how to assure your return in equity will be better than fd - 3rd jan 2009

How to assure your return in

Equity fund will be better than

FD

Case Study: Public Index Fund (PIX)

• A representative of an Equity Fund, because at least 80% in Equities at all times.

• More than 15 years history (The fund was launched in 2nd March 1992).

• The fund invest mainly in Blue Chips (the biggest companies in Malaysia).

Yearly Return of PIX

-60.00%

-40.00%

-20.00%

0.00%

20.00%

40.00%

60.00%

80.00%

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Year

To

tal

Ret

urn

Yearly Return Analysis of PIX

Average Total Return 10.8%

Best Total Return 63.4%

Worst Total Return -39.2%

Total Periods 17

No of Positive Periods 13 76.5%

No of Negative Periods 4 23.5%

Yearly Return of PIX(Overlap by months)

-60.00%

-40.00%

-20.00%

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%M

arch

-93

Mar

ch-9

4

Mar

ch-9

5

Mar

ch-9

6

Mar

ch-9

7

Mar

ch-9

8

Mar

ch-9

9

Mar

ch-0

0

Mar

ch-0

1

Mar

ch-0

2

Mar

ch-0

3

Mar

ch-0

4

Mar

ch-0

5

Mar

ch-0

6

Mar

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7

Mar

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8

Year

To

tal

Ret

urn

Yearly Return Analysis of PIX


Best Total Return100.3

%


Total Periods 191



Rule No. 1:

Invest for

Medium to Long Term

(3 years or more)

3 Years Return of PIX(Overlap by months)

-60.00%

-40.00%

-20.00%

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%

140.00%

160.00%M

arch

-95

Mar

ch-9

6

Mar

ch-9

7

Mar

ch-9

8

Mar

ch-9

9

Mar

ch-0

0

Mar

ch-0

1

Mar

ch-0

2

Mar

ch-0

3

Mar

ch-0

4

Mar

ch-0

5

Mar

ch-0

6

Mar

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7

Mar

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8

Year

To

tal

Ret

urn

3 Years Return Analysis of PIX




Average Annualised Return 9.0%

Best Annualised Return 34.7%

Worst Annualised Return -12.5%

Total Periods 167



5 Years Return of PIX(Overlap by months)

-50.00%

0.00%

50.00%

100.00%

150.00%

200.00%

250.00%M

arch

-97

Sep

tem

ber-

97

Mar

ch-9

8

Sep

tem

ber-

98

Mar

ch-9

9

Sep

tem

ber-

99

Mar

ch-0

0

Sep

tem

ber-

00

Mar

ch-0

1

Sep

tem

ber-

01

Mar

ch-0

2

Sep

tem

ber-

02

Mar

ch-0

3

Sep

tem

ber-

03

Mar

ch-0

4

Sep

tem

ber-

04

Mar

ch-0

5

Sep

tem

ber-

05

Mar

ch-0

6

Sep

tem

ber-

06

Mar

ch-0

7

Sep

tem

ber-

07

Mar

ch-0

8

Sep

tem

ber-

08

Year

To

tal

Ret

urn

5 Years Return Analysis of PIX







Total Periods 143



Chance of Losing Money(based on previous slides of PIX)

• 1 Year Holding Period = 28.8%

• 3 Years Holding Period = 23.4%


Rule No. 2:

Don’t Overpay

( P/E above 18)(when you Invest)

3 Years Return of PIX + Don’t Overpay(Overlap by months)

-20.00%

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%

140.00%M

arch

-95

Mar

ch-9

6

Mar

ch-9

7

Mar

ch-9

8

Mar

ch-9

9

Mar

ch-0

0

Mar

ch-0

1

Mar

ch-0

2

Mar

ch-0

3

Mar

ch-0

4

Mar

ch-0

5

Mar

ch-0

6

Mar

ch-0

7

Mar

ch-0

8

Year

To

tal

Ret

urn

3 Years Return Analysis of PIX+ Don’t Overpay







Total Periods 77



5 Years Return of PIX + Don’t Overpay(Overlap by months)

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%

140.00%

160.00%M

arch

-97

Sep

tem

ber-

97

Mar

ch-9

8

Sep

tem

ber-

98

Mar

ch-9

9

Sep

tem

ber-

99

Mar

ch-0

0

Sep

tem

ber-

00

Mar

ch-0

1

Sep

tem

ber-

01

Mar

ch-0

2

Sep

tem

ber-

02

Mar

ch-0

3

Sep

tem

ber-

03

Mar

ch-0

4

Sep

tem

ber-

04

Mar

ch-0

5

Sep

tem

ber-

05

Mar

ch-0

6

Sep

tem

ber-

06

Mar

ch-0

7

Sep

tem

ber-

07

Mar

ch-0

8

Sep

tem

ber-

08

Year

To

tal

Ret

urn

5 Years Return Analysis of PIX+ Don’t Overpay



Worst Total Return 21.7%



Worst Annualised Return 4.0%

Total Periods 53

No of Positive Periods 53100.0

%



+ Don’t Overpay



Rule No. 3:

Don’t Undersell

( P/E below 16)(when you Sell)

3 Years Return of PIX + Don’t Undersell(Overlap by months)

-40.00%

-20.00%

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%

140.00%

160.00%M

arch

-95

Mar

ch-9

6

Mar

ch-9

7

Mar

ch-9

8

Mar

ch-9

9

Mar

ch-0

0

Mar

ch-0

1

Mar

ch-0

2

Mar

ch-0

3

Mar

ch-0

4

Mar

ch-0

5

Mar

ch-0

6

Mar

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7

Mar

ch-0

8

Year

To

tal

Ret

urn

3 Years Return Analysis of PIX+ Don’t Undersell







Total Periods 93



5 Years Return of PIX + Don’t Undersell(Overlap by months)

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%

140.00%

160.00%M

arch

-97

Sep

tem

ber-

97

Mar

ch-9

8

Sep

tem

ber-

98

Mar

ch-9

9

Sep

tem

ber-

99

Mar

ch-0

0

Sep

tem

ber-

00

Mar

ch-0

1

Sep

tem

ber-

01

Mar

ch-0

2

Sep

tem

ber-

02

Mar

ch-0

3

Sep

tem

ber-

03

Mar

ch-0

4

Sep

tem

ber-

04

Mar

ch-0

5

Sep

tem

ber-

05

Mar

ch-0

6

Sep

tem

ber-

06

Mar

ch-0

7

Sep

tem

ber-

07

Mar

ch-0

8

Sep

tem

ber-

08

Year

To

tal

Ret

urn

5 Years Return Analysis of PIX+ Don’t Undersell







Total Periods 69




+ Don’t Undersell



All In AllRule 1: Invest at least 3 years

Rule 2: Don’t overpay (anything above 18)

Rule 3: Don’t undersell (anything below 16)

3 Years Return of PIX + Don’t Overpay + Don’t Undersell

(Overlap by months)

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%

140.00%

Mar

ch-9

5

Mar

ch-9

6

Mar

ch-9

7

Mar

ch-9

8

Mar

ch-9

9

Mar

ch-0

0

Mar

ch-0

1

Mar

ch-0

2

Mar

ch-0

3

Mar

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4

Mar

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5

Mar

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6

Mar

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7

Mar

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8

Year

To

tal

Ret

urn

3 Years Return Analysis of PIX+Don’t Overpay + Don’t Undersell







Total Periods 28



5 Years Return of PIX + Don’t Overpay + Don’t Undersell

(Overlap by months)

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%

Mar

ch-9

7

Sep

tem

ber-

97

Mar

ch-9

8

Sep

tem

ber-

98

Mar

ch-9

9

Sep

tem

ber-

99

Mar

ch-0

0

Sep

tem

ber-

00

Mar

ch-0

1

Sep

tem

ber-

01

Mar

ch-0

2

Sep

tem

ber-

02

Mar

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3

Sep

tem

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03

Mar

ch-0

4

Sep

tem

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04

Mar

ch-0

5

Sep

tem

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05

Mar

ch-0

6

Sep

tem

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06

Mar

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7

Sep

tem

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07

Mar

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8

Sep

tem

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08

Year

To

tal

Ret

urn

5 Years Return Analysis of PIX+Don’t Overpay + Don’t Undersell







Total Periods 24



Chance of Losing Money(based on previous slides of PIX)+ Don’t Overpay + Don’t Undersell



All In AllRule 1: Invest at least 3 years

Rule 2: Don’t overpay (anything above 18)

Rule 3: Don’t undersell (anything below 16)

Quotes by Warren Buffett

• "If you think about it [i.e., the markets], you get these huge swings in valuations. It's the ideal business arrangement, as long as you don't go crazy. The 1970s were unbelievable. The world wasn't going to end, but businesses were being given away. Human nature has not changed. People will always behave in a manic-depressive way over time. They will offer great values to you."


• “A market downturn, doesn't bother us. For us and our long term investors, it is an opportunity to increase our ownership of great companies with great management at good prices. Only for short term investors and market timers is a correction not an opportunity."


• Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can't buy what is popular and do well.


• Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good results.

(Source: 1974 Letter to Shareholders )


• The most common cause of low prices is pessimism - some times pervasive, some times specific to a company or industry. We want to do business in such an environment, not because we like pessimism but because we like the prices it produces. It's optimism that is the enemy of the rational buyer.

(Source: 1990 Letter to Shareholders )


• You're neither right nor wrong because other people agree with you. You're right because your facts are right and your reasoning is right—and that's the only thing that makes you right. And if your facts and reasoning are right, you don't have to worry about anybody else.


• The future is never clear, and you pay a very high price in the stock market for a cheery consensus. Uncertainty is the friend of the buyer of long-term values.


• I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up.

Conclusion

• Current P/E is at 10.8, a BARGAIN buy!

• At current price, the risk of losing money over the next 3 to 5 years is Negligible.

• P/S: This can only be applied to a well diversified Equity Fund. Worse applied to individual companies!

FAQ 1: How long have to wait to sell at a favorable price (P/E above 16) ?

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how to assure your return in equity will be better than fd - 3rd jan 2009

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