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20-11-2011, 08:19 AM
The Straits Times
Nov 20, 2011
Great folly not to do research before investing
By Magdalen Ng
The value of researching before investing cannot be overstated. These days, with the deluge of information available on the Internet, every investor - even amateurs - can do some quality research.
But few people take the time to do it - and such research and analysis often still remain the domain of financial professionals like stockbrokers or bankers.
That, however, would be a great folly. As Sun Tzu would say, 'to... not prepare is the greatest of crimes'. With financial markets so volatile now, research or preparation before investing may save you some heartache.
When buying an equity, one of the first things an investor should do is to obtain fundamental information on the company he is going to invest in.
Questions that investors should be asking include: 'How has the company performed in the past years?'
Mr Lee Kok Joo, head of research at Phillip Securities, recommends checking the latest financial performance of the company, reviewing its financial health, looking at its balance sheet and finding out if there is a dividend policy.
Generally speaking, this is a 'bottom-up' investment research approach that some adopt. Greater emphasis is placed on the performance of an individual company, rather than the economy and market cycles.
Conversely, the 'top-down' approach would begin with a macro view - and take into account the health of the economy by analysing economic data including gross domestic product growth, and the identification of certain industries that are expected to do well, before zooming in on a particular company.
As with all investments, there is no one size that fits all. Investors have to adopt a system of research that best suits their time and needs. For most, it will be somewhere between the top- down and bottom-up scales.
However, there are times when even the most in-depth research can be inadequate, because market sentiment introduces a rather unpredictable variable to the equation, as US investors learnt the hard way 30 years ago.
In 1982, games company Atari was going to launch its latest video game, E.T. The Extra- Terrestrial, and investors expected it to be a hit and that it would be on every child's Christmas wishlist.
Warner Communications, Atari's parent company, saw its share price rise on the tide of these heightened expectations.
But actual sales of the game turned out to be disappointing, and Warner's stock price fell sharply, resulting in much consternation among investors, even professionals.
From that experience, the people at equity fund manager RCM realised that this gap between expected and actual sales could have been detected earlier if they had spoken directly to retailers who were selling the game, or to parents who were shopping for their kids.
And so, the idea for Grassroots Research by RCM was born. The concept was simple - for example, to find out about pharmaceutical prescription trends, ask the doctors who do the prescribing, instead of the stock analyst.
Ms Christina Chung, senior portfolio manager for Allianz RCM China Fund, said: 'A portfolio manager or analyst may identify some very interesting companies, but he may have questions relating to the assumptions used in those firms' financial models - this is where we call upon our grassroots research capability for help.'
Grassroots Research commissions investigative research, gathering information about industry-specific issues that portfolio managers may be concerned about to bridge the information gap between Main Street and Wall Street.
By talking to knowledgeable sources in the industry - doctors, farmers, sales managers and engineers - about what they do and what they see, there is an invaluable market wisdom that is not easily accessed just by looking at financial reports.
For example, research with corporate information technology managers in Europe showed more than two-thirds of those surveyed in France and Germany plan to spend their full-year IT budget for this year. The figure is above 50 per cent for Spain, and less than half in Britain.
This may be a good indication of how equities in the information technology industry will perform, and is not something that can be easily gleaned.
Ms Celine Chia, head of retail distribution for South-east Asia at Allianz Global Investors Singapore, said: 'Going beyond traditional financial research and adding ground-level reality checks uncover otherwise unseen business trends and opportunities.'
Nov 20, 2011
Great folly not to do research before investing
By Magdalen Ng
The value of researching before investing cannot be overstated. These days, with the deluge of information available on the Internet, every investor - even amateurs - can do some quality research.
But few people take the time to do it - and such research and analysis often still remain the domain of financial professionals like stockbrokers or bankers.
That, however, would be a great folly. As Sun Tzu would say, 'to... not prepare is the greatest of crimes'. With financial markets so volatile now, research or preparation before investing may save you some heartache.
When buying an equity, one of the first things an investor should do is to obtain fundamental information on the company he is going to invest in.
Questions that investors should be asking include: 'How has the company performed in the past years?'
Mr Lee Kok Joo, head of research at Phillip Securities, recommends checking the latest financial performance of the company, reviewing its financial health, looking at its balance sheet and finding out if there is a dividend policy.
Generally speaking, this is a 'bottom-up' investment research approach that some adopt. Greater emphasis is placed on the performance of an individual company, rather than the economy and market cycles.
Conversely, the 'top-down' approach would begin with a macro view - and take into account the health of the economy by analysing economic data including gross domestic product growth, and the identification of certain industries that are expected to do well, before zooming in on a particular company.
As with all investments, there is no one size that fits all. Investors have to adopt a system of research that best suits their time and needs. For most, it will be somewhere between the top- down and bottom-up scales.
However, there are times when even the most in-depth research can be inadequate, because market sentiment introduces a rather unpredictable variable to the equation, as US investors learnt the hard way 30 years ago.
In 1982, games company Atari was going to launch its latest video game, E.T. The Extra- Terrestrial, and investors expected it to be a hit and that it would be on every child's Christmas wishlist.
Warner Communications, Atari's parent company, saw its share price rise on the tide of these heightened expectations.
But actual sales of the game turned out to be disappointing, and Warner's stock price fell sharply, resulting in much consternation among investors, even professionals.
From that experience, the people at equity fund manager RCM realised that this gap between expected and actual sales could have been detected earlier if they had spoken directly to retailers who were selling the game, or to parents who were shopping for their kids.
And so, the idea for Grassroots Research by RCM was born. The concept was simple - for example, to find out about pharmaceutical prescription trends, ask the doctors who do the prescribing, instead of the stock analyst.
Ms Christina Chung, senior portfolio manager for Allianz RCM China Fund, said: 'A portfolio manager or analyst may identify some very interesting companies, but he may have questions relating to the assumptions used in those firms' financial models - this is where we call upon our grassroots research capability for help.'
Grassroots Research commissions investigative research, gathering information about industry-specific issues that portfolio managers may be concerned about to bridge the information gap between Main Street and Wall Street.
By talking to knowledgeable sources in the industry - doctors, farmers, sales managers and engineers - about what they do and what they see, there is an invaluable market wisdom that is not easily accessed just by looking at financial reports.
For example, research with corporate information technology managers in Europe showed more than two-thirds of those surveyed in France and Germany plan to spend their full-year IT budget for this year. The figure is above 50 per cent for Spain, and less than half in Britain.
This may be a good indication of how equities in the information technology industry will perform, and is not something that can be easily gleaned.
Ms Celine Chia, head of retail distribution for South-east Asia at Allianz Global Investors Singapore, said: 'Going beyond traditional financial research and adding ground-level reality checks uncover otherwise unseen business trends and opportunities.'
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