GMO Market Commentary

This guy is Jeremy Grantham - The chief at GMO.
He is a well-respected investment manager and also a perma-bear.
But, his market commentary is always insightful and his asset allocation projection have been spot on for the past 10 years.

Anyway, below is the link to his recent market commentary.
GMO LLC Recent Market Commentary - Reaping the Whirlwind

Give it a read! You will not regret!

Buffettology Investing Checklist

This is what I picked up from Buffettology .
It's quite a good checklist to go thru' and I'm confident of my picks as I've gone thru' the company in a systematic way.

Qualitative Analysis
1) Does the company have any identifiable consumer monopoly or brand-name products, or does it produce or sell a commodity product?
2) Do you understand how it works? (REALLY..Understand)
3) Is the company conservatively financed?
4) Are the earnings of the company strong - with an upward trend?
5) Does the company allocate capital only to business within its realm of experise?
6) Has the company been buying back its shares?
7) Does mgmt's investment of retained earnings appear to have increased per share earnings and therfore shareholder value
8) Is the company's return on equity above average?
9) Does the company show a consistently high return on total capital invested
10) Is the company free to adjust prices to inflation (pricing power)
11) Are large capital expenditures required to constantly update the company's plant and equipment

Quantitative Analysis
1) Is the Company's stock price suffering from a market panic, a business recession, or an individual calamity that is CURABLE?
2) What is the inital rate of return on the investment and how does it compare to the return on U.S Treasury bonds (or whatever govt bond your shares are based in)?
3) What is the company's projected annual compounding return as an equity/bond
4) What is the projected annual compounding return using the historical annual per share earnings growth. (Remember to weed out outlier)

Portfolio Update October 2008

Portfolio Returns YTD : -6.56%

I've increased my allocation to Bonds thru taking up DBS, UOB and OCBC banks' NCPS.

Main points to consider when evaluating REIT and TRUSTS

I chanced upon the below in an online investing forum - WALLSTRAITS and found that it has a succinct explanation of what to look out for when evaluating REITS and TRUSTS. This is what I looked at too, though, I am not a believer of REITS and TRUSTS as I would rather buy into the parent company. Further, if you are already investing in properties, it is better not to over-allocate to REITS (even if it is different focus like office, hospital or hotels). The underlying in the REITS are still properties and it is still influenced by the property cycle.

Major factors include:

1. Borrowing Cost
2. Lease Expiry Profile
3. Credit Quality

Borrowing Cost
===
Those who have not locked in their borrowing costs will certainly experience problems. As forum members are probably aware, credit has tightened a great deal.

Case in point: First Ship Lease Trust was recently forced to downgrade their DPU forecast because their lenders raised the interest rate on FSLT's debt.

Lease Renewal
===
This depends on:

a. Lease expiry profile - the more spread out the leases, the smaller the effect of lease renewal; and

b. Existing rates being paid - if the existing rates are very low, renewing at today's rates may still result in a net increase.

Credit Quality
===
This has been overlooked by many people investing in REITs, shipping trusts and high-yield funds.

For example, I posted on the old forum about Babcock and Brown Structured Finance Fund (nka Babcock and Brown Global Investments) almost 2 years ago:

http://www.wallstraits.com/com...7#pid43166

I warned that many of the underlying investments were of "junk" grade. Fast forward to today, and many of the underlying loans have stopped payment. People who think BBGI can maintain its forecast interim dividend rate of 3 cents i.e. 6 cents a year are being optimistic to say the least.

I could also write about Mapletree Logistics Trust and their exposure to Fu Yu, but that would double the length of this post so I'll save it for another time. Suffice to say that Fu Yu is losing money big time. If they have to vacate their building, the lease agreement isn't worth anything, and MLT will have to find another tenant - at much lower rates. MLT's exposure to Fu Yu is about 2% of total rental so it's not huge, but the fact that they have this exposure at all smacks of insufficient due diligence when buying the building.

JOKE - The Best Definitions for Market Terms!

Image via WikipediaA fun email circulating trading desks, worthwhile as an informal measure of sentiment:

CEO --Chief Embezzlement Officer.

CFO-- Corporate Fraud Officer.

BULL MARKET -- A random market movement causing an investor to mistake himself for a financial genius.

BEAR MARKET -- A 6 to 18 month period when the kids get no allowance, the wife gets no jewelry, and the husband gets no sex.

VALUE INVESTING -- The art of buying low and selling lower.

P/E RATIO -- The percentage of investors wetting their pants as the market keeps crashing.

BROKER -- What my broker has made me.

STANDARD & POOR -- Your life in a nutshell.

STOCK ANALYST -- Idiot who just downgraded your stock.

STOCK SPLIT -- When your ex-wife and her lawyer split your assets equally between themselves.

FINANCIAL PLANNER -- A guy whose phone has been disconnected.

MARKET CORRECTION -- The day after you buy stocks.

CASH FLOW -- The movement your money makes as it disappears down the toilet.

YAHOO -- What you yell after selling it to some poor sucker for $240 per share.

WINDOWS -- What you jump out of when you're the sucker who bought Yahoo @ $240 per share.

INSTITUTIONAL INVESTOR -- Past year investor who's now locked up in a nuthouse.

PROFIT -- An archaic word no longer in use.