4 Ways How Your Fundamental Analysis Can Help You In Your Entrepreneurship

Written by Ungku Aqeel (@ungkuaqeel418)

Fundamental analysis is the cornerstone of investing. In fact, some would say that you aren't really investing if you aren't performing fundamental analysis. It’s no surprise many people find fundamental analysis daunting. After all, the subject of finance is infamous for its use of jargons. Unlike technical analysis that focuses on the price movement of a security and uses this data to predict future price movements, fundamental analysis instead looks at wholistic economic and financial factors that influence a business.

1. Fundamental analysis naturally helps you understand businesses better

One of the most notable but less obvious rewards of fundamental analysis is the development of solid understanding of the business and industry due to the in-depth, extensive research and analysis required to conduct fundamental analysis.

Before you even look into any financial statements, you need to know what the company is about. This means that you need to know how the company makes money. For example, British American Tobacco’’s revenue stream comes from the amount of products they sell while IHH Healthcare’s revenue stream comes from the number of sick people that are admitted into their hospitals.

Not every business functions the same way. The aforementioned companies are like mangos and durians, both are great fruits (companies) but you can only get them at different times of the year. Making fundamental analysis regularly will go a long way as it help you you familiarise yourself with the different factors or events affecting business operations. The quickest, simplest and most effective way to get started is to read up on research reports on companies released by banks and other research houses. These reports are usually written whenever there is a major event that could affect an entire sector, or whenever a company’s quarterly result is out. Research reports are exclusive to its clients, but these reports can be found all over the internet. One place is on stockbit itself. Follow @BursaBuzz. They post many research reports from various banks and brokers.

A prior understanding about how different businesses or industry works from fundamental analysis of your investment in the stock market will bode well in your overall perspective upon your next business venture!

2. It helps with your “lingo”

Unless the movie Crazy Rich Asians is the story of your life, starting your own business (especially a startup) might mean pitching your business ideas to investors (Venture Capitalists or Private Equity or Angel investors) and future stakeholders. Having a business lingo goes a long way. You can have an idea that could change the world, but ultimately, investors are risking their money with an expectation to generate returns; while future stakeholders are interested on why they would choose you to be their business partner / customer / supplier, etc.

Too shy or afraid to talk to people that are fluent in this “business / financial / investment” lingo in real life because you don't have any prior experience? You can always always practice this on Stockbit by asking other Stockbitors questions and analyse the way they reply you. You might actually learn a thing or two just by reading their conversations!

Knowing how to “talk” and “present” your ideas are always crucial in everyday entrepreneur life. Being good in fundamental analysis and being able to share or debate your investment thoughts and ideas will expose you to real world scenarios, especially on important negotiations.

3. It will help you faster and apt business decisions

Over time, you’re bound to witness a black swan event, be it Pakatan Harapan’s recent victory or the oil crisis in 2015, these events will affect businesses, and fingers crossed, your business too. How would you react to these scenarios? Well, if you have been in the investment world for a while, then you would have witnessed certain events and consequently, witnessed how different corporations and managements reacts to these events.

Marvel has long been the comic-book world’s biggest player. In the mid-1990s the comics market crashed. Consequently, Marvel went broke, and there was no superhero that could save Marvel from bankruptcy. After a series of restructuring, Marvel changed the way its heroes came to life, focusing on movies rather than paper and ink. Today, Iron Man, the Avengers, Spider-Man, and X-Men are all billion-dollar franchises, and the company’s master plan–to connect many of its characters in a single cinematic universe–has turned it into one of pop culture’s most powerful brands.

Being an investor and a shareholder, especially a fundamental long term one, every decision the management and the company makes affects you. And it’s your duty to keep yourself up to date and see how they overcome adversity throughout your holding period. At times, you will know which and what type of CEO and leaders and management team you want to stick around with, and which you will chuck out. Over time, you might just pick up a thing or two that will help you when you face your own business challenges.

4. Patience

Ask any seasoned investor. They’ll tell you that you will make losses from time to time. Sometimes it’s the market, other times it could be an inaccurate decision. You can sell at a loss if you’re not confident in the stock anymore, but if you are convicted with your decision, you can choose to ride out the market wave. It’s a painful journey, but you’ll come out stronger and more importantly, wiser.

Good things takes time. Likewise, when starting your own business, there are seasons where sky seems to be the limit and there are bad seasons where failure seems to look like the only door left to be opened. Be confident with your analysis just like how you need to be confident in your business. If you’re not, then why jump into it in the first place?

Gloomy Weather Hovering Over Indonesia Economy

Photo credit: budinarendra (flickr)

In the past three weeks, Turkey has suffered a great stress in their currency market. They have been hit by another Trump’s blow in which Turkey Lira depreciated 10,33% a week after Trump announced (8/10) that US would impose tariff on steel and aluminium Turkey for 50% and 20% respectively. Investors tried to pull out their money hence causing a tumult in emerging market stock indices and currencies, including Indonesia. All are too afraid because Trump can hit any country in a single tweet.

The Twitter Attack!

When we started this year, some said that we could be in another crisis after we suffered the great subprime mortgage crisis 10 years ago. This hypothesis is bolstered with the facts that Trump left the Trans Pacific Partnership (TPP) right on the first day he sat in white house by saying “on trade, I’m going to issue a notification of intent to withdraw from the Trans-Pacific Partnership”. He then tweeted that TPP is a potential disaster too.

After US left TPP, Trump began to review US trade deficit that he thought US trade balance should be positive. Here’s when the story of trade war begins.

In April 2017, President Trump instructed his administration to self-initiate two major investigations into steel and aluminium imports threatening US national security, especially from China. Therefore, US continued searching what kind of goods hurting US current account balance with China as the biggest contributor to US deficit. As of 2017, US deficit from China reached USD357,6 billion or approximately 40% of US deficit coming from China.

Following Trump’s instruction, US International Trade Commission found that imports of solar panels and washing machines have caused injury to those industries. On January 22, 2018, Trump then approved to impose tariff on USD8.5 billion solar panels and USD1.8 billion washing machines. Two weeks later, China self-initiated to investigate of roughly USD1 billion US exports of sorghum even though Chinese government denied the action was some kind of retaliation.

This fighting continued between US and China. The peak moment was when Trump tweeted on March 1, 2018 “trade wars are good” as he announced plans for steeper US tariffs on steel and aluminium by 25% and 10% respectively. This action was then widened to EU, NAFTA (exclude Canada & Mexico), and South Korea that Trump wanted to impose the tariff as well. From that day, emerging markets started to tumble down worried this action could hamper global trade in the future.

The Mighty China

The trade war between the two countries has started to affect China’s external trade. Their Q1–2018 current account posted a deficit for the first time since Q1–2001 because of the significant decrease in goods. The trade war also sent their stock index and currency down.

But China is no more a small country. They have guts to fight back by retaliating tariffs for some of US goods in order to hurt US. As the biggest factory in the world with investment as the main contributor of GDP, China succeeded to keep their economy stable amid the on-going trade war as seen from their stable growth in Q2- 2018 at 6,7% yoy, only 0,1% lower from previous quarter.

In fact, the depreciating CNY is maybe according to their plan, because the cheaper CNY the more goods exported. And of course, China has that comparative advantage to play the J-curve condition as their current account balance bounced back to surplus in the second quarter, so it seems like China would not surrender from this game.

Heatwave from Turkey

After playing game with China, EU, South Korea and other countries, President Trump then struck Turkey on August 10 by imposing tariff on aluminium and metal Turkey after conflicting the issue of a detained American Pastor in Ankara. This conflict worsened US-Turkey relationship after previously disputing about Syrian Civil War and a failed coup attempt in 2016.

Turkey did retaliate by imposing tariffs for US exports as well. But unlike China, Turkey could not defend the heat. The sanction from US directly blew up the market which has been overheating just before the trade war. The high GDP growth followed by high inflation, high private credit growth and increasing external debt have worsened the external stress dropped by Trump.

Turkey also has another issue in their fundamentals as they have been suffering a twin deficit for more than a decade. Moreover, their current account deficit has widened to -7,9% in Q1–2018, widest deficit since taper tantrum.

In order to stabilize the currency, Turkey central bank has increased 975 bps their policy rate from 8% to 17,75% in the last 4 months along with dropping its foreign reserves by USD16.9 billion from January 2018. When the currency was in pressure in the second week of August, the central bank allowed Turkish banks to borrow foreign short-term debt, decreased reserve requirement and allowed to use EUR (not only USD) as foreign reserve requirement.

Turkish banking authority has also played part in stabilizing Lira by limiting swap transactions and restructuring credit policy. Amidst the arising tension, Turkey has succeeded in convincing their neighbor Qatar to pledge USD15 billion investment for Turkey.

As a result, these responses managed to momentarily end the rout in Turkish Lira. But the rout could radiate to other fragile countries.

A Thin Rupiah

The two-week Asian Games event held in Jakarta and Palembang have not been so helpful in driving a stronger Rupiah, indeed its value has gradually decreased to IDR14,725/USD, matching its weakest since September 2015. And if it weakens further, it would hit the lowest point in 20 years. For now, Indonesia is the second worst performer of 2018 in terms of currency depreciation in Asia after India. To help maintain the stability, Bank Indonesia raised its interest rate policy by 25 bps to 5,50%, collecting 125 bps hike throughout 2018.

As financial market tumbled in Turkey spread through other emerging market countries, Indonesia has been in pain more than its peers in Asia. Despite a bold growth in second quarter, low-stable inflation and persistent stock market index, Turkey (and Argentina) currency has triggered the large sell-off of USD in Indonesia. But why Indonesia?

Indonesia has been targeted due to some classic issue, a twin deficit, just like Turkey. These deficits are expected to lower Rupiah even further and are worsened by the speculators action. Indonesia current account has widened in Q2–2018 reaching -3,04% of GDP, driven by high imports of infrastructure materials to endorse Government’s main program. After an extensive decline in Rupiah’s value, Jokowi’s administration has promised to halt some infrastructure projects and reduce imports for consumer goods to prevent further depreciation.

This situation are more perplexing for Indonesia due to the external behaviour. The trade war between China and US would hurt Indonesian export indirectly since China and US are the two biggest Indonesia trading partners. So the less their export, the less their import as well. Moreover, stronger US economy followed by increasing trend of FFR would enforce a sell-off in our domestic market that later would induce a rout in its financial market. Can Rupiah stand its position?

Indonesia market once hit so hard with taper tantrum and low commodity price in 2013 and 2015 respectively. But we stood firmly at that time. This time, Indonesia’s fundamental factor is better than it was. I expect that the growth would be even higher in the second semester because the Government has only realised his social budget (alokasi dana desa) by 30% along with low and stable inflation.

From the demand side, revenue of non-financial public company has been growing along with high cash flow investment. It means that the private sector is in expansion phase, expecting that demand will recover in coming months. The boost in credit growth in the last three months also confirmed the expansion phase as it is mainly driven by investment and working capital. I wish, but cannot guarantee, this recovery can persuade investor to keep their money here.

Tourism is the Main Key

Apart from what the authorities have done in the short term and the good signal from both household and corporation, they have to think about the longer term structure. As a growing country with demography bonus in 2025–2035, the current account balance should restore to surplus. But how?

We have to accept that Indonesia cannot merely rely on commodity due to its price volatility, like we felt in the last four years. We understand that our comparative advantage in the world right now is producing good commodities but it hurts the current account when the price subdues.

Unfortunately, to export authentic final goods from Indonesia is truly impossible at this time since we do not have that kind of technology, resources and structural support from the Government yet. I believe that to produce final goods that can compete in international level will at least take a longer period of time.

Indonesia can learn from Thailand that has succeeded in keeping their currency stable nowadays because of the positive services, thanks to tourists’ arrival that have doubled since 2012. In the current phenomenon where millennials go to places for taking pictures and posting photos in instagram, tourism has helped Thailand services lift the current account balance back to surplus.

In a similar tune, Indonesia has a lot of potential in tourism sector with its white-sand beaches, beautiful islands, diverse culture and deep-rooted history that not many other countries possess. Hence, the government should support the development of tourism in Indonesia through strategic initiatives on this sector.

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This article was first published on the Medium

The writer is a junior analyst at Indonesia Financial Services Authority. The views expressed are his own and do not represent institution he works at.

You can have a discussion with author on Stockbit, just mention @haekal11 and don't forget to follow him on Stockbit.

The Power of Compounding Interest. Making RM 1,000 into RM 1,000,000

Written by Rondy Yunanda (@Ryunanda in Stockbit)

The not so secret investment tool

In this blog post, I will be sharing a “not so secret investment lesson” that probably everyone would and should have known. I’m talking about compounding interest. For those who are new to the investment world, compounding interest is basically just interest stacked on interest. Compounding helps your money grow exponentially as the interest earned is continually 'added' to the 'base' amount. This new net amount will then be the amount that interest rate will be calculated against. This forms a continuous cycle that will allow you to earn an ever increasing net amount of money!

Compounding is probably the most powerful investment tool ever. To illustrate this, assuming that I can offer you a 100% interest everyday on your investment. An initial RM 1,000 investment will become RM 2,000 investment on the second day, RM 4,000 on the third day, and… RM 1,000,000 on the twelfth day!

Of course the illustration above is unrealistic and way too good to be true. Currently, the best FD rate offered is 4.6% return per annum (year) and yes, while that interest rate feels like a bummer, everyone, yup, everyone can still be a millionaire through good saving habits and compounding interest.

The most important ally to compounding interest, apart from the rate of return (“interest”) are:

1) Time and

2) A good habit of allocating monthly savings to invest for the future

Do you know that you can become a millionaire after 35 years by saving RM 1,000 monthly in a risk - free fixed deposit paying 4.6% interest per annum?  If however, instead of investing in this relatively  lower yielding fixed deposit, you are to invest in an asset class that yields an average 20% interest per annum - you would have made your first million after only 16 years.. and made RM 36 million within 35 years!

The biggest takeaway therefore, is that a small difference in return can make a big difference in wealth in the long run.

Investing in the stock market

This brings us to the next question - how can we increase the rate of return on our investments? Well, investing in the stock market is definitely one of the method of making that difference in returns. Stock market is deemed by many as “risky” and while that notion is not wrong, it is definitely one that can be argued.

Historically speaking, there is a high probability that long term investments in stocks will yield positive returns. For instance, if you compare the performances of any blue chip stocks in the KLSE / KLCI index over the past 10 years, approximately 90% will yield a positive return! Sure, there are some blue chip stocks that had lost its value over this period and can no longer be categorized as a blue chip. This scenario however, is uncommon.  Furthermore, if you happen to invest in the right company like Nestle, you could be looking at about 500% return. Do you also know that if you had invested in America’s S&P 500 index (an index that constitute 500 largest stocks in America) 10 years ago, you would have earned  an annualised 22.5% return? (you can do this via ETF but that’s a topic for another day!)

Time is therefore the most loyal partner to investors and the stock market is one of the most powerful investment instruments to gain compounding profits in the long run. Today's investors are blessed with a variety of support that ease their investment processes, thus allowing them to be able to begin investing early on in life. The difficult part is just to start this good habit! Last and foremost, investing in the stock market is a long term process - you will need time to learn and gain experiences to eventually be able to make sound investment decisions.

Summary

In summary, compounding is a very powerful tool for wealth creation. Diligent investment in the stock market is a method to increase the rate of return / compounding on your profit, and it is important to start early with good investment habits to maximise this potential.

Reference

1) check out our fellow stockbitor's (@mengteck) video on compounding interest, very insightful! https://www.facebook.com/savwee.my/videos/1715154898715548/

2) Interest calculator - https://www.msn.com/en-us/money/tools/timevalueofmoney