Friday, 31 July 2020

Lessons from Past Stock Market Crashes

The current pandemic is relentless in its impact. As difficult as the current situation may be, we are certain about one thing – markets will recover sooner or later.


Here are some historical market crashes of note:
·                1929: The Great Depression
·                1946: Post World War II
·                1961: Cold War concerns
·                1968: High Inflation and the Vietnam War
·                1973: The end of the Bretton Woods monetary system
·                1980: Interest rate hikes and rise in unemployment
·                1987: Introduction of computerized trading
·                1997: Asian Financial Crisis
·                2000: Bursting of the dot-com bubble
·                2007-08: Collapse of the US housing market causing an economic recession around the world

These are global events that had significant effects on stock markets in most countries. However, markets always bounced back and investors who weathered the storm earned good returns.

What Do We Learn? 

Lesson #1 : Don’t fall prey to selling your investments in a panic. Understand the difference between a notional loss and a realized loss. 

Lesson # 2 : Usually, during a market crash, some companies don’t have the core strength to weather the storm. Ensure that you are investing in fundamentally strong companies.

Lesson # 3: Avoid the urge to invest in a lump sum and increase the risk of losses by choosing the wrong investments. Instead, have a slow and steady approach to investing.
Lesson #4 :You will feel the urge to speculate – DON’T! Stick with the basics of investments.

Lesson #5 : Historically, markets have always recovered from crashes and bounced back higher and stronger. Look at the longer-term and adjust your portfolio accordingly.

Volatility is the inherent nature of a market. Crashes and rallies are a part of it. When faced with a difficult situation, it is best to turn to history and learn some crucial lessons. To survive stock market crashes, assess your investment portfolio, hold on to good stocks, and keep a long-term perspective. Stay calm and safe. 

5 Crucial Lessons Learned from Past Stock Market Crashes, Devyani Mishra, 13 Apr 2020 (


Thursday, 30 July 2020

Strategies to Face a Recession: What Businesses Should Know (Part 2)


Last week, we posted an article on Coupa’s five secrets to deal with recession (read more here). Today, we will continue with another five:

1. Advice from Suppliers

Experienced suppliers may have valuable business advice. You should approach your suppliers for their advice. As your sustainability is important to them, many will be happy to brainstorm with you on strategies to stimulate demand for your product or service.

Building good supplier relationships will pay off in bad and good economic times. To be in good standing with your suppliers, you should ensure you pay your bills on time and communicate your order expectations clearly.

2. Alternatives to Capital Spending

A sharp downturn is a risky time to buy a piece of expensive capital equipment. It is often more prudent to delay future growth plans and defer these larger expenditures until you are more certain of your own financial forecasts.

Thus, instead of purchasing expensive CapEx item, lease it at an affordable price. Instead of pricey perpetual software licenses, look for Software-as-a-Service (SaaS) offerings.

3. Streamline Your Processes

Yes, it’s not internet surfing or water-cooler chit-chat that waste company time and money, but the complex processes and sign-offs that require committee decisions and slow down even the simplest of tasks. Always evaluate your processes and determine whether it is essential.

4. Innovate!

Good companies innovate even during a recession. Individuals or businesses are still purchasing goods and services even in tough times. There is still a market out there.

A common turn-of-phrase we hear during downturns is: “We used to sell on value-add, but now we sell on saving money.” Take the time to adapt your message to your customer’s shifting focus on the economy. Launch new products or services together with your cost-cutting measures. You may be able to reach new markets.

5. Implement a Cost-Cutting Tool

Cost-cutting tool helps you monitor your spending, enforce your budgets and better manage inventory. With detailed spending reports, you may negotiate better with your suppliers. In short, this helps to boost efficiency of businesses.

Running a business during a recession is challenging but it is not the end of the world if you develop appropriate strategies. Don’t give up! Your business may come out stronger after the recession.


10 Secret Strategies to Recession-Proof Your Business, Coupa

Wednesday, 29 July 2020

The Market and Real Economy: A Tale of Two Economies

Stock market history is packed with drama – 1929 Crash; Black Monday 1987; Asian Financial Crisis in 1998; Dotcom mania in 1999; Great Recession 2008. Nothing new will come as surprise. Sell-off then a rally, followed by more sell-off then another muted rally. The catalyst is always what the Federal Reserve does – QEs, interest rate cuts or purchase of corporate bonds. Rosy views from Wall Street should make one cringe. Every known indicator says it is headed for a major crash. Ask Nuriel Roubini, he will tell you it is a 10- year depression! Who are the winners? The top 1% elite of course, as they dump shares the retail investors are picking them up. Would it mean commerce in Main Street can get back to business as usual?


No, there is a disconnect between liquidity and the Dow with commercial lending and business on Main Street. The current slump in activity in most economies will continue until a vaccine for Covid-19 is found or people’s behaviour change – social distancing and masks. No matter how QEs are done, unless liquidity is injected directly into businesses, bypassing banks and stock markets, the economy will remain in doldrums. High unemployment, negative growth, and massive revenue losses are features of failed pump-priming measures.

The other hazard in this situation is a rise of fraud. Not only will people do creative accounting but may commit serious financial shenanigans to survive. Already we have Luckin Coffee, the Chinese Starbucks, and Hin Leong, the Singaporean energy trader. More will follow.

Meanwhile, smaller firms that provide employment are hurting. Some with limited track record find banks are not willing to lend. And Government institutions that provide guarantees require 3-year annual statements and a profit to boot. New Bumiputra companies will not have both, unless they have solid contracts from the Government. Then banks will tell you “we will revert in 3-4 weeks”. It never happens! So, businesses close and Government asks what happened? Nothing, of course, because we are dead!

 What do SMEs want?
·       An extension of the moratorium on principal loan repayments from October 2020 to March 2021;
·       Guarantees (for loans) that support even start-ups;
·       Tax “holiday” for one year;
·       Meaningful salary and rental support for one year (grants are preferable); and
·       Incentives to digitalise, automate or computerise operations.

The five-pillar strategy above will help SMEs and employers to be on their feet, looking out for revenue. What do you think?

What do you think? free polls

Tuesday, 28 July 2020

Savers are Losers?

The investment guru, Robert Kiyosaki, thinks so. When bank savings rate is equal to the inflation rate or below then Kiyosaki is correct – savers are losers!

The latest savings rate by a major bank in Malaysia is as follows:

Savings Account
(Balance RM)

Interest Rate
(% p.a.)
Up to 50,000
Up to 100,000
Up to 150,000
Up to 200,000

For Maybank it is flat 0.25% p.a. for all banks. Fixed deposit rates range from 1.5%
(1 month) to 2.10% (60 months). Then banks lend above 5% p.a. to make a 3% margin (or more) for covering costs and other incidentals (including profit!). So are consumers “sacrificing” for banks to make money? And should we save?

There are five reasons why savings with a plan in mind is still a good strategy:

i)        Rainy day
          When you are retrenched in October, you need savings to survive for at least three months. Otherwise, you may lose your car, home and whatever else.

ii)        Property investment
          Savings as a way of accumulating wealth is not a great strategy (Robert Kiyosaki). But savings to buy a property that has a yield that covers the loan instalment is a brilliant step.

iii)       Get out of debt
          Debt incurred in looking “cool” with your friends is a killer. But repayment of your house purchase is not a lifestyle debt. It is paying for your own house, otherwise you are paying rent (or the loan repayment) to your landlord/owner.

iv)       Saving for a new car
          Saving up for your next car and paying partly in cash could be necessary for your work or other reasons. Some jobs require a car and it could be useful to borrow from your parents. Regular instalments to your parents will help both parties.

v)       Saving for a holiday
          Instead of taking credit or deferred plan for your next holiday, it may be better to save up and then go for that holiday. But with quarantine it is only local ones that you could plan!

Savers are not losers if it is purpose-driven and, on the corollary, a compounding interest strategy alone may not be that great to accumulate wealth.

Robert Kiyosaki: Savers are loses – or are they? Neil Vorster (

Monday, 27 July 2020

What Malaysian Leaders Earn Compared to Their Citizens

According to Adzuna, on average world leaders earn 6x more their citizens. In Malaysia, that may not be true!

According to Department of Statistics Malaysia, the mean income in Malaysia (2019) was RM7,901 while median income was RM5,878. Survey findings also showed that income threshold for B40 in 2019 was RM4,849. The M40 group was between RM4,850 to RM10,959. And the T20 had income of more than RM10,960. The Gini coefficient in 2019 was 0.407. And the poverty line was RM2,208 per month for 2019.

Income Structure by Household Group
Malaysia, 2016 and 2019

Source: Department of Statistics, Malaysia

Compared to the above, we have 49 out 57 Ministers and Deputy Ministers who are now millionaires. The other 13 Ministers/Deputy Ministers have yet to declare their assets. This is according to MACC. Meanwhile, 11 out of 57 possess assets worth more than RM10 million. We have no idea if that is above RM100 million for some or above RM1 billion for others.

The Prime Minister (PM) has a monthly income of RM93,841.65 as of July 15. This is followed by the Minister of Federal Territories with RM87,877.20. A Deputy Minister from Sabah is in third place at RM85,450 per month. The lowest earning Minister has a monthly income of only RM24,687. Poor thing!

If you compare the PM’s monthly income to the Malaysian median income it is 16x higher (not 6x as Adzuna reports). And if you compare that to the poverty line, it is 42.5 times! And all these could be worse if you include incomes and assets of those colourful Members of Parliament.

1. MACC Asset Declaration List Shows 49 Millionaire Ministers, Deputies, TheEdge CEO Morning Brief, July 23, 2020
2. Household Income & Basic Amenities Survey Report 2019, Department of Statistics, Malaysia, 10 July 2020

Friday, 24 July 2020

What is Altman’s Z-Score Model?

The Corporate Finance Institute published an article on the above. We have largely followed their views and reproduce substantially the article.

Altman’s Z-Score model is a numerical measurement that is used to predict the chances of a business going bankrupt in the next two years. The model was developed by American finance professor Edward Altman in 1968 as a measure of the financial stability of companies.

 Altman’s Z-score Model Explained

The Z-score model was introduced as a way of predicting the probability that a company would collapse in the next two years. The model proved to be an accurate method for predicting bankruptcy on several occasions. According to studies, the model showed an accuracy of 72% in predicting bankruptcy two years before it occurred.

When creating the Z-score model, Altman used a weighting system alongside other ratios that predicted the chances of a company going bankrupt. In total, Altman created three different Z-scores for different types of businesses. The original model was released in 1968, and it was specifically designed for public manufacturing companies with assets in excess of $1 million. The original model excluded private companies and non-manufacturing companies with assets less than $1 million.

Later in 1983, Altman developed two other models for use with smaller private manufacturing companies. Model A Z-score was developed specifically for private manufacturing companies, while Model B was created for non-publicly traded companies. The 1983 Z-score models comprised varied weighting, predictability scoring systems, and variables.

Altman’s Z-score Model Formula
The Z-score model is based on five key financial ratios. The Altman’s Z-score formula is written as follows:
​ζ = 1.2A + 1.4B + 3.3C + 0.6D + 1.0E
  • Zeta (ζ) is the Altman’s Z-score
  • A is the Working Capital/Total Assets ratio
  • B is the Retained Earnings/Total Assets ratio
  • C is the Earnings Before Interest and Tax/Total Assets ratio
  • D is the Market Value of Equity/Total Liabilities ratio
  • E is the Total Sales/Total Assets ratio

What Z-Scores Mean

Usually, the lower the Z-score, the higher the odds that a company is heading for bankruptcy. A Z-score that is lower than 1.8 means that the company is in financial distress and with a high probability of going bankrupt. On the other hand, a score of 3 and above means that the company is in a safe zone and is unlikely to file for bankruptcy. A score of between 1.8 and 3 means that the company is in a grey area and with a moderate chance of filing for bankruptcy.

Investors use the Altman’s Z-score to make a decision on whether to buy or sell a company’s stock, depending on the assessed financial strength. If a company shows a Z-score closer to 3, investors may consider purchasing the company’s stock since there is minimal risk of the business going bankrupt in the next two years.

However, if a company shows a Z-score closer to 1.8, the investors may consider selling the company’s stock to avoid losing their investments since the score implies a high probability of going bankrupt.

As an example, low Altman Z-Scores were recorded for the following five companies (by Andy Snyder):

·        Eastman Kodak Company (NYSE: KODK)
    Altman Z-Score: .99

Kodak is having some problems. Even before this coronavirus mess, the company was having trouble keeping up in the digital age.


·        Uber Technologies Inc (NYSE: UBER)
    Altman Z-Score: .97

You might not be surprised to hear that Uber has a score of .97. That’s because it has $17 billion in debt and $4.7 billion in negative free cash flow each year. That’s a problem. A lot of debt and cash going out the door. So it’s in need of financing and the coronavirus has only made it worse.


·        3D Systems Corporation (NYSE: DDD)
    Altman Z-Score: .97

3D Systems’ numbers are a little bit better. It has $24 million in positive cash flow, but it does have about $300 million in debt. So it has some issues.


·        YRC Worldwide Inc (NASDAQ: YRCW)

               Altman Z-Score: .92

YRC Worldwide is a big trucking company.  After 2008 it had some issues. Its score is .92 and it has $120 million in negative cash flow.


·        Timkensteel Corp (NYSE: TMST)

               Altman Z-Score: .74

Timkensteel had some problems going into the Covid-19 pandemic. If we start to see stimulus spending and greater infrastructure spending, steel could be really big.

Remember, with all five of these companies, just because they’re on the bankruptcy watch list does not mean they are going bankrupt. But any company with an Altman Z-Score above 3 may offer investors a good opportunity.

We are not recommending any particular counter nor accept any liability or loss for the stocks mentioned above.

1. What is Altman’s Z-Score Model? Corporate Finance Institute (
2. Altman Z-Score – 5 Companies at Risk for Bankruptcy, Andy Snyder, June 3, 2020

Thursday, 23 July 2020

Strategies to Face a Recession: What Businesses Should Know (Part 1)

Many businesses are still focusing on growing sales in this tough time. Coupa, a spend management platform however encourages us to save cost with their 10 secret strategies to deal with recession.

1. Really Monitor Non-Payroll Spending

One of the best ways to begin recession proofing any business is to get spending under control. Increased oversight on spending immediately begins to alter behaviour and deter a business from spending frivolously on items it doesn't really need or spending more than it must on items it does need. Understand all your non-payroll costs, and then you can start detecting and curtailing wasteful spending while continuing to fund the business’ many necessary expenditures.

2. Establish and Enforce Budgets

Without a budget, there's nothing to stop an employee from spending $1,000 on a new printer when a $500 printer would do. Without a budget, it’s too easy to rationalize the more expensive purchase and not examine the opportunity cost implicit. The best way to start is to review the last 12 months of non-payroll spending and set budgets at 10% below those levels. Make adjustments if needed.

3. Curb Non-Essential Spending

·       Delaying unnecessary purchases
Delaying common purchases like computer upgrades and office furniture can result in substantial savings.

·       Reducing employee benefits
Treating your employees well, paying them fairly, and providing health insurance plans are good business practices. However, extras may have be eliminated to stay within a budget and keep your business fiscally fit.

·       Invest in products and services that offer quick ROI
Seek out purchases that look to offer continuous and fairly rapid savings. Evaluate solutions based on total cost of ownership (TCO) not just purchase price. E.g. consider maintenance or upgrading fees before you purchase.

4. Get Rid of the Supply Closet, or Start Managing Inventory

Inventory costs money. An insurance company was once told that they “carried more inventory than a furniture store” due to all of the pre-printed paper forms they had at their small office. If you do find categories of goods that make sense to have in excess quantities, start managing them formally through inventory management. Track consumption patterns and set re-order alerts.

5. Negotiate Supplier Concessions

Usually, you can achieve greater discounts without making big bulk purchases all-at once, if it is by committing a certain volume over a given time period. Whether they'll admit it or not, many suppliers are quite happy to offer discounts across the board for a repeat business guarantee - especially if times are tough.

We will continue the remaining five secrets next week!


10 Secret Strategies to Recession-Proof Your Business, Coupa

Wednesday, 22 July 2020

Does The Yuan Tango With the USD?

It takes two to tango. Otherwise it is really clumsy or hilarious. But the gyrations between the Yuan and the U.S. dollar leave many in between with a bitter taste.

China’s rapid growth since the 1980s has been fuelled by massive exports. A significant part of these exports goes to the U.S., which overtook the European Union as China’s largest export market in 2012. China, in turn, was the United States’ second-largest trading partner until July of 2019, and its third-largest export market, and by far its biggest source of imports. The tremendous expansion in economic ties between the U.S. and China - which accelerated with China’s entry into the World Trade Organization in 2001 - is evident in the more than 100-fold increase in total trade between the two nations, from $5 billion in 1981 to $559 billion in 2013.

In 2018, The Trump administration, which has routinely accused China of manipulating its currency to boost its exports, launched a series of tariffs against Chinese imports. China retaliated with tariffs of its own on U.S. imports, and the world's two largest economies have ratcheted up trade tensions through the summer of 2019. On August 5th, 2019, China lowered the value of the Yuan below its 7 to 1 peg against the dollar in response to a new series of U.S. tariffs on $300 billion worth of goods set to go into effect Sept 1.

A cornerstone of China’s economic policy is managing the Yuan exchange rate to benefit its exports. China does not have a floating exchange rate that is determined by market forces, as is the case with most advanced economies. Instead it pegs its currency, the Yuan (or Renminbi), to the U.S. dollar. The Yuan was pegged to the greenback at 8.28 to the dollar for more than a decade starting in 1994. It was only in July 2005, because of pressure from China’s major trading partners, that the Yuan was permitted to appreciate by 2.1% against the dollar, and was also moved to a “managed float” system against a basket of major currencies that included the U.S. dollar. Over the next three years, the Yuan was allowed to appreciate by about 21% to a level of 6.83 to the dollar.

The true value of the Yuan is difficult to ascertain, and although various studies over the years suggest a wide range of undervaluation - from as low as 3% to as high as 50% - the general agreement is that the currency is substantially undervalued. By keeping the Yuan at artificially low levels, China makes its exports more competitive in the global marketplace. China achieves this by pegging the Yuan to the U.S. dollar at a daily reference rate set by the People’s Bank of China (PBOC) and allowing the currency to fluctuate within a fixed band (set at 1% as of January 2014) on either side of the reference rate. Because the Yuan would appreciate significantly against the greenback if it were allowed to float freely, China caps its rise by buying dollars and selling Yuan. This relentless dollar accumulation led to China’s foreign exchange reserves growing to a record $3.82 trillion by the fourth quarter of 2013.

China views its focus on exports as one of the primary means of achieving its long-term growth objectives. This viewpoint is backed by the fact that most nations in the modern era, notably the Asian Tigers, have achieved sustained increases in per-capita incomes for their citizenry mainly through export-oriented growth.

As a result, China has consistently resisted calls for a substantial upward revision of the Yuan, since such a revaluation could adversely impact exports and economic growth, which could in turn cause political instability. There is a precedent for this caution, going by Japan’s experience in the late-1980s and 1990s. The 200% appreciation in the yen against the dollar from 1985 to 1995 contributed to a prolonged deflationary period in Japan and a “lost decade” of economic growth for that nation. The yen’s steep rise was precipitated by the 1985 Plaza Accord, an agreement to depreciate the dollar to stem the surging U.S. current account deficit and massive current account surpluses in Japan and Europe in the early 1980s.

Overall, the effects of China’s currency policy are quite complex. On the one hand, the undervalued Yuan is akin to an export subsidy that gives U.S. consumers access to cheap and abundant manufactured goods, thereby lowering their expenses and cost of living. As well, China recycles its huge dollar surpluses into purchases of U.S. Treasuries, which helps the U.S. government fund its budget deficits and keeps bond yields low. China was the world’s biggest holder of U.S. Treasuries as of November 2013, holding $1.317 trillion or about 23% of the total issued. On the other hand, the low Yuan makes U.S. exports into China relatively expensive, which limits U.S. export growth and will therefore widen the trade deficit. As noted earlier, the undervalued Yuan has also led to the permanent transfer of hundreds of thousands of manufacturing jobs out of the U.S.
A substantial and abrupt revaluation in the Yuan, while unlikely, would render Chinese exports uncompetitive. Although the flood of cheap imports into the U.S. would slow down, improving its trade deficit with China, U.S. consumers would have to source many of their manufactured goods - such as computer and communications equipment, toys and games, apparel and footwear - from elsewhere. Yuan revaluation may do little to stem the exodus of U.S. manufacturing jobs, however, as these may merely move from China to other lower-cost jurisdictions.

Cooler heads need to prevail when addressing this burning issue, as the worst-case scenario would be an acrimonious trade war between the world’s two biggest economies. The most likely outcome going forward is one of gradual appreciation of the Yuan, accompanied by measured dismantling of currency controls as China moves toward a freely convertible currency. So it may be a few years before the Yuan terminates its tango with the greenback and then heads out on its own.

1. Why China’s  Currency Tangos With The USD, Elvis Picardo, Aug 5, 2019 (
2. Dollar Yuan Exchange Rate – 35 Year Historical Chart (