Path to the CFA (Part 2)

What are the requirements to enter the CFA Program? According the information disclosed in the website of the CFA Institute, the entrance requirements are as follows:
- Have a bachelor's (or equivalent) degree (a) or be in final year of the bachelor's degree program (b) or have 4 years of professional work experience (does not have to be investment related)
- Understand the professional conduct requirements
- Be prepared to the exams in English
- Have a valid international travel passport 
http://www.cfainstitute.org/cfaprogram/process/Pages/index.aspx 


Whereby the exam formats are as follows:
- Level I exam is composed of item set questions (Multiple Choice Questions) and is offered in June and December
- Level II is composed of item set questions (Multiple Choice Questions) and is offered in June only
- Level III consists of item set and essay and is offered in June only
http://www.cfainstitute.org/cfaprogram/exams/Pages/index.aspx 


As I always receive feedbacks from readers that how long the period did I take to complete the CFA program, and hence I would like to show my timeline of completing the CFA program below. 


Assuming the candidates register the Level I exam on December 2012 at the last deadline on September 2012, and passed all the 3 exams in one attempt and receive the result of Level III exam on August 2014, then you just complete the program as little as 24 months. However, according to the statistic of the CFA Institute, on average the program takes about 4 years to complete the program. And for your information, there is no specified time frame to complete the exams and there is no limitation on the number of times to take an exam. http://www.cfainstitute.org/cfaprogram/process/enter/Pages/completing_the_cfa_program.aspx 


Whereby I myself registered to sit for the Level I exam on February 2008. However I was very busy in travelling to overseas for company's projects and thus I did not study the CFA program since the registration until I left from the company in July 2008 and I also spent 3 weeks in travelling and watching the Beijing Olympic Game in August 2008. 


I only seriously started to study in September 2008, from that moment it was about 3 months (or 90 days) from the CFA exams in December. I received 6 CFA curriculum books and the books consist of 3,200 pages. The next 2 levels will contain the similar volume of reading close to or more than 3,000 pages. If I need to finish the 3,000 pages, I was required to read close to 35 pages everyday before the exams. And I also planned to finish reading those books for 2 rounds in order to prepare myself for the sample and mock CFA exams which are available on the CFA website 1 week before the real time test. So I spent 10 to 12 hours everyday in studying, that include Saturday and Sunday. 


In addition, before I registered for the Level I exam, I read the outline of Level I and I noticed that those topics covered in CFA Level I are basically equivalent to what I have studied in the bachelor degree (major in accounting and finance). So I decided to self-study for Level I. However, I was unable to understand certain topics and there was no one I can refer to ask for guidance, from there I realised the difficulties of self-studying. So later when I proceed to take Level II and Level III, I took up additional tuition class for the CFA program. 


Another famous question related to the CFA program that I always encounter is how much did I spend on the CFA program. If I am not mistaken, I spent around USD1,500 (estimates to be RM4,500 or no more than RM5,000) for the registration of all the 3 CFA exams, and these fees are for those who passed all the 3 exams in one attempt. The more frequent the candidates re-sit for the exams, then each exams will cost them additional USD300 to USD400. But when I checked the CFA website recently, I noticed the cost of registration is now USD450, looks like the CFA Institute has increased the registration fees. http://www.cfainstitute.org/cfaprogram/process/fees/Pages/index.aspx 


In addition, as I mentioned I did enrolled myself for extra tuition classes for Level II and III, so each level I spent another RM4,000++. I took the tuition classes in Kasturi college at Kuala Lumpur. In addition, the college will rebate students up to RM1,000 if the students fulfill certain requirements such as attending more than 70% of the class, passed one of the three sample exams hold by the college, passed the CFA exam. So the cost of taking each of the tuition classes in Kasturi college was only RM3,000++ as I had fulfilled all the above mentioned requirements. Too bad I could not pass all the topics of the exam with distinciton (>70%) otherwise the remaining tuition of RM3,000 will be waived by the college. So my effective cost of taking the CFA program was about RM11,000 to RM12,000. 


Initially, I planned to start looking for a financial job again after passing the CFA level I. However, the world economy was in bad shape when I passed the CFA level I in end of January 2009. So I told myself I should continue study to pass the remaining 2 levels in one attempt if I committed in studying full time, and when the time I complete the CFA program which would be at end-2010, the world economy should be recovering and I would be able to look for a banking job more easier.


(to be continued)

Path to the CFA (Part 1)

(Note: As requested by some of the readers who PM me recently regarding the CFA program, I think it's for me to write something to share my experience in studying the CFA program. As I completed the CFA program quite some time ago, I need to recall my memory on the study. Maybe I can finish writting the story few days later) 

10 years ago while I was studying at the New Era college, that was the first time I got to know about the CFA program from my economic lectuer. He told the class that the CFA program is one of the most rigorous professional program. At that moment, the CFA program was something very far to achieve, indeed I was struggling to catch up the study in the college. 

When I started to work in an investment bank 2 years later as my first job, it was the second time I heard about the CFA program from a senior who is a CFA Charterholder. He recommended me to sit for the CFA program if I intend to start a career in the investment/finance sector and he could be one of my sponsors for the application of the CFA Charter titles if I can complete the CFA program. However, I was confused what would be my ultimate career path and thus I did not take his advice. After staying 20 months in the bank, I switched my career to work as an application engineer, and I was busily travelling abroad whenever I was assigned to work on oversea projects. 

I like numbers and I think logically, and both IT programming and finance do consist the elements I am looking for. However, things do not go into the way I was expecting as I realised that I should just stick into working at the financial related job. I did a lot of investment research and slowly built up my own investment portfolio even after I was left the bank, and this is where I finally noticed it could be my passion lay in. 

It could be a flip-flop, but I decided to make the call instead of getting myself too far and wasting my limited life of working. I left my second job in July 2008 and planned to take a 6-month break to study level I of the CFA program, and it happened before the outburst of the financial crisis in September 2008. So coincidence that I was seem like making a right call this time as if I would have stayed on in the job, I would not have had any bonus and salary increment for the next years, according to the source of my ex-colleague. 

Why I took the CFA program? What are the reasons trigger me to pursue the CFA program? These drill down to my passion on investment and for career enhancement purpose. As I mentioned that I did a lot of investment research not only for my own passion but I also rely on investment research to generate more passive income, so by studying CFA will further enhance my knowledge and subsequently it will turn my investment portfolio to generate better return. In addition, if I would like to switch back from the IT line to the financial sector, with CFA certification will equip me with a better skillset that is in demand in the financial sector. 

(to be continued)

马来西亚政府以面值(Par Value)来计算土著股权占有率(Bumiputera's shareholding)的险恶居心

假设30年前，马来西亚有5间公司（既是A, B, C, D 和 E公司），每间公司的发行股数为1,000股以及其股票的面值(Par Value)为RM1.00，而且所有公司都以其面值的价值来发行(Issue Price)股票，所以每一间公司的缴足资本为(Issued and Paid-Up Capital)RM1,000。

如果这5间公司以面值来计算的话其占市场上的股权占有率如下：
Value of A = RM1,000 (20%)
Value of B = RM1,000 (20%)
Value of C = RM1,000 (20%)
Value of D = RM1,000 (20%)
Value of E = RM1,000 (20%)
Total Value = RM5,000 (100%)

由于当时这5间公司在同时开始营运，所以它们的盈余保留(Retained Earnings/ Reserve)是0。因此它们的股东资金（Shareholders’ Equity，又可称为Net Asset Value，简称NAV）是相同的：
(Number of Shares * Par Value) + Share Premium + Retained Earnings = NAV
NAV of A = (1,000 * RM1.00) + RM0 + RM0 = RM1,000
NAV of B = (1,000 * RM1.00) + RM0 + RM0 = RM1,000
NAV of C = (1,000 * RM1.00) + RM0 + RM0 = RM1,000
NAV of D = (1,000 * RM1.00) + RM0 + RM0 = RM1,000
NAV of E = (1,000 * RM1.00) + RM0 + RM0 = RM1,000

而且我们也假设它们的市价（Market Value，简称MV）是NAV的1倍，既是Price-to-book ratio （P/B）= 1 time。所以在起点时这5间公司以市价来计算的话，它们的股权占有率都是相等的：
MV = NAV * 1x of P/B
MV of A = RM1,000 (20%)
MV of B = RM1,000 (20%)
MV of C = RM1,000 (20%)
MV of D = RM1,000 (20%)
MV of E = RM1,000 (20%)
Total MV = RM5,000 (100%)

土著在当时只控有A公司，那土著在30年前以面值或市价来计算他们的股权占有率都显示出他们控有了20%的股权。

30年后，这5间公司的Retained Earnings/ Reserve如下：
Retained Earnings/ Reserve of A = RM10,000
Retained Earnings/ Reserve of B = RM1,000
Retained Earnings/ Reserve of C = RM1,000
Retained Earnings/ Reserve of D = RM2,000
Retained Earnings/ Reserve of E = RM-20,000

这5间公司30年后的NAV如下（假设这5间公司在30年里没有派过任何股息，没有做过股票自购（Share Buyback）没有做过股票分割或整合(Share Split or Share Consolidation)，没有派过红股(Bonus Issue)或Share Dividend，也没曾发行过附加股（Rights Issue））：
NAV of A: RM1,000 + RM0 + RM10,000 = RM11,000
NAV of B: RM1,000 + RM0 + RM1,000 = RM2,000
NAV of C: RM1,000 + RM0 + RM1,000 = RM2,000
NAV of D: RM1,000 + RM0 + RM2,000 = RM3,000
NAV of E: RM1,000 + RM0 + RM-20,000 = RM-19,000

由于E公司的股东资金为负数并宣布破产，所以它的市价为0。以那剩下4间公司的面值来算公司的股权占有率如下：
Value of A = RM1,000 (25%)
Value of B = RM1,000 (25%)
Value of C = RM1,000 (25%)
Value of D = RM1,000 (25%)
Total Value = RM4,000 (100%)

大家可以看得出如果以面值来算，那土著所掌控的A公司在整个市场上的占有率只略为提升至25%，还少于30%。但这并没有算进公司NAV的增长，极可能是政府刻意忽略，以达到其控制市场为终极目标的恶毒居心。

如果以剩下的4间公司的NAV来算它们的市价 (假设它们的P/B率还是1倍)，那它们各自的股权占有率如下：
MV of A = RM11,000 (61.11%)
MV of B = RM2,000 (11.11%)
MV of C = RM2,000 (11.11%)
MV of D = RM3,000 (16.67%)
Total MV = RM18,000 (100%)

可以看得出以市价算股权占有率的话，土著的股权占有率其实已经透过A公司掌控达到了61.11%的市场股权占有率，而不是政府所说的25%。

看回马来西亚上市公司的市值最大的前3间公司，既是Sime Darby, Maybank和CIMB Bank，是不是跟我以上的例子有点相似？如果以面值来算的话，那这3间公司在马来西亚1,000间上市公司中的股权占有率就是及其微小的，但是以市价来算的话那情况就不一样了。现在大家可看透了马来西亚政府的“用心”了么？

ICULS Valuation: Scomi Engineering Bhd

According to my research, the intrinsic value of the ICULS of Scomi Engineering Bhd range from RM0.5418 to RM0.5424 per RM1 nominal value of ICULS. To achieve a safety of margin for the investment, I use to buy a security when its market price is 20% in discount to its intrinsic value, so the target price of F&N is RM0.4335 to RM0.4339 per RM1 nominal value of ICULS.

ScomiEn-LA

DCF Valuation (2): Fraser & Neave Holdings Berhad

According to my research, the intrinsic value of F&N is RM17.85 per share. To achieve a safety of margin for the investment, I use to buy a company's share when its market price is 20% in discount to its intrinsic value, so the target price of F&N is RM14.28.

The excel modelling for F&N is a little bit complicated than the previous excel file for Nestle, as this time I calculated the 5-year Beta of F&N based on its fluctuation for past 5-year daily prices against the daily fluctuation for the KLCI index.

F&N

DCF Valuation (1): Nestle (Malaysia) Berhad

I have recently completed the valuation for few companies for my own investment research. I used the discounted cash flow method ("DCF") to derive the valuation of the companies. So far all the companies I valued are blue chip companies which generate stable free cash flow and thus they are suitable to be valued by the DCF method.

The 1st company I did the research was Nestle (Malaysia) Berhad. I completed this valuation few weeks ago and share that in a chinese investment forum. Since I have not long updated my blog for quite some time, I uploaded my research to update my blog.

According to my research, the intrinsic value of Nestle is RM48.37 per share. As I am a value investor, so I would only buy a company's share which market price is 20% in discount to its intrinsic value, so the target price of Nestle is RM38.70.

Nestle.rar

(Finally I find a way to upload my excel file, so I am here providing a guide how to download the excel file. Please look at the picture I posted for the procedure to download the excel file:
1st step - click at the Nestle.rar link
2nd step - the link will then direct you to the google docs page as shown in the picture
3rd step - click the "file" selection as shown in the picture will drop down a list, so select "Download original" to save the excel file into your PC...^_^)

Corporate Exercises: Accounting’s games that have no value add

Bonus Issue, Share Split, Share Consolidation, Capital Reduction, Special Dividend Payout (Capital Repayment) and Share Dividend and any other types of corporate exercises have no value add to the shareholders’ value. Even Right Issue with an issue price that is lower than the market price will not have positive impact to the shareholders’ value. If the shareholder who does not want to further pump in more capital into the company by subscribing the additional Right Shares at a discount to its market price, the shareholder’s right will be greatly diluted.

Basically these kind of corporate exercises are transferring the money from the left pocket to the right pocket in disguise to mislead the shareholders that their value in the company has increased. Do you think the value 10 pieces of RM10 would be more than the value 1 piece of RM100?

There are always justifications from analysts about the corporate exercises would bring positive impact to the shareholders’ value, whereby my opinion is “it depends”. So what could be the actual impact of such corporate exercises? Please refer below:-

1) Increase the number of shares will increase the liquidity of the shares will reduce the illiquidity premium and thus share price would increase;

2) Supply of shares increase substantially and this would shift the supply curve right-ward and thus decrease the share price; and

3) Most of the corporate exercises do not change the shareholders’ value of the fund but they engage investment bankers to carry out the corporate exercises, and these investment bankers are not cheap. So the shareholders’ value indeed decreases due to expenses pay investment bankers.

Of course analysts would try to play around the abovementioned points to justify when to “buy and sell”. When the market is in bull run, they would say it’s good to have Bonus Issue as it increases the liquidity of the shares; when the market is in bear mood, they would say Bonus Issue will cause excess of supply which subsequently reduce the share price. Basically I would say these analysts have no view and are bullshitting.

As a conclusion, a company will only increase its shareholders’ value through its daily operating activities, not via some kind of complicated corporate exercises or financial activities. Know how to calculate the basis of the corporate exercises would be the way to discover the trick of the accounting games.