpac (http://www.westpac.com/)
» Webstock (http://www.webstock.com.au/)
» Wilson HTM Investment Group (http://www.wilsonhtm.com.au/)


If I have missed any from the list, let me know and I will add it in.

Stock Recommendations

Compareshares ran a recent piece which covered some stocks I have previously reviewed. Here are their comments and my current viewpoint.

• Rio Tinto (RIO) - [Hold Recommendation] Investors should stick with Rio as it offers quality operating assets and the outlook for commodities is bright. RIO has flatly rejected BHP Billiton’s takeover offer on the basis it significantly under values its assets and prospects. This begs the question: What price is acceptable to RIO? Based on our analysis, we believe RIO may consider a scrip offer in the range of 3.6 to 3.9 BHP shares for each RIO share.
  [Editor - I still prefer BHP in the longer term due to its greater oil and coal exposure]



• Woolworths (WOW) [Hold Recommendation] - Expect WOW to continue using its strong cash flow to put pressure on Coles and Foodstuffs in New Zealand. The company remains a beneficiary of a relatively weak Coles supermarket division, and, until this is rebuilt by Wesfarmers, WOW will continue to invest in increasing the gap while it has the chance.
  [Editor - I am still holding my WOW stock and it will be a good stock to own if Australia enters a recession. For now I agree with the hold recommendation]



• AMP (AMP) [Sell Recommendation] For the first quarter of the year, AMP’s net fund flows were down 83 per cent to $129 million. This is disappointing, but the first quarter is seasonally AMP’s weakest and we expect AMP's corporate superannuation to report stronger inflows in the next six months. With volatile equity markets continuing, we see better risk/ return in other stocks.
  [Editor - I disagree and will continue to hold AMP. It is a 5 to 10 year holding for me and as the population ages the company should benefit which will be reflected in the stock price]



• Macquarie Group (MQG) [Hold Recommendation]- Macquarie Bank is a leveraged play on credit and equity markets. The 2008/09 year is shaping up as a mixed bag. With 15,000 staff, it is no longer a small operation and higher growth rates are getting harder to obtain. While it never pays to underestimate the company’s capability, it’s hard to see where out-performance will come from. The stock was trading below $60 a share on May 23 and our target price is $65.
  [Editor - I agree and prefer Babcock and Brown (BNB) for the longer term upside potential. For now though I would stay away from investment banks until the global credit market turmoil is resolved]



• Incitec Pivot (IPL) [Hold Recommendation] - The very strong run for IPL has continued on the back of stronger global ammonia and fertiliser prices, the Dyno Nobel (DXL) corporate activity and the China story. We recommend taking part profits at this level as the market is pricing the company for perfection. Our valuation for IPL is closer to $100 a share, but acknowledge that sentiment may take the stock higher in the short term.
  [Editor - I think the stock is a hold for now as well. If you already own IPL or DXL, hold on for the longer term ride]



• Oxiana (OXR) [Buy recommendation] - The likely marriage of Zinifex's strong cash position and OXR's project pipeline has the potential to deliver significant long term value. With both boards supporting the transaction, the merger looks a formality. The resources boom has a long way to go and this merger will boost earnings in times of strong demand. The gold price is marching higher and a strong zinc price is likely to rise.
  [Editor - I think gold and commodity prices are due for a fall soon. So I would rate the stock a hold for now. If the merger with Zinifex does go ahead, I would look at buying Zinifex]



• QBE Insurance Group (QBE) [Buy recommendation] -This global insurer has a strong balance sheet that enables it to continue its acquisition strategy despite shelving the IAG takeover bid. That doesn’t mean it won’t be back to take another crack at IAG and it could even land it at a cheaper price. QBE does not over pay for acquisitions - management is astute.
  [Editor - I have discussed this stock recently and think it is a great stock to own. Look to buy on any weakness]

So there you have it. What are your thoughts on the above stocks? Click on the stock names above to see my past reviews.

Is it the end for Centro?

Update (from smh.com.au): Since I published this article based on weekend media reports, Centro announced it had won a seven-month extension on its debt to December 15. series of US asset sales is also underway, with the Centro America Fund tipped to be first in line.In a statement to the market this morning, Centro's directors confirmed that the extension to the $2.8 billion in debt includes $2.3 billion owed to Australian banks and $450 million owed to US private noteholders. Thanks to Sasha (see post comment) for alerting me to this update.

Centro Properties Group's (CNP) looks to have run out of options and may need to declare bankruptcy after the shopping centre owner's bankers failed to agree on the terms of a proposed extension to a $2.3 billion debt facility. This was despite reassurances from the company last week that it would be able to secure the required funding extension.

Centro yesterday declined to comment on its discussions with the Australian-based lending group. "There will be an announcement [this] morning," was all its spokesman, Jim Kelly, would say. The stock is in a trading halt since last week and until this issue is resolved it will probably stay in a halt. For current stock holders the picture looks pretty grim.

The only thing that may get Centro a reprieve is if it can sell some asset quickly to appease its creditors. The company owns 800 centres in the US and Australia. On top of the $2.3 billion debt facility, Centro needs to extend the expiry of $US450 million ($471 million) of US bonds.

Centro (CNP) Update
Update on Centro (CNP) - Up 60% since my review 2 weeks ago
Article data from the smh.com.au