Lowyat.NET: Latest topics by Auron

[WTS] MBPP parking ticket @ 25% discount

Auron — Fri, 22 Apr 2016 10:16:08 +0800

Item(s): MBPP parking ticket

Package includes: Parking tickets

Price: RM 3 for the RM 4 book, RM 6 for the RM 8 book

Warranty: Genuine MBPP ticket book

Dealing method: COD in Penang

Location: Penang

Contact method/details: 0128111096
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Item(s) conditions: new

Picture: n/a

Reason for sale: A friend who works in Georgetown, Penang has his monthly allowance in the form of MBPP parking tickets, in certain months he will not be able to use up all his parking ticket allowance due to outstation travel.

[WTB] Audio-Technica ATR2100-USB

Auron — Mon, 01 Apr 2013 10:09:53 +0800

Am looking for this Audio-Technica ATR2100-USB Cardioid Dynamic USB/XLR Microphone

Thanks.

LCF on Personal Finance Malaysia

Auron — Mon, 24 Oct 2011 00:04:48 +0800

Communicating Insightfully Simplified Financial Concepts and Issues Affecting your Wealth & Future

LCF on Personal Finance

My Financial Thoughts

Many of us begin to worry about our personal financial management, at a stage in our lives when our financial responsibilities get heavier….like getting married, purchasing a home, having the first child, taking care of ageing parents, planning for child education and our own retirement.

Unfortunately, our education systems do not provide much guidance in financial literacy. It also does not help that the mass media constantly encourages people to spend for instant gratification.

For many, the only non brainer financial principle our parents taught – "spend less what you earn", which is the pillar of prudent financial management.

However, it is more crucial to be financially literate and to take a more holistic approach in personal finance management. It’s not just about using money to make more money blindly, but we need to manage the risks as well – both personally and financially.

This blog is an expression of my thoughts, analysis and personal opinion, which in no way should be constituted as hard facts or recommendations.

I believe the more you share with others, the more you gain back, especially from those who are better and smarter.

Let’s exchange our ideas, efforts and experiences. I openly welcomes any comments on any blunders here.

The Cause & Effect of Business Cycle

Auron — Wed, 24 Aug 2011 18:15:37 +0800

Coming from a non-financial background, it took me a while to put together all the pieces of what I knew. This should be the eimplest flowchart to explain the business cycle if you are not an investment banker. Let me know of any blunders.

Employee Stock Purchase Plan (ESPP)

Auron — Mon, 15 Aug 2011 00:48:42 +0800

Scenario 1 & 2 below are the past and present methods of implementation for Employee Stock Purchase Plan (ESPP) at a US multinational company, let's call it X. However, Scenario 1 is still practised in at least another MNC, let's call it Y.

*****************

In this purchase period, assume I have enrolled into the plan and accumulated a sizeable amount of money via monthly salary deduction. And according to company's ESPP plan, staff is entitled to purchase the share at 15% discount.

Scenario 1

At the end of Purchase Period, company will purchase the shares at the lower of these 2 prices - Entry Stock Price on 1 Jan or Last Day Purchase Period Stock Closing Price, at 15% discount.

Here's an example, an actual screenshot of my own ESPP shares purchase calculation. See the phrase "Your purchase price is 85% of the lower price", which happen to be the stock price on 31 Oct 2008.

Scenario 2

See a different phrase for the below - "Your purchase price is 85% of the Fair Market Value on purchase price", which always refer to the closing stock price on the last stock trading date within the defined Purchase Period. In this case, it is the stock closing price on 30 April 2009, which, coincidentally, is lower than its entry price on 1 Nov 2009.

But in the next Purchase Period, as in the third screenshot below, your stock purchase date fair market value is fixed on 31 Oct 2009 (last stock trading price within this Purchase Period) as in the aforementioned statement. It is NOT the lower of the Entry Price ($18.81) and Purchase Date Price ($24.74).

So why did MNC X altered the implementation somewhere in Q4 2008? It never occurred to me WHY, but apparently it actually has to do with Malaysian (moronic) taxation scheme on ESPP.

In short, employee lose out in Scenario 2, because less number of shares are being purchased.

Which scenario does your company practise?

Real Rate of Investment Return

Auron — Wed, 10 Aug 2011 18:38:43 +0800

A concept to share from here

Also known as the average annualized return or geometric mean of return, a potentially confusing term in the mathematics of finance.

Compared to simple arithmetic mean, geometric mean takes into account the time period and the effect of compounding, and is a more accurate representation of investment return.

Let's take an example something we can all relate to - unit trust fund. A hypothetical fund - Fund LCF has the rate of return as below:

Year 1: 15% Year 2: -15%

At a glance, the "too-casual observer" will conclude that over the 2 years period, the investment return is 0% of your capital. This is arithmetic mean of return calculation. You break even.

Not true actually. Say, if you invested RM 10,000, you investment will be at RM 11,500 by end of Year 1. By end of Year 2, your money would have reduced to RM 9,775 (0.85 x 11,500). So you actually lose RM 225, or 2.25% of your initial capital.

The more accurate method to know the rate of return within the 2 years is by using geometric mean. It's really no rocket science. The calculation is as such:

[ (1+ r1) x (1 + r2) ]^(1/n) - 1, whereby r1 = 0.15 and r2 = -0.15, n = number of years, 2

...and you will get, -1.13%. This is the annual averaged loss over the time frame of 2 years. "WTF?" you asked. Unfortunately, this is the number that represents the reality in this case.

Let's compute this again. By end of Year 1, your capital would have reduced to : (1-0.01314) x RM 10,000 = RM 9,886.86

By end of Year 2, your ending balance will be: (1-0.01314) x RM 9886.86 = RM 9,775.00

To quote Investopedia,

...when it comes to annual investment returns, the numbers are not independent of each other. If you lose a ton of money one year, you have that much less capital to generate returns during the following years, and vice versa. Because of this reality, we need to calculate the geometric average of your investment returns in order to get an accurate measurement of what your actual average annual return over the five-year period is.

It may seem confusing as to why geometric average returns are more accurate than arithmetic average returns, but look at it this way: if you lose 100% of your capital in one year, you don't have any hope of making a return on it during the next year. In other words, investment returns are not independent of each other, so they require a geometric average to represent their mean.

The problem with calculating and reporting an arithmetic mean is that it always overstates the correct (geometric) annualized return. Interestingly, how much it overstates the actual geometric mean is highly related to the volatility of the returns of the asset. Hence the arithmetic average return is usually the one posted in ads for mutual funds and other investments. The only time when the arithmetic and geometric average will be the same is when the individual returns being averaged are the same for each period being analysed.

Now after knowing this, ask your financial planner or unit trust agent how the historical returns of the funds are computed when they show you their data. Don't let them paint a too rosy picture of the promised return (no one can guarantee your investment return anyway!). You might be misled by total returns published over a time period, which is not a true performance indicator especially if you are looking for capital preservation and consistency in investing your hard earned money. Look beyond the publicized investment returns being touted by the advertisers or investment managers of the products being solicited. Knowing the 'average' return of an investment is not very useful unless you are able to differentiate between the arithmetic average return and the geometric average return.

The Real Cost of Credit Card Annual Interest Rate

Auron — Sun, 07 Aug 2011 01:31:04 +0800

Refer to the annual interest charges for Maybank credit cards.

Assume you are one of those who constantly spend more than you earn and frequently misses your payment, putting yourself in Tier 3 bracket of 17.5%.

Say, you have outstanding balance of RM 10,000, so you'll think (I did previously) that, even if I don't pay a single cent for the next 12 months, by the 13-th month, I would need to pay 117.5% x 10,000 = RM 11,750. Or, you think, every month, I will be charged a monthly interest of 17.5% /12 = 1.4583%

Not quite that simple. Confused? Let's solidify the concept with an example below.

Remember, you get your credit card statement monthly - your outstanding balance plus interest incurred previously will be carried forward to the subsequent month. That means, the compounding period is monthly!

In other words, as you are well aware, for the first month, the outstanding balance plus interest incurred is RM 10,145.83. On the second month, the 1.4583% interest will be charged on RM 10,145.83 brought forward from the first month. See the impact of compounding over here?

Effectively, once you want to settle the balance outstanding after the 12th month, you will be paying MORE than the advertised interest rate of 17.5% due to compounding, because 17.5% is really the APR!

The actual interest rate you will be paying is the AER. For APR of 17.5%, the AER is 18.974%!! See APR to AER conversion here. Or in monetary amount, RM 11,897.40 instead of RM 11,750.00

Still don't believe me? Read this and compute FV in excel with the following inputs: nper = 12 months, 0.014583 for rate and PV = -10,000. Put zero for Pmt. The concept is similar.

So, why banks quoted you 17.5%?

Simple, because it is a lower number between the two. When you are the bank's debtor, bank need you give you the disguised impression that you need pay less than you are actually paying. This is marketing - they are not actually lying to you, just that it's not the whole truth. You have nothing to blame but your own ignorance. Different countries have different rules and regulations in place to combat some of the unscrupulous activity surrounding quoting rates that has arisen in the past; however, there is no better insulator against these ruses than proper financial knowledge. If you know of any bank which quote AER instead of APR for credit card interests, let me know - I am pretty sure their credit cards product would not be selling too well even though they are telling the truth to customers!

http://lieucf.blogspot.com/2011/08/lesson-...-card.html#more

Also submitted for Ezine article: Annual Percentage Rate Versus Annual Effective Rate - Can You Differentiate?" (6527052)