Warren Buffet's Investment Advice

Warren Buffet's Investment Advice

When it comes to the world of investments - especially in the stock market - Warren Buffet, the Chief Executive Officer of Berkshire Hathaway, is an enigma.

Celebrated as the "Oracle of Omaha" because of his unparalleled success in the stock market, Warren Buffet lives the life of your regular next-door neighbour, hardly eats in classy restaurants and drives a regular, used 4-wheel drive.

How is he able to maintain success for so many years? Here are some of his best advice. Hear him:

Stay liquid
"We will never become dependent on the kindness of strangers. We will always arrange our affairs so that any requirements for cash we may conceivably have will be dwarfed by our own liquidity. Moreover, that liquidity will be constantly refreshed by a gusher of earnings from our many and diverse businesses."

Buy when everyone else is selling
"We've put a lot of money to work during the chaos of the last two years. It's been an ideal period for investors: A climate of fear is their best friend.... Big opportunities come infrequently. When it's raining gold, reach for a bucket, not a thimble."

Don't buy when everyone else is buying
"Those who invest only when commentators are upbeat end up paying a heavy price for meaningless reassurance. The obvious corollary is to be patient. You can only buy when everyone else is selling if you have held your fire when everyone was buying."

Value, value, value
"In the end, what counts in investing is what you pay for a business -- through the purchase of a small piece of it in the stock market -- and what that business earns in the succeeding decade or two."

Don't get suckered by big growth stories
Buffett further reminded investors that he and Berkshire's Vice Chairman, Charlie Munger, "avoid businesses whose futures we can't evaluate, no matter how exciting their products may be."

Most investors who bet on the auto industry in 1910, planes in 1930 or TV makers in 1950 ended up losing their shirts, even though the products really did change the world. "Dramatic growth" doesn't always lead to high profit margins and returns on capital.

Understand what you own
"Investors, who buy and sell based upon media or analyst commentary are not for us.

"We want partners, who join us at Berkshire because they wish to make a long-term investment in a business they themselves understand and because it's one that follows policies with which they concur."

Defense beats offense
"Though we have lagged the S&P in some years that were positive for the market, we have consistently done better than the S&P in the 11 years during which it delivered negative results. In other words, our defense has been better than our offense, and that's likely to continue."

Hard work
All hard work bring a profit, but mere talk leads only to poverty.

Laziness
A sleeping lobster is carried away by the water current.

Earnings
Never depend on a single source of income. (At least make your Investments get you second earning)

Spending
If you buy things you don't need, you'll soon sell things you need.

Savings
Don't save what is left after spending; Spend what is left after saving.

Borrowings
The borrower becomes the lender's slave.

Accounting
It's no use carrying an umbrella, if your shoes are leaking.

Auditing
Beware of little expenses; A small leak can sink a large ship.

Risk-taking
Never test the depth of the river with both feet.(Have an alternate plan ready)

Investment
Don't put all your eggs in one basket.

General Investment Rules

1. Rule Number 1 - Never lose money


2. Rule Number 2 - Don't forget rule number 1


3. 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.


4. Risk comes from not knowing what you're doing. If you don't know jewelry, know the jeweler.


5. If you don't feel comfortable owning something for 10 years, then don't own it for 10 minutes.


6. There seems to be some perverse human characteristic that likes to make easy things difficult (Remember his advice to Bill Gates - keep it simple).


7. One's objective should be to get it right, get it quick, get it out, and get it over... your problem won't improve with age.


8. A public-opinion poll is no substitute for thought.


9. It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently.


10. "I never buy anything unless I can fill out on a piece of paper my reasons. I may be wrong, but I would know the answer to that. "I'm paying $32 billion today for the Coca Cola Company because..." If you can't answer that question, you shouldn't buy it. If you can answer that question, and you do it a few times, you'll make a lot of money.


11. You ought to be able to explain why you're taking the job you're taking, why you're making the investment you're making, or whatever it may be. And if it can't stand applying pencil to paper, you'd better think it through some more. And if you can't write an intelligent answer to those questions, don't do it.


12. Be fearful when others are greedy, be greedy when others are fearful.

Comparison Between Direct CDS and Nominees CDS Account

When opening a trading account with a Stock Broker (Participating Organization or Investment Banks) a CDS account will be opened at the same time. Normally, stock brokers can offer Direct CDS or Nominee CDS Account.
CDS stand for “Central Depository System” and it maintain by Bursa Malaysia Depository Sdn Bhd. Previously it was known as Malaysian Central Depository (“MCD”).
Each CDS account have its own advantage and disadvantage. The table below highlighted the different between the two.

	CDS Account
	Direct	Nominee
Account Name	Under shareholder name (eg Mr M)	Under broker name ( eg HLG Nominee Tempatan for Mr M)
IPO application	Eligible	Not eligible
Paperwork on corporate exercise	Handle by shareholder	Handle by stock broker (upon instruction). Broker may impose fees.
Dividend	Send to shareholder	Credited to trust account with stock broker
Attending AGM	Eligible	Not Eligible (Possible but have to get stock broker to appoint as proxy)
Annual Report	Mail to shareholder	Have to request from broker
Share transfer	To own or relative account	Only to own account

By looking at the table above, it is clear that Direct CDS account have more advantage when compare to Nominee CDS account. The only advantage of Nominee CDS account is shareholder do not need to worry about paperwork on corporate exercise.

How to Open Trading and CDS Account for Trading in Bursa Malaysia?

In order for you to invest or trade shares that are listed in Bursa Malaysia, you need to open Trading Account and CDS Account. Below are the steps for you to follow.

Step 1 – Open trading account

You have to open trading accounts with stock broker or participating organization that is registered with Bursa Malaysia. You can find the list of stock broker companies at Bursa Malaysia webpage. You are recommended to visit their office to open an account so that their representative can verify your documents.

Some stock brokers allow account opening via internet but you need to get your documents certified by Notary Public.

Step 2 – Choose between Nominee or Direct Trading Account

Normally, stock broker provide two different trading account namely Nominee and Direct Trading Account.

For Nominee trading account, basically you appoint your broker to hold shares on your behalf. It means that, once you buy shares, your name will not show on the registration book of existing shareholders directly, instead it will show your Broker Name.

The advantage is, you do not need to do any paperworks such as fill up forms for bonus issue, right entitlements and others. The most important is your broker have to remember the dateline for all the paperworks, not you. But you still need to instruct them on what to do.

However, the disadvantage of nominee account are you are not eligible to apply for IPO and you may not receive the annual report or some gift vouchers easily.

Direct Trading account is exactly the opposite of Nominee Trading account.

You may choose to open nominee account with one broker and direct account with another broker.

Step 3 – Choose between Cash Upfront or Collateralised Account

Some brokers have an option for you to choose between Cash Upfront or Collateralised Account. For Cash Upfront account, total trading limit of the day is equal to the amount of cash you have in your trust account. The advantage of Cash Upfront account is lower brokerage fee.

For Collateralised Account, you are allowed to trade beyond the amount of cash that you have in trust account. Normally, broker allows at least 2 times the amount cash that you have. On top of that, if you have shares in the attached CDS account, they also can be used as collateral to increase your trading limit.

Trust account is an account where your broker keep cash that you deposited. They may pay interest on the money keep in this account.

Step 4 – Decide to invest Online or Offline

To invest or trade in Bursa Malaysia you can have either do it via Offline or Online but now, most of the brokers in Malaysia provide online trading platform.

For Offline Trading account, you will have a real people called remiser who will handle all your orders. You will have to contact your remiser through what ever means for buy or sell shares.

For Online Trading Account, all of your orders are made through internet application which nomally load through internet browser of your computer. Some stock broker also allow to do transaction via PDA phone or mobile phone.

The main advantage of Online trading Account over Offline Trading account is lower brokerage fee. For online trading account, you may call helpdesk for trading but they may impose high brokerage fee.

You can look at the list of stock broker companies that offering online trading here.

Step 5 – Open Central Depository System (CDS) account

Next, you have to open CDS account. Your chosen Stock Broker will assist you to open CDS account.

CDS account is an electronic account which maintain by Bursa Depository or formerly known as Malaysian Central Depository.

CDS account is used to keep track or your shares or stocks movement. Shares will be credited to your account when you buy and debited from your account when you sell on due date.

You need to fill and sign in CDS Opening Account Form (FMN01). At the same time you have to sign two copies of specimen cards and provide copies of your identity card (NRIC).  The fee for CDS account openning is RM10.

If you have multiple trading account, you have to open separate CDS account for each trading account. Sharing CDS account is not allowed.

 

Stocks Basics: What Are Stocks?

The Definition of a Stock
Plain and simple, stock is a share in the ownership of a company. Stock represents a claim on the company's assets and earnings. As you acquire more stock, your ownership stake in the company becomes greater. Whether you say shares, equity, or stock, it all means the same thing.

Being an Owner
Holding a company's stock means that you are one of the many owners (shareholders) of a company and, as such, you have a claim (albeit usually very small) to everything the company owns. Yes, this means that technically you own a tiny sliver of every piece of furniture, every trademark, and every contract of the company. As an owner, you are entitled to your share of the company's earnings as well as any voting rights attached to the stock.

Example stock certificate (Click to enlarge)

A stock is represented by a stock certificate. This is a fancy piece of paper that is proof of your ownership. In today's computer age, you won't actually get to see this document because your brokerage keeps these records electronically, which is also known as holding shares "in street name". This is done to make the shares easier to trade. In the past, when a person wanted to sell his or her shares, that person physically took the certificates down to the brokerage. Now, trading with a click of the mouse or a phone call makes life easier for everybody.

Being a shareholder of a public company does not mean you have a say in the day-to-day running of the business. Instead, one vote per share to elect the board of directors at annual meetings is the extent to which you have a say in the company. For instance, being a Microsoft shareholder doesn't mean you can call up Bill Gates and tell him how you think the company should be run. In the same line of thinking, being a shareholder of Anheuser Busch doesn't mean you can walk into the factory and grab a free case of Bud Light!

The management of the company is supposed to increase the value of the firm for shareholders. If this doesn't happen, the shareholders can vote to have the management removed, at least in theory. In reality, individual investors like you and I don't own enough shares to have a material influence on the company. It's really the big boys like large institutional investors and billionaire entrepreneurs who make the decisions.

For ordinary shareholders, not being able to manage the company isn't such a big deal. After all, the idea is that you don't want to have to work to make money, right? The importance of being a shareholder is that you are entitled to a portion of the company's profits and have a claim on assets. Profits are sometimes paid out in the form of dividends. The more shares you own, the larger the portion of the profits you get. Your claim on assets is only relevant if a company goes bankrupt. In case of liquidation, you'll receive what's left after all the creditors have been paid. This last point is worth repeating: the importance of stock ownership is your claim on assets and earnings. Without this, the stock wouldn't be worth the paper it's printed on.

Watch: What Are Stocks?

Another extremely important feature of stock is its limited liability,which means that, as an owner of a stock, you are not personally liable if the company is not able to pay its debts. Other companies such as partnerships are set up so that if the partnership goes bankrupt the creditors can come after the partners (shareholders) personally and sell off their house, car, furniture, etc. Owning stock means that, no matter what, the maximum value you can lose is the value of your investment. Even if a company of which you are a shareholder goes bankrupt, you can never lose your personal assets.

Debt vs. Equity
Why does a company issue stock? Why would the founders share the profits with thousands of people when they could keep profits to themselves? The reason is that at some point every company needs to raise money. To do this, companies can either borrow it from somebody or raise it by selling part of the company, which is known as issuing stock. A company can borrow by taking a loan from a bank or by issuing bonds. Both methods fit under the umbrella of debt financing. On the other hand, issuing stock is called equity financing. Issuing stock is advantageous for the company because it does not require the company to pay back the money or make interest payments along the way. All that the shareholders get in return for their money is the hope that the shares will someday be worth more than what they paid for them. The first sale of a stock, which is issued by the private company itself, is called the initial public offering (IPO).

It is important that you understand the distinction between a company financing through debt and financing through equity. When you buy a debt investment such as a bond, you are guaranteed the return of your money (the principal) along with promised interest payments. This isn't the case with an equity investment. By becoming an owner, you assume the risk of the company not being successful - just as a small business owner isn't guaranteed a return, neither is a shareholder. As an owner, your claim on assets is less than that of creditors. This means that if a company goes bankrupt and liquidates, you, as a shareholder, don't get any money until the banks and bondholders have been paid out; we call this absolute priority. Shareholders earn a lot if a company is successful, but they also stand to lose their entire investment if the company isn't successful.

Risk
It must be emphasized that there are no guarantees when it comes to individual stocks. Some companies pay out dividends, but many others do not. And there is no obligation to pay out dividends even for those firms that have traditionally given them. Without dividends, an investor can make money on a stock only through its appreciation in the open market. On the downside, any stock may go bankrupt, in which case your investment is worth nothing.

Although risk might sound all negative, there is also a bright side. Taking on greater risk demands a greater return on your investment. This is the reason why stocks have historically outperformed other investments such as bonds or savings accounts. Over the long term, an investment in stocks has historically had an average return of around 10-12%.

How to calculate profit, loss and brokerage fee in stock market trading

By the end of this part, you will have the basic knowledge to enter stock market.
But the most important thing to remember is that, make sure that you are investing, not gambling in stock market.
Part 1 – How to Open Trading and CDS Account for Trading in Bursa Malaysia?
Part 2 – How to Buy and Sell Shares in Bursa Malaysia?
Part 3 – How to Determine Trading Settlement in Bursa Malaysia?
Part 4 – How to Calculate Profit, Loss and Brokerage Fees in Stock Market Trading?
In Part 3, we see that the settlement formula as follow.
Total Buy Settlement (RM) = Value of Shares + Brokerage Fees + Clearing Fees + Stamp Duty
Total Sell Settlement (RM) = Value of Shares – Brokerage Fees – Clearing Fees – Stamp Duty
Now I will show you on how calculate all the component in the formula.

Step 1 – Calculate the value of Shares

This is easy. For example if you buy or sell 1,000 units of A shares at RM5.00 then you have to pay or received RM5,000.

Step 2 – Calculate Brokerage Fees

Brokerage fees is really depends on your chosen Broker. Normally it range from 0.05% to 0.7% from contract value depending on your value of transaction, account type and trading type. However, broker normally impose minimum brokerage fees per transaction. You can check  for online brokerage fees in this comparison table.
Take the same example as above, and with brokerage fees of 0.42%.
Brokerage Fees = 0.42% x RM5,000 = RM21

Step 3 – Calculate Clearing Fees

Clearing Fee is charged by Bursa as the clearing house. The fee is 0.03% from contract value or value of shares but subjected to maximum of RM1,000.00
Take the same example as above.
Clearing Fees = 0.03% x RM5,000 = RM1.50

Step 4 – Calculate Stamp Duty

Stamp duty is a charge by the Government and Broker will collect on their behalf. You have to pay RM1.00 for every RM1,000.00 of contract value or value of shares and rounded up to the nearest ringgit subject to maximum value of RM200.00
Take the same example as above.
Clearing Fees = RM5

Step 5 – Calculate Profit (or Loss)

Base on formula above we take the following example,
Buy 1,000 units of A shares at RM5.00 and sell it later at RM6.00
Shares Value when buying  = RM5 x 1,000 = RM5,000
Shares Value when selling = RM6 x 1,000 = RM6,000
Buy Settlement =  RM5,000 + 0.42% x RM5,000 +  0.03% x RM5,000 + RM5 = RM5,027.50
Sell Settlement = RM6,000 – 0.42% x RM6,000 –  0.03% x RM6,000 – RM6 = RM5,967.00
Net Profit = RM5,967.00 – RM5,027.50 = RM939.50

Step 6 – What is Contra?

In Part 3, we already understand that when you buy shares, you only have to pay it at T+3. What happen if you sell the shares that you bought earlier before T+3 or you pay for it?
We call this Contra. What will happen is that, your broker will calculate the different between buy and sell settlement. The different sum will be credited or debited in your trust account depending whether you are making profit or loss.
If you make profit from contra transaction, we call it Contra Gain. If otherwise we call it Contra Loss.

How to Buy and Sell Shares in Bursa Malaysia

This is the Part 2 on the series. I hope that you understand the process and the option available when opening your trading and CDS account which explain in Part 1.
If you read Part 1 before I publish Part 2, please revisit that page as I write in additional information in relation to cash upfront or collateralised account which I think quite important.
Part 1 – How to Open Trading and CDS Account for Trading in Bursa Malaysia?
Part 2 – How to Buy and Sell Shares in Bursa Malaysia?
Part 3 – How to Determine Trading Settlement in Bursa Malaysia?
Part 4 – How to Calculate Profit, Loss and Brokerage Fees in Stock Market Trading?

Step 1 – Deposit Cash

Once you open Trading and CDS Account, the next steps before buying shares is deposit cash to your trust account. Depending on your broker, you can make deposit either via cheque, cash or through online banking to your broker bank account.

Step 2 – Check Shares Price

In Bursa Malaysia, shares are traded on all working days of Federal Territorries (Wilayah Persekutuan) between 9.00am to 12.30pm for morning session and 2.30 pm to 5pm for afternoon session. However, Bursa Malaysia allow orders to be send 30 minutes before each session but no matching will be done.
For offline trading account you can call your remiser or dealer representative to check shares price.
If you have an online trading account, by now you should have username, password and broker website address. Login to your account and get familiarised with the interface.
Make your favourite folder and add your favourite counter in that folder so that you can easily monitor the shares price movement.
Shares price will move based on tick sizes set by regulator. The tick size is the minimum price variation between the buy and sell price for a share.
The table shows the tick sizes for shares listed in Bursa Malaysia.

Shares Price	Tick Size
Below RM1.00	0.5 sen
RM1.00 to RM2.99	1 sen
RM3.00 to RM4.99
RM5.00 to RM9.99
RM10.00 to RM24.99	2 sen
RM25.00 to RM99.98
RM100.00 and above	10 sen

Step 3 – Initiate Buy Order

When you satisfy with the choosen counter after researching the company fundamental or technical analysis, you can start place a buy order.
In Bursa Malaysia, the minimum number of shares or stocks you can buy or sell per transaction is 100 units. In other word, if the shares price at RM1 per unit, you need at least RM100.
For Offline account, call your remiser or dealer representative to place an order. He or she will key-in your order based on your choosen price and amount of shares. The order will be send electronically to Bursa Malaysia computer system.
Bursa Malaysia system will check whether there is any seller that match your price. If there is no seller, your order will be put in queue until there is seller that willing to sell that match your price. Your remisier will to update you on the status of your order.
For Online account, place your order through trading interface by specifying your choosen counter, number and quantity of shares to buy. The trading interface will send the order to your broker computer system and subsequently route it to Bursa Malaysia computer system.
The same process as above will occur in Bursa Malaysia computer system. You can see the status of your order in your trading interface.

Step 4 – Initiate Sell Order

After succesfully buy your choosen shares as in Step 3, you may sell it anytime during trading hours. If you notice that the shares price appreciate and you already make profit, you can send a sell order. The process is similar as in Step 3 but make sure that you place a sell order instead of buy.
For both buy and sell order, a contract note will be sent to you by your stockbroking company to confirm your transaction.

Central Depository System (CDS)

Central Depository System (CDS)

when we want to start buy share, the 1st account we should have is CDS account - Central Depository System.


What is CDS?

the CDS acts as a means of representing ownership and movement of securities. CDS account holders enjoy the conveniences if obtaining electronic securities transfer and trade settlement.


Who may open a CDS account?

An individual who has reached the age of eighteen (18) years as of the application date.



Why do I need to open a CDS account?

You need to open a CDs account to buy and/or sell shares, and to carry out other CDS transactions on all equity and non equity counters (i.e. bonds, loan sticks, warrants, etc.) which have been prescribed into the CDS.


How do I open a CDS account?

You can open a CDS account with any Authorised Depository Agents (ADAs). All stockbroking companies in Malaysia are currently ADAs.

source from Bursa Malaysia - Klse


Two Type Of CDS account

1) Direct CDS account
CDS is held under client's name
annual report, voucher, dividend direct send to you.


2)Nominee CDS account

- CDS is held under company's

such as when open with OSK, its will under OSK Nominees.

-all annual report, voucher will send to your brokerage company, customer have to call for request.

- dividend also will send to the brokerage company, and the company will bank in to your account with charges your services charges