Tax in Stock Investment

Some people might still confuse on Tax paying on Stock Investment. Here we will share the Taxing in Stock investment.

There is 2 kinds of income in Stock investment. (We don't discuss about lost, because there is no Tax in losing money)

1. Capital Gain
This income generate when you buy a share in a lower price and sell it in a higher price. You can only get this income when you sell off your shares.
This kind of income is TAX FREE!!! We does not need to pay any tax on capital gain. (If you are having an investment company that manage a fund, that is a different case)

2. Cashflow Gain
This income generate when the company decide to pay our a dividend. Normally the divedend will be Tax Deduct upfront. And the Tax deduction is on a maximum rate - 25%(except for REIT and some other kind of share).
In this case, it is better if you report your Dividend in your Income Tax Submition. Because you already paid all the Tax in a maximum rate.

(Malaysia is having a regulation that all the Tax will be deduct upfront before giving dividend starting on year 2012. This means all dividend also will be TAX FREE as well. Because the government already Tax it when the company make profit.)

Eg.
Maybank is giving 11sens devidend in year 2010. And you are having 1000 units.
The cheque that you will get is 11sens x 1000 - 25% = RM 82.50
And you had paid Tax for RM 27.50
Let say your Taxible income highest rate is 14%;
So when you report this Dividen in your Income Tax, you also report the Tax Paid (RM 27.50).
In a way, LHDN need to return you 11% of the tax collected in your divedend = RM 12.10

After all is your duty to report the Tax correctly. Happy investing and paying Tax.

Evaluate Stock by PB ratio

In previous article, we had discussed in PE ratio. In this chapter, we would like to discuss another important indication - PB ratio.

PB ratio stand for Price / Book value ratio. Book Value meaning the Net Asset Value for the stock.

In the financial report or some other sources, you can get the NAV for the share. The NAV is determine by Total Asset Value / Total share.

Eg.
Airasia
Total Asset Value is RM 2,676,586,000
Total Share Issued is 2,759,368,000
NAV or Book Value per share is RM 2,676,586,000 / 2,759,368,000 = RM 0.97 per share.
Current Price is RM 1.17
PB ratio is 1.2; meaning the market price is higher then the NAV for 20%

Please dun mistaken that PB ratio >1 meaning the share is over value. This is just one of the analysing factor. Because a lot of business does not own Asset but still valued. Especially for Nasdaq company (IT company). Normally for this kind of company they own Intellectual Properties (IP) which is not count as Asset in this case. So normally their PB ratio is very high.

So when you want to compare on PB ratio, you must compare with the same nature of business (as mention in PE Ratio Analyse).

PB ratio create a "Safe Impression". If the PB ratio is near to 1 or less then 1; then if anything happen, this company still can sell of its Asset and create that value to the share holder.

In most case, the Asset value is created by Product Stock of the company, building, machine, etc.
When you are using PB ratio as analysis, please also consider the nature of the business. If this business collapes, will the "Asset" decrease in value?

Note: PB ratio cannot be use as the only analyse index. Some NAV might over valued by the company to show it is more interesting.

Evaluate Stock by PE Ratio

What is PE Ratio

PE Ratio stand for Price / Earning Ratio

Eg. Airasia current price is RM 1.21; on last financial year, they report a RM 0.224 as the Earning Per Share (EPS)

PE ratio for current price will be 1.21 / 0.224 = 5.4

How can we use PE ratio to evaluate the company?

For all company that making profit, they have the PE ratio. (Again it is come back to your strategy - long term or short term investment.)

Another way of looking at PE ratio is the Return of Investment (ROI). Let say Airasia make a profit of 22.4 sen per year and the current price is RM 1.20. Your ROI on investing this share in this price is
0.20 / 1.2 = 18.67% p.a

Of course, PE ratio is based on last year financial performance. Most of the company will annouce Financial Statement every Quarter. You can based on the latest financial status and calculate on the PE ratio.  You can also look for past few years.

For Eg.

Glomac

The EPS for this share is very consistent. Based on current Financial Report; EPS for 3rd Q in year 09/10 is 9.86sens From calculation, we expect EPS to be 13.15sens.

Current Price is RM 1.25; that means the PE ratio is 9.5 (Expected)

If we based on last year performance; the PE ratio is 10.9 (As publish)

And your can calculate your ROI based on the current price. You will decide whether the ROI is good enough or not.

Of course, we have to evaluate the stock based on their business nature. It may not wise for us to compare PE ratio for Glomac and Public Bank. The movement of the price is different based on the nature of the business.

It will be more proper for us to evaluate Public Bank (11) vs Maybank (70) vs CIMB (17). or Glomac (10) vs UEM land (40) vs Gamuda (30).

This shows you which stock is more worth to buy.

Why not just based on current Price?

For stock, current price might not mean the real value.

Maybank current price RM 7.50 ; PE ratio is 70 ; ROI = 1.43%

Public Bank current price RM 11.7 ; PE ratio is 11 ; ROI = 9.09%

Can you tell me which stock is more worth to buy? Maybank or Public bank is over valued?

HISTORY

Rapco Holding in 1997 price went up to RM 140.50 per share. The highest PE ratio goes up to 370!!!

If you had know about PE ratio, will u pick up this stock? which your ROI is less then 1%

In 2001, the  price is Rm 7.10; Now Rapco already delisted from second board.

PE ratio is a very important index; it will be useful even your strategy is for short term investment. You can evaluate the risk taken if you want to invest this stock as a short term investment.

Note:

Besides PE ratio, PB ratio is also a very important index. We will share about PB ratio in next article.

Trading Page

This time, we will share a standard view when you start a trading. This TRADING PAGE is an online view. Perhaps this Trading Page can help you to understand more on common term.

The yellow dotted column 1 shows the Buying Q and the Buying Price. Byuing Q meaning the number of shares is Q'ing  to buy at the Buying Price

At the left bottom column; it shows a few Buying Q and Buying Price of CIMB.

Column 2 shows the Selling Q and Selling Price.

Column 3 shows the Last done Price.

Column 4 shows the Changes compare to Opening Price for the day. (For CIMB; this day is the Ex date for Bonus, so althought yesterday closing price is 14.42; but the actual equivalen price is 14.42 / 2 = 7.21 Because CIMB give out 1:1 bonuse share.)

Column 5 shows

L-V is last done volumn (how many share traded on the current price on last trade)

Vol is the volumn of the day. Take a look at GLOMAC, till this time there is still no trading for this share, so the volume is 0.

Column 6 shows the buying rate for today. When buying rate is high - meaning buying transection is high.
Eg. Total trade is 1000shares; 700 share is done on Selling Q (meaning people buy on the selling price) and 300 shares is done on the Buying Q (people buy the share by Q'ing) so the Buying Rate is 70%.

Column 7 is PE Ratio - Price / Earning Ratio. This is my favorite topic. This is one of the very important index for you to evaluate and analyse. We will discuss this topic in a later part.

As you can see there is Green "Buy" column and Red "Sell" column at the top right. This is column is to click if you want to start this trading. You will need to key in the Buying / Selling Price and the volumn on the next pop up.

Hopefully you had learned the basic from this page. Happy investing. If you have any question; you can always contact us on

mmstockmastermind@yahoo.com

Happy investing.

Margin Trading

On previous post, we had introduce for normal trading. In this post we will touch on Margin Trading.

Margin Trading is a trading that can gain / lost money without keeping the share and not using your capital money. The profit / lost made through the difference (margin) of buying and selling the share within the payment due period (Normally is T +3).

For all trading, we need to pay to the Broker Company on T+3days. If you buy and sell the share within this date, you does not need to pay to the Broker Company on the share you buy; instead you will gain / lost the difference of the trading.

Example:
Case 1
Monday - buy 1000 units of ABC in RM 1.00
Tuesday - sell 1000 units of ABC in RM 1.10

The difference is RM 0.10 x 1000 units = RM 100
The Broker Company will bank in RM 100 - all broker fee to you by next Monday (T+3 from Tuesday).

Case 2
Monday - buy 1000 units of ABC in RM 1.00
Tuesday - sell 1000 units of ABC in RM 0.90

The difference is RM 0.10 x 1000 units = RM 100
You need to bank in / pay to the Broker Company RM 100 + all broker fee by next Monday (T+3 from Tuesday).

Some Broker Company offer more margin day up to T+5; this is depends on the offer the company give to you. But common is T+3.

Intra Day Trading is to trade your share within the same day. Most of the Broker Company will give you an offer of lower Broker Fee such as 0.2% per trade. The profit is made on the difference (Margin) as well.

This kind of trading is to make money with no capital, but the risk is high. This is totally a very short term investment.

Technical Data Analysis is a very important analysis tools in this case. We will discuss on Tech Data Analysis in later part.