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Why Cash Flow Matters … Even if You Invest Only for Capital Gains!

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College mates Ian and Tim recently met up at a coffee shop, when their discussion turned to investing. Here is how their conversation went:

Why Cash Flow Matters...

Ian started off with the usual, ‘Hey man, what’s up?’

With enthusiasm, Tim replied, ‘The stock market, bro! I’ve just started to do some trading.’

Knowing Tim’s almost non-existent investing habits, Ian was indeed pleasantly surprised. Usually, they would just talk about anything under the sun. Except they have never talked about finance and investments.

‘Wow! That is definitely something new, for both of us!’, Ian responded.

With glee, Tim said, ‘Yeah! It sure is.’

Ian asked, ‘But I’m curious, what exactly got you started on trading?’

Tim then revealed how a colleague of his had made huge gains from stock trading. Tim explained that since he was looking for an honest and legitimate means of boosting his income, stock trading seemed ideal as it could be done on a part-time basis.

Ian nodded. Casually, he asked, ‘So Tim, what kind of stocks are you looking at right now?’

Tim replied, ‘I’m looking at ABC Bhd.’

Ian asked, ‘I see. What does ABC Bhd do? What kind of business does it run, and in what sector?’

Tim replied, ‘I don’t know.’

Ian asked, ‘Err…. Okay. Well, do you know how much of earnings ABC Bhd made last year?’

Tim replied, ‘Come on, bro. You know me. I’m not an accountant. Why would I need to know about ABC Bhd’s finances? I’m interested in ABC Bhd because their stock price went up from RM 0.20 a share to RM 0.50 a share, and I think it can go higher, man! What do you think?’

Ian responded, ‘Tim, from what you have told me, it seems you know very little about ABC Bhd. From my perspective, being absolutely new to stocks with almost no knowledge, don’t you think I would at least want to know:

  1. What business ABC Bhd is involved in?
  2. If ABC Bhd is not a new company, does it have a track record of making profits in the past?
  3. Is cash flowing into ABC Bhd from its business operations?

Tim questioned, ‘Come on Ian, is cash flow really that important? After all, I’m just in it for capital gains!’

Ian remarked, ‘Of course! It is important to look at cash flow even if you are investing for capital gains. Let me ask you this: Do stock prices go up if there are more buyers than sellers in the market?’

Reluctantly, Tim replied, ‘Yes.’

Ian continued, ‘Tim, if that’s the case, what kind of stocks do you think most buyers would want to buy? Stocks that are increasingly profitable? Or, is it stocks that continue to make losses?’

Tim responded, ‘Obviously, the profitable ones.’

Then, Ian asked, ‘How do stocks increase their profits? Don’t they need to invest more to grow and expand their businesses? On research and development? On innovation? On more factory space, etc, etc?

Cutting off Ian, Tim exclaimed, ‘Oh, I get the idea now! That is why cash flow is important. If a company does not generate cash flow from its business operations, then, it may not have the funds to expand its business. Without expanding, the company may not be able to make additional profits. This may influence investors’ decision to buy the shares of the company and thus, affect its share price, right?’

Ian added, ‘Yes! Tim, a company with abundant cash flow would also be capable of paying you dividends. I understand that you are aiming for capital gains, that’s fine. However, you know that we are not the all-controlling, universal masters of the stock market. We will never be able to control which stock goes up in price and which one comes down, ever! So, if the price of the stock you’ve bought just happens to drop, at least (if they have good or future cash flow) you will still receive some dividends from your investment.’

Tim nodded in agreement.

Ian shared, ‘You know, a cash-rich company is usually more resilient and may even withstand a downturn in the stock market. But, a company without cash or facing cash flow problems may need to raise funds through borrowings, issuance of new shares to investors, or even to dispose its assets and inventories at a discount. As you can see, cash is crucial to the survival of a company. After all, isn’t there a saying, ‘Cash is King’?’

Feeling impressed, Tim replied, ‘Wow! I had never realized the importance of cash flow when investing in shares. You have really opened my eyes, especially since my eyes were focused on shares of ABC Bhd!’

Laughing, Ian replied, ‘You are most welcome, bro.’

Tim asked, ‘But, I have another problem. You know that I’m not a financially savvy nor “smart investing” type of guy. Where do you think I should go to start learning about stock investing? You know, the right methods, the proper channels, the right subject matter experts. What should I do?’

Ian replied, ‘I’m glad you asked! Did you know that InvestSmart, an investor empowerment initiative by the Securities Commission Malaysia (SC) organises stock market and unit trust seminars for retail investors? Ian then showed Tim the link to www.investsmartsc.my on his phone.

Fascinated, Ian continued, ‘It says here: The seminars aim to encourage members of the public to take control over their finances so that they can be responsible for their own future and wealth, equip investors with the knowledge, skills and tools needed to exercise good judgement and discretion in making investment decisions and encourage more informed retail participation in the capital market. To find out more, you may log on to www.investsmartsc.my. I’m registering RIGHT NOW!’

http://kclau.com/investment/why-cash-flow/ 

© Securities Commission Malaysia (SC). Considerable care has been taken to ensure that the information contained here is accurate at the date of publication. However no representation or warranty, express or implied, is made to its accuracy or completeness. The SC therefore accepts no liability for any loss arising, whether direct or indirect, caused by the use of any part of the information provided. The information provided is for educational purposes only and should not be regarded as an offer or a solicitation of an offer for investment or used as a substitute for legal or other professional advice. For enquiries regarding sharing, republishing or redistributing this content please write to: [email protected].

Investment Guide: Are the Rewards Worth the Risk?

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securities-commission-malaysia      invest smart

Investment Guide: Are The Rewards Worth The Risk?

When it comes to investing, every investor should first pay attention to the two R’s — Risk and Reward.

Investing is not without its risks. And usually, the higher the risk, the higher the potential return or rewards.

However, it is this very concept of risk and rewards that sometimes keeps people away from investing. However, with the rising cost of living, investing has now become a necessary tool to help keep pace with one’s financial goals.

Here are some questions you should ask yourself before taking on the risks involved in investing:

What’s the risk/reward ratio?

Investors use the risk/reward ratio to compare the expected returns of an investment to the amount of risk undertaken to capture these returns. Though ‘risk’ itself can’t quite be quantified since it is made up of many and sometimes intangible factors, the best you can do is to quantify the risk in the form of losses.

Here’s how to calculate the risk/reward ratio:

sc rewards table 1

In this case, the investor is willing to risk RM5 per share to make an expected return of RM10 per share after closing her position. The ratio is RM5 over RM10 — 1:2 risk/reward ratio on this particular trade. Now that the real numbers can be seen and are quantifiable, you should be able to determine if a particular investment is really worth going for.

When should you start investing? Yesterday!

The average person dreams of becoming wealthy, or at the very least, have enough to live a secure and comfortable lifestyle all the way through their golden years. If one has a job, how would one work to achieve that? Work hard, earn more and spend nothing? The sad reality is it is not that easy or straightforward.

You need to fortify your money with the right investments and as early as possible.

Time is indeed money, and this will explain why:

Compound interest

Based on the above example, both Mr. A and Mr. B will be investing a total of RM15,000 – Mr. A’s investment will be spread over 15 years at RM1,000 a year, while Mr. B’s investment will be slightly higher every year, at RM1,500, over 10 years.

Quick tips
You will be surprised to find out that Mr. A eventually earned RM3,829 more in returns because he invested earlier. This is the power of compounding interest!

What would you stand to lose?

One potential loss that people sometimes fail to take into account is opportunity cost. For example, if RM5,000 were spent on a designer handbag, most people would be aware of the direct cost (of paying for the bag), but often disregard the indirect cost associated with the purchase.

Opportunity cost means the cost of foregoing another choice when the decision was made. As household incomes become more stretched to the limit, the principle of opportunity cost is quickly becoming an essential consideration when planning an investment budget.

For the sake of illustrating the opportunity cost in this example, let us assume the designer bag loses an estimated 10% of its value yearly.

sc rewards table 3

Over three years, the value of the bag could have depreciated by RM1,355.

Most people understand the direct cost of their actions. However, the unseen costs could be something more important to take into consideration. Similarly with investing, being aware of opportunity costs is critical in order to make the best investment decision possible.

What can you potentially gain?

We all have financial goals that we want to achieve — whether in the next year, three years, or even 30 years.

Want to retire in the Caribbean without any worries? You need money for that. Putting aside some money in your savings account religiously can barely help you retire in a small village in Malaysia — let alone in the Caribbean!

Here are the differences between putting your money into a savings account versus an investment:

Compound interest

There is only one way to safely plan your financial goals – by establishing a solid investment portfolio.

By playing your cards right, you can potentially achieve most (if not all) of your financial goals.

The factors that will determine the success of your portfolio are:

investment risks

The above factors are applicable for investment instruments that use the compounding interest calculation. However, for capital gain, your return or loss will be from the sale of your investment.

For example, if you bought 100 units of shares at RM20 per unit, and you decide to sell when the price is at RM25 per unit, you would have made a cool RM500. However, if you sell when the price drops to RM10 per unit, your loss would have amounted to RM1,000 .

compound interest

 

 

If you have a low risk appetite, opt for a lower risk investment, with a lower projected rate of return. To compensate for this, consider increasing the amount and length of time invested.

Therefore, identify and decide on your own risk tolerance, then use it to construct an investment strategy.

There are many ways to minimise your investment risks, such as:

  • Understanding how the investment product of your choice works and what are the risk factors involved.
  • Doing your homework before investing. Find out about the fund or the company’s historical performance and understand the industry and market to be able to make an educated decision on your investment.
  • Diversifying your investment by investing in different types of products and industries.
  • Reviewing your portfolio periodically to ensure that it still matches your objectives and goals, and can adapt to the current market condition.

 

The world of investment is vast, and in this day and age, failing to carefully consider all your options will prevent you from achieving your financial goals.

https://www.imoney.my/articles/investment-guide-are-the-rewards-worth-th...

© Securities Commission Malaysia (SC). Considerable care has been taken to ensure that the information contained here is accurate at the date of publication. However no representation or warranty, express or implied, is made to its accuracy or completeness. The SC therefore accepts no liability for any loss arising, whether direct or indirect, caused by the use of any part of the information provided. The information provided is for educational purposes only and should not be regarded as an offer or a solicitation of an offer for investment or used as a substitute for legal or other professional advice. For enquiries regarding sharing, republishing or redistributing this content please write to: [email protected].

Trust Doesn’t Rust: 6 Questions You Should Ask Your Unit Trust Agent

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Trust Doesn’t Rust: 6 Questions You Should Ask Your Unit Trust Agent      

For beginners, the idea of investing in unit trusts is appealing as we can leave the stock and bond picking to the professionals. Since many of us do not have the time and expertise to study the performance of individual stocks to identify the “winners”, we may feel it is better to let a professional fund manager do the job for us.

While this may seem like an easy way out, there are six important questions you should ask your unit trust agent before deciding on where to park your money.

1)  What will my returns look like?

One way to gauge a fund’s potential is by looking at its risk level. In general, the higher the risk, the higher the returns are likely to be. However, it is important to note that the key word here is “likely” as there is no guarantee. High-risk investment vehicles can still sometimes crash and lead to financial losses.

How much risk you should take will depend on your investment timeframe, risk appetite and lifestyle needs. You have to be very mindful when weighing these aspects so you will be able to handle any potential financial downturns.

 

2)  Could I end up making a loss?

Unit trust investments take the middle ground between high-risk and high-return investment vehicles like stocks, and low-risk low-return vehicles like fixed deposits.

However, like any other type of investment, there is an element of risk involved with unit trusts.

As unit trust funds are investments spread out over several types of investment categories, including stocks, bonds and commodities, there is a reduction in risk as it is unlikely that every single company that the fund invests in would fail.

However, if a unit trust has funds invested entirely in one country/region, should that area face a sudden economic downturn or crisis, your funds could quickly lose their value regardless of the asset or industry spread.

It is important to ask your unit trust agent to explain the worst case scenario before you dip your toes into the investment.

 

unittrust3

3)  What are the upfront and hidden costs?

It is important to be aware of upfront and hidden charges, including yearly management fees as they will erode your profits. Knowing just how much you are paying will enable you to make a meaningful comparison among the cost structure of different funds.

Since these charges are paid up front, it will take some time before you break even, much less make a profit.

 

4)  How do I select the funds that are most suitable for me?

To choose the right funds, you need to be clear about your financial objectives and financial goals. For example are you aiming to generate income or preserve your capital?

Then, think about your investment timeframe and risk tolerance. Are you saving for the short-term to cover a property down payment, or are you saving for a long-term goal such as your newborn’s eventual tertiary education?

In general, younger investors can afford to optfor higher-risk funds, as they have a longer time horizon and more years of earning potential ahead. This will allow them to ride out the market’s highs and lows while benefiting from compound interest.

Other important factors to consider are your financial holding power and how much you can afford to lose as an investor.

Your unit trust agent should then be able to match the right funds to your risk profile and investment goals.

 

5) How much should I invest?

Again, this would depend on your financial objectives. For those who are saving for retirement, investing in unit trusts can be a useful method for combating the ravages of inflation while preserving the value of their earnings.

According to the Organisation for Economic Co-operation and Development (OECD), in order to maintain the same standard of living post-employment, one should start saving at least 33% of his/her monthly income as early as age 25, to have at least 2/3 of his/her monthly income in retirement.

Your Employees Provident Fund (EPF) contribution provides only 23% to your savings every month (11% from you, and 12% from your employer) – still 10% short of what OECD recommends. Worse, with a projected inflation rate of 3% to 4% per annum, the value of your savings could be significantly reduced over the next decade.

6) What are some of the risks?

Unit trust investments are subject to social, economic and political conditions. Some of the risk factors that unit trust investors face include market risk, default risk and inflation risk.

Market risk occurs when you lose money due to fluctuations in market prices. Default risk happens when the issuer of a bond (companies or individuals) is unable to make timely principal and interest payments.

Inflation risk is the possibility that the value of assets or income from an investment shrinks due to changes in purchasing power attributed to inflation. Any changes in foreign currency exchange rates will also affect the returns of the respective funds.

Conclusion

By asking your unit trust agent the right questions, you will have a better chance of being able to make an educated and informed investment decision — resulting in (hopefully) the “correct” answer of potentially higher returns.

https://www.imoney.my/articles/trust-doesnt-rust-6-questions-you-should-...

 

© Securities Commission Malaysia (SC). Considerable care has been taken to ensure that the information contained here is accurate at the date of publication. However no representation or warranty, express or implied, is made to its accuracy or completeness. The SC therefore accepts no liability for any loss arising, whether direct or indirect, caused by the use of any part of the information provided. The information provided is for educational purposes only and should not be regarded as an offer or a solicitation of an offer for investment or used as a substitute for legal or other professional advice. For enquiries regarding sharing, republishing or redistributing this content please write to: [email protected].

6 Deadly Investment Mistakes You Should Avoid At All Costs

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securities-commission-malaysia      invest smart

It has been said that “Mistakes are the stepping stones to learning.”

With that in mind, most investors, experienced or otherwise, will try their best to avoid making any mistakes when it comes to investing by making sure they learn as much as they can beforehand!

The best way to start is to know what are the mistakes that you could potentially make, and finding out the best ways of avoiding them.

We’ve done the homework for you – here are six investment mistakes that you should not fall for:

Oops!!

1. Investing without planning

Every investment portfolio should have an underlying strategy based on the financial goals you want to achieve.

Unfortunately, many who invest do it merely by investing based on trends and hearsay. One might be dumping thousands of Ringgit into a stock just because his/her friends are doing so.

You need to establish a plan and know what you want to achieve.

Step 1A: Financial goals should be quantifiable

investment mistake table 1

Step 1B: Evaluate your risk appetite

sc

Step 1C: Diversify your investment portfolio according to your risk appetite

A diversified investment portfolio consists of different baskets, also known as asset groups. Within each asset group, you can further diversify. For example, one of your asset groups may consist of shares, and you can then further diversify by investing in shares from different industries. Doing this allows you to spread your risk across different asset classes.

investment mistake table 3

2. Not doing your homework

Don’t invest in something you don’t understand. However, don’t let that stop you from investing either! Take your time to study your potential investment to understand how it works.

Information is mostly free and easily accessible online. Read up about a certain investment you are interested in before taking the plunge.

Conversely, you can seek professional help by getting a financial advisor to help you plan your portfolio. Even then, always take note of the basics and understand your portfolio or investment plan.

Here are some websites to help get you started:

3. Not understanding your investment

Doing your research prior to investing is crucial. However, taking what you read word-for-word can be dangerous too.

Whatever reading materials you decide to use for your research should just serve as your basic guideline. Everyone has different financial goals and investment plans. There is no one-size-fits-all when it comes to investment tips, take everything with a pinch of salt. Remember: Refer, don’t rely!

The most important part of doing research is not to absorb every single piece of information that you have read, but rather understanding how to apply the information when planning your investments. For example, investing in shares does not just require you to understand how the stock market works, but also understanding the industry and the company that you want to invest in as well as the risks, fees and charges involved.

These documents will help to provide you with an insight on your potential investment(s):

investment mistake table 4

4. Letting greed take over

Getting a return from your investment is a pretty good feeling. It gives you the adrenaline rush, and also confidence to invest more.

The excitement you feel can sometimes cloud your judgement, and greed may sneak in before you realise it. Letting emotion control your decisions can lead you to fall into an investment trap faster than a fly flying into a spiderweb.

Though most investors know this (theoretically), it still happens all the time, especially when the stock market is booming. People lose reason and start making wild bids on stocks that aren’t worth the price.

However, to ensure that your investment is sustainable, think long term. Investing is not a get-rich-quick scheme. Let your financial objectives, the time frame needed to achieve your goals, and your ability to take risks ground you from making irrational decisions. Stay disciplined!

5. Falling for hearsay

Imagine you just heard from an acquaintance at the coffee shop, who heard from another friend, that Company X will be merging with Company Y, and that the price of both companies’ shares should spike up in the next few weeks. Would you then make an investment decision based on this?

Sometimes we fall for what we would like to believe is a “hot tip”. Like everything else, this kind of information can sometimes be true, but more often than not, these tips fall through and you’d find yourself losing thousands of Ringgit.

Don’t fall for unsubstantiated “tips”. Stick to your fundamentals and you’ll achieve your goals.

6. Procrastinating

“I am too young to start investing and saving for retirement”. “I need to save up a certain amount before I can get started in investing”. “I’ll wait for the price to spike up or drop before making my move”.
Does this sound familiar? These are some common excuses people use to procrastinate when investing.

Sometimes these reasons can be valid, but more often than not, they are just excuses people use to delay making an investment decision. Why? It could be due to a fear of failure or losing their hard-earned money.

When it comes to investing, the earlier you start, the higher your chances of earning a return. Do not disregard the cost of opportunity that you may incur by delaying your decision to invest.

Conclusion

For the uninitiated, investing your money can be daunting. However, by knowing and understanding what you are up against (and preparing yourself to avoid the above six common mistakes), you would have already won half the battle.

So remember, arm yourself with the right information to make an informed decision when investing. Never leave anything to chance!

https://www.imoney.my/articles/6-deadly-investment-mistakes-you-should-a...

© Securities Commission Malaysia (SC). Considerable care has been taken to ensure that the information contained here is accurate at the date of publication. However no representation or warranty, express or implied, is made to its accuracy or completeness. The SC therefore accepts no liability for any loss arising, whether direct or indirect, caused by the use of any part of the information provided. The information provided is for educational purposes only and should not be regarded as an offer or a solicitation of an offer for investment or used as a substitute for legal or other professional advice. For enquiries regarding sharing, republishing or redistributing this content please write to: [email protected].

How to Tilt Investment Odds

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howtotiltinvestmentodds1

Most investors have experienced failure in their investments. While some managed to learn from their mistakes, others may continue to get burnt in the volatile market. However, we do see a number of highly successful cases in stock market investment. We may think that the success rate during good times is higher than bad times, but, by having a game plan, we may actually be able to increase our chances of success, especially during bad times. At the end of this article, you will be able to identify the strategy to tilt your chances of success and how it will affect your investment decisions.

 

Logically, in order for us to make money, we must be able to hold on to the right stocks. There is a famous saying in the investment world: ‘cut your losers early and let your winners run’. The question is, how do we do that? One way is to set a target price, which is usually a certain percentage above our purchase price. Upon reaching it, we sell the stocks and lock in our profit. However, in a down trending market, when the price is going down, our target price will never be achieved, and we will most likely end up holding the stocks longer than we expect as the market goes down. If the stocks are of good fundamental, then, this should not become a worry as we can always wait for it to appreciate in price at a later date. However, if during that period, the company’s fundamental has gone wrong, we will end up making losses by keeping a stock that that values lower than our purchase price.

 

Stop-loss strategy – managing down side risk

howtotiltinvestmentodds2

In investment, managing downside risk is equally as important as making profit. Therefore, we should also have a strategy to stop investment loss in down trending market. A stop-loss strategy is basically setting a target price, below which, we should sell off the stock holdings. Depending on individual tolerance limit, we can set the target at a 10 or 20% below the purchase price. Usually a higher percentage is allowed for a stock that is more volatile in nature while a narrower tolerance limit is applied when the market is full of uncertainty. For instance, if we purchased a stock at RM10 and the stock price is fluctuating in both directions, we may apply a 20% downside limit to set the selling price. If the price falls to RM8 or below, we should sell off the stock. In the event that the price appreciates to RM11, then the limit price should be readjusted to RM8.80.

 

 


 

On the surface, this strategy seems to be logical and easy to be implemented. However, when it comes to actual execution, many are unable to sell even when the price breached their tolerance limit. This is mainly due to the fact that to sell a stock at a loss is always much more difficult than selling at a profit. Psychologically, when we sell our stock holding at a loss, it means that we have to overcome our pride as we have to admit that we have made a mistake in purchasing it. In addition, many will also fear that after the stock being sold off, the price may appreciate again. Therefore, because of pride and fear of regret, a lot of investors will end up holding their stocks when the price goes down as they are still hoping for the price to go up again in the future.

howtotiltinvestmentodds3

Some may question the need of a stop-loss strategy as we can always treat our stock holding as a long-term investment. However, if we are having only limited capital, by selling the stock off when the price is going down, it actually helps to free up some of our capital which we can use it to purchase other stocks with better potential. For example, if we sell off Stock A at RM9 that we purchased at RM10, and use RM8 to purchase Stock B (with Stock B being of equal or better fundamental that started with RM10 and now has dropped to RM8), when the price appreciates back to RM10, we would have made RM1 profit versus if we do nothing and continue to hold on to Stock A. Alternatively, we can also choose to sell off the stock and hold the cash to wait for the stock price to go down further before buying it back at a lower price.

 

This is a strategy that helps investors to manage their downside risk, especially during bad times to ensure investors will not get caught in situation that tie up all their capital, or in a worse case, get stuck with losses that are unrecoverable. At the end of the day, as an investor, you must always be clear of your investment objectives and be aware of your tolerance level before making any investment decisions.

 

© Securities Commission Malaysia (SC). Considerable care has been taken to ensure that the information contained here is accurate at the date of publication. However no representation or warranty, express or implied, is made to its accuracy or completeness. The SC therefore accepts no liability for any loss arising, whether direct or indirect, caused by the use of any part of the information provided. The information provided is for educational purposes only and should not be regarded as an offer or a solicitation of an offer for investment or used as a substitute for legal or other professional advice. For enquiries regarding sharing, republishing or redistributing this content please write to: [email protected].

Illegal Internet Investment Schemes: How to Protect Yourself

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The rapid pace of change and impact of technology has massively changed the way people work and play.

The rapid pace of change and impact of technology has massively changed the way people work and play. For example, in the past, consumers were restricted in how they could perform certain tasks via the Internet, such as giving authorisation or clearance to perform online transactions but now, it’s as easy as clicking “Yes”, “Approve” or “Confirm”!

Unfortunately, the ability to easily obtain/give approval online is precisely why the Internet has also turned into a major source of investment scams.  In fact, it has made the Internet a dangerous place for unsuspecting, gullible and greedy investors while becoming a massive playground for sneaky, unscrupulous and cunning scammers. What’s worse is that day by day, illegal internet investment schemes are becoming more complex and tricky, sometimes being able to fool even experienced investors.

With this in mind, we take a closer look at how you as an investor can, and should, protect yourself from the Internet’s increasingly complicated minefield of legitimate and illegitimate investment schemes. By the end of this article, you as an investor will be able to identify the characteristics of online investment scams, the appropriate steps to take when offered an illegal internet investment scheme as well as know when to press the “Delete” or “Reject” button.

  • First, let’s take a look at the common features of illegal internet investment schemes:
  • Proprietors, who claim themselves to be “investment experts”, would highlight the “excellent track record” of the company and also include testimonials from “clients” to convince investors. They also offer investment opportunities above a market rate of return and will claim that their schemes are at zero or very low risk.
  • The identity of the proprietors appear authentic enough at first glance, but is usually not available for verification.
  • When questioned, most illegal operators will either claim to be foreign operators that do not require licenses from Malaysian regulators to operate their business, or claim that they already have the appropriate license from relevant authorities/regulators. Some even claim that their activities do not require a licence.
  • Recommendations to buy/sell certain stocks and advice/tips are delivered to clients via e-mail, short messaging service (SMS), access to password-protected webpages or one-to-one/group meetings.
  • The proprietors may also advertise their services through indiscriminate use of e-mails and messages posted on bulletin boards and online forums.
  • Websites are professionally designed to resemble a legitimate business and may be equipped with real-time stock prices, market commentary, market news and links to other financial websites.
  • Some of these websites may include free services, such as basic tutorials about the capital market, e-books and access to chatrooms/bulletin boards.
  • Unsuspecting victims of these schemes would be enticed as operators will pay them high returns at the initial stage and this is used as a tactic to lure and recruit new investors.
  • The survival of this scheme is dependent upon the recruitment of new depositors, i.e., funds obtained from new depositors will be used in paying dividends to the existing depositors. Therefore, the scheme will fail when there is no contribution of funds from new depositors;
  • However, the operator will eventually abscond with deposits collected when he feels that the scheme is about to fail, thus leaving the depositors at the losing end.

If you’re ever offered an online investment opportunity with the above characteristics, be cautious! Ensure you consult the relevant authorities first before parting with your hard earned money.

 

WHAT YOU SHOULD/NEED TO DO:

When you are offered the chance to invest in an internet investment scheme, it’s quite easy to protect yourself! Always:

  • Remember the golden rule - if it sounds too good to be true, it's probably a lie;
  • Deal only with registered or licensed financial institutions and authorised dealers (refer to the Securities Commission (SC) and Bank Negara Malaysia (BNM) websites at www.sc.com.my and www.bnm.gov.my for a comprehensive list);
  • Ask for important information – Does anyone answer your emails to the company? Is the company address clearly stated on its website/documents? Does the investment firm use mysterious/uncommon/untraceable offshore bank account numbers/Does the actual company exist;
  • Be wary of testimonial traps –false testimonials try to give the impression of authenticity. Usually, the testimonials play on human emotions and greed, with the same pattern: that the person is very happy with the investment and wants you to invest as soon as possible, that investing with them will change your life, that their friends and family are also enjoying the benefits of the investment, etc;
  • Check with the relevant authorities before investing/ depositing. These include the SC, BNM, the Ministry of Domestic Trade, Cooperatives and Consumerism, CyberSecurity Malaysia, Companies Commission of Malaysia and more;
  • Don't be pressured or rushed to invest;
  • Be sceptical of any investment opportunity that is not in writing. Ask to see as many documentations as possible so that you can ascertain the legality of the investment opportunity offered; and
  • In case an investment has been made, keep copies of all the investment records and communications.

 

 

EXTRA PROTECTION

Since the Internet is a vast global network, it is inevitable that fraudsters are also based internationally. These fraudsters, armed with more advanced technology, may also employ more intricate and sophisticated methods of scamming. Hence, we highly recommend you also refer to the relevant securities commissions in other jurisdictions such as www.hksfc.org.hk (Hong Kong), www.fsa.com (UK), www.asic.gov.au (Australian Securities and Investments Commission), www.mas.gov.sg (Singapore), www.sec.gov (US) and more to find out about the latest online illegal investment schemes and how to protect yourself.

CONCLUSION

In the battle against investment scams, knowledge, information and common sense are your strongest possible “weapons” for protection. Admittedly, there are plenty of legal and illegal investment schemes available on the Internet, and differentiating between the two is becoming more challenging by the day. But by practising the three simple steps mentioned above, as well as using the right “weapons”, it is highly likely that you will end up on the winning side in the battle against illegal internet investment schemes.

© Securities Commission Malaysia (SC). Considerable care has been taken to ensure that the information contained here is accurate at the date of publication. However no representation or warranty, express or implied, is made to its accuracy or completeness. The SC therefore accepts no liability for any loss arising, whether direct or indirect, caused by the use of any part of the information provided. The information provided is for educational purposes only and should not be regarded as an offer or a solicitation of an offer for investment or used as a substitute for legal or other professional advice. For enquiries regarding sharing, republishing or redistributing this content please write to: [email protected].

Investor’s rights (Part 1): The Right to Voice Opinions

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As a general rule, you as a shareholder do not normally have the right to be directly involved in the running of a company.

As a general rule, you as a shareholder do not normally have the right to be directly involved in the running of a company. However, shareholders can still protect the integrity of their investment and indirectly influence corporate decisions by engaging in active dialogue with the directors and corporate management. In this article, we will take a closer look at the various platforms for investors to make their voices heard and how this can help influence the company that they invested in.

"Shareholder activism" is a broad term that encompasses the many ways in which investors have engaged corporate management on a broad array of issues. Concerned investors have been known to use a range of tactics to lobby for greater corporate responsibility, such as:

  • having dialogues with management;
  • letter-writing campaigns;
  • attending annual general meetings (AGMs); or
  • drafting resolutions and requisitioning extraordinary general meetings (EGMs).

In Malaysia, shareholder activism has become more common when compared to the past. For example, minority shareholders are now taking on a more active role in safeguarding their investments.

Avenues to express concern

So, how does an investor exercise his right to voice his opinion so that he is not taken for a ride? As an investor/shareholder you have several options to exercise your rights by making yourself heard. They are:

 


Attend shareholder meetings

Firstly, an investor should make the effort to attend shareholders’ meetings, i.e. the AGMs and EGMs. The AGM is the only shareholders’ meeting, and is required by law to be held by all companies. It provides shareholders with an opportunity to obtain information and question the directors and senior management regarding the company’s past performance and future plans, and to hold them accountable for their responses.

In addition to voicing their views and concerns on the company’s activities, shareholders should employ their right to vote at AGMs when resolutions are tabled in the agenda. This is one way for shareholders to exert some influence on the company. It has been acknowledged, however, that it is not easy for outnumbered minority shareholders to swing sufficient votes to oppose the will of the majority. Regardless of this, as an investor or shareholder, exercising your rights should always remain as one of your top priorities.

On matters of concern that are too urgent to wait until the next AGM, shareholders have the power to requisition an Extraordinary General Meeting. In this type of scenario, usually a minimum of two or more shareholders holding not less than 10 per cent of the issued share capital of the company have the right to  call for an EGM. This is where even the minority shareholders can play a role, by persuading or gathering other minority shareholders and demanding an EGM when necessary.

Write to or speak with the management of PLCs

Some public listed companies (PLCs) have dedicated investor relations units to give consistent and updated information on the company, as well as be a point of reference for investors. Investor relations units also serve to provide feedback for management to know and understand the perceptions, concerns and interest of shareholders and the investing community.

In certain companies, the corporate communication unit may also assume similar functions to investor relations. As for companies where there is no such formal structure, particularly the smaller PLCs, investors can speak to the company secretary or the chief financial officer.

Write to the print media, (Example: Letters to the editor)

Basically, writing to a newspaper will highlight your view or grouse to the public, attracting attention (whether wanted or unwanted) to the company and forcing them to take action. Since almost all newspapers have a section where readers can express their views on a particular issue, this is a highly effective (although not necessarily popular) method. Lobbying through the print media may also be able to garner support from other minority shareholders, as well as trigger action from the company or relevant authorities.

If you are a unit trust holder, you have the right to call for a unit holders’ meeting. You also have the power to vote for the removal of the trustee or the management company through an Extraordinary Resolution. At least 50 unit holders or one-tenth of all unit holders of a fund can apply for a unit holders’ meeting for the purpose of:

  • considering the most recent financial statements of the unit trust fund;
  • giving the trustee such directions as the meeting thinks proper; or
  • considering any other matter in relation to the trust deed[i] (refer to footnote A).

The trust deed which governs the powers and responsibilities of the management company, the trustee and unit holders, should stipulate specific provisions relating to the convening of the unit holders’ meetings.

Conclusion

When a corporation is formed, they are legally obliged to give certain rights to shareholders. These rights can help reduce losses, eliminate illegal or unethical practices, and give shareholders some control over who runs the corporation and the way it is run. As an investor, the power is literally in your hands! If you fully understand, appreciate and exercise your rights as an investor, you will be able to make better decisions when picking which stocks to buy. It will also help you determine whether certain corporate philosophies match your own principles about how a corporation should be run, and subsequently make the decision to buy or sell.

 

© Securities Commission Malaysia 2010



[i] According to Section 305 (1) of the Capital Market Services Act 2007:

305. (1) A management company shall call for a meeting of unit holders if—

(a) not less than fifty unit holders or one-tenth of all unit holders direct the management company to do so;

(b) the direction is given to the management company in writing at its registered office; and

(c) the purpose of the meeting is—

(i) to consider the most recent financial statements of the unit trust scheme or prescribed investment scheme;

(ii) to give to the trustee such directions as the meeting thinks proper; or

(iii) to consider any other matter in relation to the deed.

 

© Securities Commission Malaysia (SC). Considerable care has been taken to ensure that the information contained here is accurate at the date of publication. However no representation or warranty, express or implied, is made to its accuracy or completeness. The SC therefore accepts no liability for any loss arising, whether direct or indirect, caused by the use of any part of the information provided. The information provided is for educational purposes only and should not be regarded as an offer or a solicitation of an offer for investment or used as a substitute for legal or other professional advice. For enquiries regarding sharing, republishing or redistributing this content please write to: [email protected].

Monitor your Investments

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Changing environment

Changing environment
The day you start investing is NOT the day you stop looking at your investment plan or doing your homework. You still need to read your financial papers and company reports, keep your eyes and ears open to news affecting your investments and generally be on top of what's going on with the companies behind your investments. Why?

Because, first, we live in a dynamic world. Nothing is static - which makes your financial plan, no matter how brilliantly conceived and properly implemented, susceptible to changes. A company whose stock you are holding, could for instance, lose its competitive lead and make your investment risky. Changing laws and regulations, turns and twists in the domestic and world economic environments (remember September 11, 2001 bombing of the World Trade Centre in the US?), changes in the capital markets and reversal of company fortunes can affect your investments. As a consequence, your investments may need restructuring because they no longer jive with your financial plan and goals. An investor who wants to succeed, needs to be proactive to these changes.

Modifying your plans
Second, you should also review your portfolios for the reason that your own financial situation may have changed to necessitate restructuring your plan and goals. Say, you may receive a windfall and now have a lot more funds to invest so you can aim for bigger goals. Or you may have increased your net worth by buying a piece of property so that you have less funds for investing and have to adjust your plan.

Evaluating performance
Third, you should continuously monitor and evaluate the performance of your investments to find out how they are doing. If they are faring well, you may want to pump in more money, or take part of your profits and look for another vehicle. If they are not, you may decide to sell. How often the review should be depends on the size and time frame of your investments and whether you have chosen high-risk or low-risk assets.
When measuring the performance of your asset, use the total return figure, and not the income return figure. The income return refers only to the income derived from an investment. In the case of shares, the income is represented by dividend payments; with debt investments such as bonds, the income is in the form of interest payments.

The total return is the more accurate measure of performance because it also takes into account whether there is a gain (or loss) in the value of the investment over time. For shares, total return is the sum of dividend income and the capital gain/loss (difference between the sale price and the cost price). To get the percentage returns, divide the total return by the cost of investment and multiply by 100.

Monitoring shares
You should also monitor the company whose shares you have bought by tracking its profitability, earnings growth, gearing and dividend payouts. Read the company's announcements, shareholders' circulars, annual and interim reports and focus on closing dates of rights, warrants, takeovers, earnings, auditor's report and the directors' interest. You should also attend the annual general meetings to find out how the company is managed and to gauge its business prospects.

Monitoring unit trusts
For collective investment schemes such as unit trusts, you should monitor your fund manager in terms of performance (relative to the objectives of the fund), strategy, reporting and portfolios. You could benchmark your funds against similar funds.

You can request for information from your fund manager, such as:

  • Performance of relevant investment markets
  • Level of volatility associated with return
  • Rate of inflation
  • Performance of other similar fund managers
  • Strategies employed over recent periods

Fund managers are reviewed on the services they provide, namely performance and reporting.

Have your expectations of returns been met?
Is the fund manager doing what is expected e.g. buying stocks in accordance with laid-out strategies and mandate?

You should also bear in mind that the investment outcome is subject to a large number of random factors and short-term performance data may not accurately assess the fund manager's investment skills.

 

© Securities Commission Malaysia (SC). Considerable care has been taken to ensure that the information contained here is accurate at the date of publication. However no representation or warranty, express or implied, is made to its accuracy or completeness. The SC therefore accepts no liability for any loss arising, whether direct or indirect, caused by the use of any part of the information provided. The information provided is for educational purposes only and should not be regarded as an offer or a solicitation of an offer for investment or used as a substitute for legal or other professional advice. For enquiries regarding sharing, republishing or redistributing this content please write to: [email protected].

How to Spot Scams!

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Minimise the risk of losing your savings to scams by recognising the different types of illegal investment schemes that are plaguing our society. Here are some typical characteristics and promises made by scams:

Minimise the risk of losing your savings to scams by recognising the different types of illegal investment schemes that are plaguing our society. Here are some typical characteristics and promises made by scams:

  • For every investment that you make, you will receive a high return, for instance, 20-30% per month, every month.
  • You are not shown the so-called quality product you are allegedly selling, but you will get paid for every person you recruit or sign up.
  • You are told that the offer is for a limited time and that you MUST join or buy today.
  • You are told to send money to some foreign banks in foreign currency to claim a prize but you do not remember entering into any contest or lucky draws.
  • You receive unsolicited phone calls offering investment opportunities and you have no idea how the company has obtained your phone number.
  • You receive unsolicited e-mails asking you for your bank account number because they want to send you money, usually millions of US dollars, from some foreign countries. This is, strictly speaking, not an investment scam, but is still a scam, and a popular one.
  • You are offered an investment product that guarantees large profits with no financial risk.
  • You are asked to invest in an investment scheme. The address and contact information of the investment company offering you big money is located in a foreign country where you cannot verify its physical location.
  • You are offered a “free gift” in order to get something later, for example, a larger amount of money.
  • You are offered job opportunities with high pay without any need for relevant experience or academic qualifications.
  • You are approached by someone who claims to be an agent for foreign trading houses (e.g. based in Macau, Bahamas, British Virgin islands etc) to trade in foreign indices (e.g. Hang Seng index), commodities (e.g. coffee) or forex (e.g. US$, Yen etc) but you need to deposit some money as a “margin” in some foreign currency before a trade can be executed.
  • It is hard to find any information about the company’s licence or physical existence in any regulator or authority’s website.

If you are faced with any of the above situation, what should you do to protect yourself?

 


 
 

 

To prevent from being swindled, keep the following points in mind:

Protection #1:
Avoid any investment that guarantees regular or large profits for a small outlay. Be extremely wary of companies that guarantee large profits or tout high performance over a short period of time. For instance, “We guarantee you will make at least 20-30% per month, every month from this investment.” You must remember that every investment involves risks and you must have often heard, “high risk, high return!” Be extra careful, especially if the investment is supposed to give you high returns with low or no risk.

Protection #2:
Be wary of plans that focus on paying you to recruit others instead of paying you to sell products and services. Key words that should caution you are “downline” or “pyramid”.

Protection #3:
Never sign up for an opportunity in a high-pressured situation, such as “you have a limited time to join this scheme” or “buy now or miss out”. Remember, if it is a legitimate business, it will still be around tomorrow, next week, next month or next year.

Protection #4:
It is unlikely for you to win a prize or big money if you have not entered into any contest or lottery. It is also highly unlikely for legitimate contests to ask for money in advance before paying out the prize money. If you receive a call that says you have won a prize and you need to send some money to a foreign country in order to claim the prize, just hang up. It is not worth your time and effort to entertain such calls.

 

 


 

Protection #5:
Be sceptical about unsolicited phone calls about investments from offshore salespersons or companies with which you are unfamiliar. If the caller says that he or she is a broker’s dealer or investment adviser licensed by an authority abroad, ask for the name of the foreign regulator by which it is licensed and check the websites of the foreign regulator which would have a list of licensed or registered persons. You must always check the credentials of a licensed person with the relevant authority before parting with your money.

Protection #6:
Be sure you get the company’s performance track record. Also ask for written information on the investment product and the business, as well as the risks involved in the investment. Read carefully the prospectus or annual report of the company before investing.

Protection #7:
Do not provide any financial or personal information before you establish that the company is legitimate.

Protection #8:
Do not be afraid to ask questions. In fact, the more questions you ask, the better. Demand an explanation for something that you do not fully understand. However, do not take everything you hear at face value but do some detective work yourself. If you need help in evaluating the investment, go to someone like your licensed dealer or investment adviser, lawyer or accountant who can give you independent and professional advice.

Protection #9:
Always check against the regulator’s websites, for example, the Securities Commission’s website for information on investors alerts, or the list of licensed intermediary companies etc.

Protection #10:
If in doubt, do not invest. Why should you risk your money if you cannot get solid information about the company, the salespersons/agents, or the investment? Remember if it sounds to good to be true, it probably is!

 

 

 


 

More information and useful contacts:

If you need to verify the licensing status of a company in the securities and futures market, you may contact:

Investor Affairs & Complaints Department
Securities Commission
3, Persiaran Bukit Kiara
Bukit Kiara
50490 Kuala Lumpur
Tel: 603 6204 8999
Fax: 603 6204 8991
E-mail: [email protected]


However, if you have fallen prey to investment scams and fraud, you may also lodge your complaints with the relevant authorities such as:

Ministry of Domestic Trade, Co-operatives and Consumerism (MDTCC)
No. 13, Persiaran Perdana
Presint 2, 62623 Putrajaya
Hotline : 1800-886-800
Tel : 603-8882 5500
Fax: 603-8882 5762


Contact Centre (BNMTELELINK)
Corporate Communications Department
Bank Negara Malaysia
P.O. Box 10922
50929 Kuala Lumpur
Tel : 1-300-88-5465 (1-300-88-LINK)
Fax: 03-2174-1515
E-mail: [email protected]

or

Laman Informasi Nasihat dan Khidmat (BNMLINK)
(Walk-in Customer Service Centre)
Ground Floor, D Block
Jalan Dato' Onn
50480 Kuala Lumpur

 

 

© Securities Commission Malaysia (SC). Considerable care has been taken to ensure that the information contained here is accurate at the date of publication. However no representation or warranty, express or implied, is made to its accuracy or completeness. The SC therefore accepts no liability for any loss arising, whether direct or indirect, caused by the use of any part of the information provided. The information provided is for educational purposes only and should not be regarded as an offer or a solicitation of an offer for investment or used as a substitute for legal or other professional advice. For enquiries regarding sharing, republishing or redistributing this content please write to: [email protected].

If you "S.P.O.T." a Scam, do the "L.I.S.T."

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When you least expect it, you may be faced with an investment scam and even before you can draw your next brea

When you least expect it, you may be faced with an investment scam and even before you can draw your next breath, you may find yourself trapped! Investment scams always promise unprecedented returns beyond your wildest imagination. Delivered in a sweetest possible sales pitch, it can easily trap any unsuspecting prey. Even if you can avoid it, someone close to you may not. So how do you identify scams?

Do the S.P.O.T. test

Here are four simple tests you can apply whenever you are offered an "extremely high return with no risk" investment:

img_SPOT_1.jpg img_SPOT_1a_t.png
img_SPOT_2.jpg img_SPOT_2a.jpg
img_SPOT_3.jpg img_SPOT_3a.jpg
img_SPOT_4.jpg img_SPOT_4a.jpg

If an investment offer fulfils the "S.P.O.T" test, do the "L.I.S.T":

img_LIST_1.jpg img_LIST_1a.jpg
img_LIST_2.jpg img_LIST_2a.jpg
img_LIST_3.jpg img_LIST_3a.jpg
img_LIST_4.jpg img_LIST_4a.jpg

Get them before they get you

Many people have been tricked into investing in scams. But the number that come forward to complain is small. Most would cite "bad luck" as the reason for their losses. This attitude only encourages scams to proliferate. If you come forward with information of a scam, you could help the SC get to them first before it gets its next victim who could be someone close to you.

Remember if you see the SPOT, do the LIST. If you identify a scam, let the SC Investor Affairs & Complaints Department know immediately at 03-6204 8999.

© Securities Commission Malaysia (SC). Considerable care has been taken to ensure that the information contained here is accurate at the date of publication. However no representation or warranty, express or implied, is made to its accuracy or completeness. The SC therefore accepts no liability for any loss arising, whether direct or indirect, caused by the use of any part of the information provided. The information provided is for educational purposes only and should not be regarded as an offer or a solicitation of an offer for investment or used as a substitute for legal or other professional advice. For enquiries regarding sharing, republishing or redistributing this content please write to: [email protected].