Family Money:Taking a technical look at income & growth stocks
Managing director of Westminster Portfolio Services (Thailand) Ltd.
If you’re a sophisticated direct investor who does
his own stock-picking, or a clever young fund manager whose focus is the
same objective, do you go for growth stocks or income stocks?
In theory one or the other shouldn’t exist. Shares
should not offer both a high dividend yield and high capital growth.
If a company is expected to deliver sustainable profits
growth, its shares ‘ought’ to trade on a relatively high multiple of
earnings, so the dividend it pays out of those earnings will consequently
be a low percentage (yield) of its share price. But after a three-year
bear market, that theory has lost favour since some companies out there
with good prospects for low price-earnings multiples are paying rather
nice big dividends.
Squaring the circle
Financial theory also states that shares offering high
growth should not exist because if a company is growing that quickly, it
ought to be pouring its profits back into finding more growth, not handing
out cash to shareholders.
That one too has been turned on its head by the recent
downturn. Many companies offer the prospect of profit growth not because
they’ve been investing in exciting new products and services, but
because they’ve been doing the opposite: cutting costs and getting back
to what they know works. Now, touch wood, they stand to benefit from a
stabilisation or modest recovery in sales, on top of a new slimline cost
Admittedly, profit growth created by cost-cutting is
hardly the same thing as creating value in an expanding market (if you can
find a high-yielding share where the company in question is also
profitably riding a high-growth market, it’s time to re-mortgage the
house and fill your boots, as they say), but it’s growth nonetheless.
Nobody wants to invest in a company that’s only means
of growth is costcutting. There’s got to be the prospect of some topline
growth too. But, when you put the two together, you can find high-yielding
shares that also offer the recovery story needed to underpin capital
It’s all about finding shares that have been oversold
on the back of bad news during the current global economic slump. You’re
looking for companies where overly sceptical investors have failed to
price-in recovery properly; leaving the shares trading on depressed
multiples of depressed earnings. That’s the way of squaring the high
income high-growth circle.
At this stage, you might be thinking this all sounds
rather unlikely. After all, you’re attempting to spot something everyone
else has missed. It’s the equivalent of saying: “I’m right, and the
thousands of clever, experienced investors who constitute the market are
If it is possible to find high-growth, high-yield
shares, the market must currently be guilty of systemic undervaluation.
There’s a fairly compelling story – investors could be suffering from
excessive pessimism as a response to the excessive optimism of the
internet bubble. But compelling-sounding rationalisations are 10-a-penny
(remember the internet productivity miracle?).
Matters of fact
So rather than rely on comforting stories, look at hard
fact: the market has an appalling track record of predicting earnings’
growth. As mentioned above, if a company’s shares trade on high P/E
multiples, it ‘ought’ subsequently to experience high earnings’
growth, and vice versa. In fact, history shows no correlation between P/E
multiples and subsequent earnings growth. There are plenty of examples of
failed growth stocks (12 of the 25 top-rated companies saw earnings fall)
but it’s the other end that interests us. Five years ago, Peterhouse
Group, to cite one example, was trading on a P/E of 6.3 and it went on to
grow earnings by 104%. Bloomsbury Publishing was on a P/E of 7.7 and grew
earnings 147%. T. Clarke traded on 8.4 and grew earnings a mere 3,511%
(which sails nicely off the top of my graph!)
In fact, 11 of the 25 companies with the lowest P/E
ratios five years ago went on to grow earnings by more than 50% over the
intervening years. The market clearly has a habit of applying low P/E
ratios – low enough to allow hefty dividend yields – to companies that
are destined to grow profits and deliver share price gains.
Other measures back this up. Income portfolios, of one
form or another, generally do better than other forms of investing –
with the exception of anomalous periods like the internet boom. There has
been an extraordinary divergence over the last century between the
cumulative return from high-yield investing and investing in a straight
A ฃ1 investment in 1900 in a high-yield index
would have turned into ฃ61,235 by 2000, compared with ฃ16,160
from the market index. That’s the magic of cumulative interest. Those
figures are for total return (including dividend income) but the same
holds true for pure capital returns.
The average performance is marginally better. It’s
notable that high-yielders (or ‘old economy’ stocks) underperformed
during the TMT bubble, then dramatically outperformed when it burst.
It’s also notable that high-yielders underperformed during the recession
of the early 1990s.
The strong share price performance of dividend-paying
companies is potentially explained by the discipline of having to pay a
dividend. It encourages management to concentrate on profitability and
cash-generation, hence avoiding overly risky growth strategies.
What’s more, the valuations of unglamorous high-yielders
don’t have unrealistic growth expectations built in, so share prices
aren’t overcooked and vulnerable to earnings disappointment.
The Doctor's Consultation by Dr. Iain
Corness:Tripping down the stairway to heaven
Or a night in the ICU
by Dr. Iain Corness
There are those who are born naturally gifted. There are
those who are born naturally left hand dominant. Then there are those who are
born just naturally clumsy. I include myself in the latter group.
My dear old Mum will attest to my clumsiness. I well
remember my mother, full of good intent, trying to interest me in ballet
dancing, citing how manly it was, how athletic and what an achievement it
really was. We were on our way to pick up some ballet shoes for my young
sister at the time, and I tripped going in the doorway of the shop. At that
point, any ideas of her son becoming a ballet dancer were dashed.
Whether it be lack of attention to detail or not, I often
“miss” the doorway while walking out of the bedroom in the mornings, and
sort of bounce my stunned way into the dining room. More than once have I
stubbed my toe on the same bed end. And more than once I have broken it.
Within the confines of the household, I am known as “Mr. Clumsy.”
However, I managed to take this clumsiness almost to ‘art
form’ levels the other week, catching my toe near the top of the stairs at
the office and stumbling. Feeling that I was falling, I grabbed for the
handrail, but missed and ended up going down ten steps rather inelegantly,
landing, by all reports, in a heap at the bottom, curled up like a prawn! This
description I have to assume to be correct, as by this stage I had already hit
my head and my brain was, for all intentions, a ‘passenger’ in my own
body. I should also hastily add that this was mid-day on a Friday and alcohol
played no part in this drama.
Fortunately, the rapid descent was heard in the office, and
my old mate Bryant Berry organized the local motorcycle taxis to load my
semi-conscious form in his car, and with Khun Am playing Florence Nightingale
rushed me to the hospital.
In the ER, my brain decided it would commence work again
and I was conscious of doctors and nurses and much activity going on, but most
of it was confusing. CT scans and X-Rays all seemed to happen in another blur,
as X-Ray technicians did their best to get me to lie this way and that, and,
“Please stop moving.”
More trundling around on trolleys and we were back in ER,
where Bryant and Am were waiting, now joined by my friends Alan and Noi who
had brought Som, my ‘significant other’. The value of the presence of
friends and family cannot be over-estimated in these situations. You go from
feeling alone and helpless to being reassured by the faces of loved ones and
friends. Everything is going to be alright!
By now my ‘medical’ brain was back to functioning well
enough for me to accept the doctor’s decision that I had to stay in hospital
for observation for the next 24 hours. I was also functioning well enough that
I began to feel the various parts of my anatomy which were now letting me know
that they had worked as shock absorbers during my tumble down the stairway
The trundling began again, and so it was into the Intensive
Care Unit for Dr. Iain, and I shall continue this part of the saga next week
I feel I am joining the band of women who are complaining about their
maids. At any functions I go to, the discussions are all the same, what
the maid has done this week! I will admit that I do not speak very much
Thai and my maid speaks even less English, but surely if she wants to be a
maid for English speaking people, should I not get someone who can
communicate? I did not choose the maid as she was supplied by my
husband’s company and this is my first experience with domestic staff.
I could go on for hours about the way she refuses to use hot water for the
dishes, will wash everything in the same sink, will use the dish cloth to
wipe the floor. I am sure you have heard it all before. She also does
weird things like leaving clothes out in the lounge room for a day, rather
than putting them away. Why? Is this some special Thai ‘sign’ to tell
me something? Routine cleaning and dusting seems to be beyond her and I
have to tell her to do these simple tasks every time. She also tries to
leave before 6 p.m. and always comes in late in the mornings, after 8 a.m.
What can I do, Hillary?
You know the problem, right from the start when you say that you do not
speak Thai and your maid does not speak English. No communication! Could
your husband get what he wants done if his secretary only speaks Urdu and
he speaks Pigeon English? Speak to your husband, if his company has
supplied the poor woman. She probably goes home and talks to her friends,
all of whom are complaining about their mistresses. However, how much does
your maid get paid, my Petal? If you are only paying a low salary, you
cannot expect a household whiz who is also multilingual. If she were that
good she would be working as your husband’s secretary, not as your 10
hours a day slave. If it all becomes too much, you can always do the work
yourself, as you did back home. Finally, as I have to remind many
foreigners, this is Thai-land and the inhabitants speak Thai. How many
maids in the English speaking world are multi-lingual?
Why can nobody here spell? I have read your column for some months and
notice that you get angry, like I do, when people spell words incorrectly.
This goes particularly for place names and street signs, which are
official signs, placed by the municipality. There is no excuse for this as
there are plenty of Thai-English dictionaries in the shops. Should I send
one to someone in authority to make sure?
I’m sorry, my Petal, but I am not on your side.
Sure I get annoyed at the poor spellings, but that is for incorrect
English spellings written by native English speakers. They should know
better and it is they that should have a dictionary. Now getting back to
street names, I am sure you must realize by now that the English language
has 26 letters, but Thai has 44. In other words, you cannot take letters
from one alphabet and put them exactly into the other. When a Thai place
name is written in English, it is a guesstimate of how it will sound, when
spoken by a native English speaker. This is why you will see Chomthian,
Jomthien or Jomtien. All of them are “correct” spellings. However,
please note that pleese, pleeze and pleaze written by an English speaker
There are still some things I do not understand with my Thai wife of two
years. She is a wonderful person and our times together are very special,
but when her family comes down from up-country she becomes quiet and
grumpy. They do not stay with us, but with another daughter. Do you think
that it is because she left the family village to come and live with me (I
am from the UK) rather than marrying a Thai that she has problems when her
mother comes down? I try and tell her that everything will be OK, but that
makes her even more distant. Have you any suggestions as to what I can do
to make it easier for her?
You have to understand that Thai families can be very strong and
traditional, and it sounds as if your wife comes from one of those. By
leaving the family village she has broken one tradition, and by not
marrying a Thai she has broken another. The family may not say anything
about this, but your wife will “know” what was expected and how she
turned her back on these. When the family comes down there will be much
mental pressure, from her point of view, so she will naturally be
withdrawn. Sometimes the most difficult thing to do is to do nothing - and
that is what you have to do, Petal. Just ‘be there’ for her, when she
indicates that she needs you. In the meantime, don’t tell her that
“everything will be OK” as in her mind, it is not.
Camera Class:How Deep is
Depth of Field?
by Harry Flashman
The Depth of Field in any picture can often make or break the
entire photograph. Knowing how to manipulate the depth of field improves your
The term Depth of Field is really an optical one and depends
solely on the lens being used and the aperture selected. Altering the shutter
speed does not change the Depth of Field.
Depth of Field really refers to the zone of “sharpness”
(or being in acceptable focus) from foreground items to background items in any
The first concept to remember is “One Third forwards and
Two Thirds back.” Again this is a law of optical physics, but means that the
Depth of Field, from foreground to background in your photograph can be
measured, and from your focus point extends towards you by one third and extends
away from the focus point by two thirds.
For those of you with SLR’s, especially the older manual
focus SLR’s, you will even find a series of marks on the focussing ring of the
lens to indicate the Depth of Field that is possible with that lens (and you
probably wondered why there were all those extra marks on it!).
Take a look at this week’s photograph, which is really two
shots, taken seconds apart, of the Chinese lion statue. More importantly, look
at the background. In one you can clearly see the leaves on the bush and the
fountain spray, while on the other it is a soft blur. How did I change this
Depth of Field sharpness? Answer, with a flick of the wrist!
You see, for each lens, the Depth of Field possible is
altered by the Aperture. The rule here is simple - the higher the Aperture
number, the greater the Depth of Field possible and the lower the Aperture
number, the shorter the Depth of Field. In simple terms, for any given lens, you
get greater front to back sharpness with f22 and you get very short front to
back sharpness at f4.
For example, using a 24 mm focal length lens focussed on an
object 2 metres away - if you select f22, the Depth of Field runs from just over
0.5 metre to 5 metres (4.5 metres total), but if you select f11 it only runs
from 1 m to 4 m and if you choose f5.6 the Depth of Field is only from 1.5 m to
3 m (1.5 metres total).
On the other hand, using a 135 mm focal length lens focussed
at the same point 2 metres away, you get the following Depths of Field - at f22
it runs from 1.9 m to 2.2 m (0.3 metres) and at f5.6 it is 1.95 m to 2.1 m (a
total of 0.15 metres).
Analysis of all these initially confusing numbers gives you
now complete mastery of the Depth of Field in any of your photographs. Simply
put another way - the higher the Aperture number, the greater the depth of
field; the smaller the Aperture number the smaller the Depth of Field; plus the
longer the lens, the shorter the Depth of Field, the shorter the lens, the
longer the Depth of Field.
Now to apply this formula - when shooting a landscape for
example, where you want great detail from the foreground, right the way through
to the mountains five kilometres away, then use a short lens (24 mm is ideal)
set at f22 and focussed on a point about 2 km away.
On the other hand, when shooting a portrait where you only
want to have the eyes and mouth in sharp focus you would use a longer lens (and
here the 135 is ideal) and a smaller Aperture number of around f5.6 to f4 and
focus directly on the eyes to give that ultra short Depth of Field required.
As said before, while initially confusing, it can soon become
second nature. Try it out this weekend, but when you are doing it, keep a note
of what you have done to compare with the prints later.
Wine Column: The Magic Wine
By Ranjith Chandrasiri
Champagne was first discovered more than a century before
the famous old monk, Dom P้rignon, appeared on the scene at the end of
the 17th century. Before his time, Champagne’s cold, northern climate was
infamous for pale pinkish still wine made from pinot noir; consistently
anaemic, thin, tartly unripe and harshly acidic. Determined more by grapes
grown on the extreme edge of their ability to ripen properly, P้rignon
reversed this situation through improved farming methods that markedly
increased ripeness and concentration.
He also evened out dodgy quality by blending wines grown
in differing microclimates within Champagne and across both hot and cold
vintages. Combined, these practices effectively filled in weaknesses and
bolstered strengths. As a result, the region’s reputation soared, demand
increased and prices rose dramatically.
Dom P้rignon didn’t invent Champagne but he did
achieve a number of breakthroughs that are key to making Champagne as we
know it today. He perfected the method of making white wine from red grapes,
for example, and most importantly, he mastered the art of blending wine from
different grapes and different villages to achieve a complex base wine.
It is more likely that P้rignon’s Champagne
bubbled without any intent. He was probably more concerned with trying to
keep the bubbles out of his wine, given how deadly the work was back in his
days. This danger arose from “stuck fermentation” that was common to
Champagne is a region with a very cold climate, which
makes it difficult for fermentation to be completed. The ultra-cool climate
is prone to early cold snaps that cause yeast to go dormant and fermentation
to stop dead in its tracks, leaving behind a partially fermented,
low-alcohol wine full of unfermented sugar, but nicely balanced by high
acidity. The Champenois went ahead and bottled this for drinking the
following year. Things got tricky when spring’s warmth brought the
hibernating yeasts back to life. Stored in relatively brittle, thin-walled
bottles, the wine went through a secondary fermentation, in which carbon
dioxide increased and back-pressure built up, leaving the winemakers at the
mercy of potentially lethal time bombs. No doubt tired of copping the odd
cork under the chin, P้rignon invented a metal clip to hold the cork
in place during second fermentation.
The storage solution, however, came from 17th-century
England. The English had developed a fondness for P้rignon’s
well-blended Champagne, but wisely preferred bringing it over in barrels
rather than risk the unwelcome surprise associated with French glass. The
great problem was the transitory nature of the bubbles: they would dissipate
after some time in the cask.
At about this time, a new form of harder, thicker glass
was developed in the super-hot, coke-fired kilns of northern England. The
second innovation came with improvement in bottle making; the indentation
called a punt in the bottle base meant the extra pressure that came with
fermentation could be contained. Capable of withstanding the pressure of
secondary fermentation, this new bottle allowed sparkling wine to be
produced, contained and transported reliably for the first time.
Another one of Dom P้rignon’s contributions was
the art of blending. He found more complexity blending wines from different
villages. The same philosophy applies today; famous champagne houses like
Krug carefully maintain all their traditional sources of grapes by offering
long and attractive contracts to their growers.
There were two further developments in the refinement of
champagne, as we know it. The first was simply the decision to restrict the
grape varieties in making champagne to three: Pinot Noir, Pinot Meunier and
The next refinement was to clarify the wine. Not that it
worried Dom P้rignon one jot, but the early champagnes were cloudy
from the presence of yeast lees. The trick was to get the sludge out and
leave the bubbles in. The credit for cleaning up champagne’s appearance is
accorded another monk, Dom Ruinart. He evolved a technique of standing the
bottles upside down so the sediment settled against the cork, and then
freezing the neck so that a plug of frozen sediment could be fired out by a
quick opening and then recorking the bottle. There have been numerous
improvements to this idea but basically it remains the same. The process is
called r้muage and the traditional wooden shaking tables with
chamfered holes used to encourage the sediment to settle still remain in
When the good old Dom P้rignon tasted his first
glass of bubbly, he is reported to have rushed into his boss’s study
yelling, “Father Abbot, I am tasting stars.” It adds to the story to
know that Dom P้rignon was blind and couldn’t see what he had
created. Champagne hasn’t looked back since.
Ranjith Chandrasiri is the resident manager of Royal
Cliff Grand and president of the Royal Cliff Wine Club, Royal Cliff Beach
Resort, Pattaya, Thailand. Email: [email protected] or [email protected]
Mrs. DoLittle’s Corner
Last column I talked about how we can learn things from
animals. Most people will dispute that, thinking in order to learn from
someone, they would have to be considered “more intelligent” than
themselves. Well, let me knock that concept right out of your head! You
haven’t even begun to think. Look around at the mess the world is in. Does
‘that’ look intelligent? Who is the smart one here - politicians
ordering bombs thrown on civilians, or monkeys in the jungle picking
coconuts, minding their own business? You see, we need to take a few steps
backward to get a look at the big picture. If you put a bunch of people on a
big piece of land, people who are all very different, culturally and
spiritually, you will soon have dispute, which many times leads to wars.
However, if you put a bunch of different animal species on a big piece of
land, you have bio-diversity! That proves they are naturally smarter than we
are. Even though they are all very different, they all learn to live
harmoniously together, in the same environment.
why am I in here?” -”Good question, Teddy! It’s because you’re too
sweet. There’s some mean humans out here that you don’t want to meet!”
For humans to go together in harmony, they have to
be accompanied by a band! People who look down on animals (as lesser beings,
which humans are meant to dominate), have a problem with personal power.
They will use any excuse (sometimes only in their own minds) to make
themselves more superior than other beings around them. In extremity, even
kill animals and drink their blood, thinking they inherit power! All animal
abuse is power play. A great bear friend I had named Teddy (of course - what
else?), taught the power lesson very well. In fact he was a skilled Master.
Despite weighting almost 700 kilos, he used his intellect and his charm to
coax even the most fearful youngster into his loving bear arms. He just
loved attention. Little guys got gentle squeezes and tough guys got big bear
hugs. The thrill of being in those big powerful arms, knowing you could be
crushed in a moment, yet finding Benevolence! Now, I ask you, is there not a
big lesson to be learnt from this clever bear? The moral of the story today
is: Just because you’ve got the bombs, doesn’t mean you have to throw
them! Visit our homepage: http://welcome-to.chiangmai-chiangrai.com/animal_sanctuary.htm