Corporate Governance, Shareholder’s Rights (1)

I have attended few shareholder’s meetings (AGMs) in Malaysia.

My general feel is that many, if not most shareholders,
do not uphold their shareholder’s rights.

In the AGMs, many shareholders merely attend to collect gifts, have meals,
become "Yes man" during votings and obstructing critical questions being asked in Q&A sessions. Unjustifiable praises are hailed on the management and Board of Directors even during cases when they should be criticised. Ridiculous questions are being applaused. Good, critical questions (sometimes being raised towards the end after finally getting their turns) are being jeered at.

One important concept is Board of Directors should act in the best interest of shareholders.
Shareholders pay them large sum of director’s fees to take care of shareholders’ interests and to act as check-and-balance for the management team. Need to make sure they do their jobs.

Hopefully this post can shed some lights on Corporate Governance and Shareholder’s Rights.

The Corporate Governance of Listed Companies: A Manual for Investors (from CFA Institute)
PDF file

One of the intangibles to look into a company when investing is Corporate Governance.

A number of studies show strong links between good corporate governance and strong profitability and investment performance (the studies are mentioned in above PDF file).
We need to pay particular attentions to the Board of Directors, Management and Shareowner Rights.

For Board of Directors,
take note of its independence, member qualifications, authority to hire external consultants, terms, related-party transactions and board committees.

For Management, take note of implementations of code of ethics, personal use of company assets and corporate transparency on executive compensation, share-repurchase and price stabilization program.

For shareowner rights, pay attention to shareowner voting and shareowner proposals.

The Manual is a great read !

Investment Guru: Benjamin Graham, the father of value investing

Benjamin Graham is considered the
"father of financial analysis",
"father of value investing".

Graham mentored (among others) Warren Buffett.

Books by Benjamin Graham or co-authored by him:
1.The Intelligent Investor
2. Security Analysis
3. Benjamin Graham: memoirs of the dean of Wall Street
4. The Interpretation of Financial Statements
5. Storage and Stability
6. World Commodities and World Currency

I only have the 1st two books.
"The Intelligent Investor" is easier to read and more affordable than the great classic "Security Analysis". English version of "Security Analysis" is very expensive. Chinese version is much much cheaper.

More elaborated list of his works
(click on "Benjamin Graham")

The Heilbrunn Center for Graham & Dodd Investing at Columbia Business School
value investing history

Some students who had studied with Graham or Murray (Graham’s successor of his course) became legends in investment management, including
Warren Buffett MS ’51,
Mario Gabelli ’67,
Glenn Greenberg ’73,
Charles Royce ’63,
Walter Schloss and John Shapiro ’78.

The Rediscovered Benjamin Graham:
has 10 lecture texts by Benjamin Graham (presented at NY Institute of Finance in 1946 – 1947).
A summary of his life, method etc.

Some of his important concepts are:
intrinsic value,
margin of safety,
Mr. Market etc..

History of CFA Institute
Benjamin Graham had proposed the need for a rating designation for analysts. The idea which eventually become CFA designation.

One of the articles on Benjamin Graham (on his life) from CFA Institute.

XBRL (extensible Business Reporting Language)

Currently when retail investor wishes to do its own financial analysis on companies, he will have to:
1.Download many quarterly, annual reports (often in PDF format)
2. Key in the financial items on spreadsheet
3.Making relevant adjustment based on financial items
4.Analyse in the format of ratio, table, graph etc.

Though steps 3 and 4 can be automated easily,
steps 1, 2 (especially step 2) are the tedious and time-consuming steps.
It becomes a deterrent for retail investor to do its own financial analysis (assume he has the knowledge on how to do one).

Imagine in the not-so-distant future:
The second when quarterly/semi-annual/annual report is available,
it can send you an alert telling you that there are new information;

you open your PC/laptop/mobile, the new data is incorporated into your previous financial analysis.
Based on pre-customised software settings. it automatically calculates ratios, draw out tables, charts etc for your perusal.
A searchable, updated database of companies (for examples those that met certain pre-defined investment criteria) is readily available.

Financial analysis on invested companies becomes common. Even a layman can do it, they just have to get a analysis software or a securities company with such software (but he needs to have slight training on that).

Came across this development in investment field that may make this possible:
XBRL (extensible Business Reporting Language)

Some presentation materials that are useful:
XBRL website
IASB website on XBRL

Read from one of the articles, Microsoft Office has already a Prototype to facilitate XBRL use:
Microsoft Office Tool for XBRL Prototype

Saw news that US and China are going to implement this XBRL.
My wishes are that Malaysia and Singapore are implementing this XBRL soon and there are securities companies who offer the analysis software to his clients free :-)

Beware of bankruptcy – bank (2)

Prevention is better than cure.
Instead of relying on getting Deposit Insurance after bank went bankruptcy,
it will be better if we can detect when certain banks are going "bad".

Found this "Examiner’s guide to Problem Bank identification, rehabilitation and resolution" from
Comptroller of the Currency Administrator of National Banks, US:
PDF file

The part "Problem Bank Identification" and "Accounting Issues in Problem Banks" are particular useful.

Some of the red flags mentioned (the "guide" teaches on details of these red flags):
1.rapid growth/aggressive growth strategies
2. deterioration in economy
3. management/oversight deficiencies
4. inappropriate limits on OCC access to bank staff and documents (applies to US, in simple term, not letting enough "regulator"’s access to bank staff and documents)
5.risk management deficiencies
6.significant off-balance-sheet exposure
7. asset quality deterioration
8.significant ALLL (Allowance for Loan and Lease Losses) and asset valuation adjustment issues
9. strained liquidity
10.insider abuse and fraud