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Japan's public-private funds boosting investment amid virus crisis – The Japan Times

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Public-private funds in Japan, such as Japan Investment Corp. (JIC), are preparing to boost investments at a time when corporate earnings are being squeezed by the novel coronavirus epidemic.

The government plans to use the state-backed funds to strengthen the capital base of companies facing management difficulties, in hopes that the assistance will trigger the creation of new industries and revitalize regional economies mainly through industry realignment.

There are concerns, however, that if the number of so-called zombie companies increases as a result of easy public bailouts, economic growth would be undermined.

Keisuke Yokoo, president of JIC, said the fund will never rescue zombie companies, suggesting plans to encourage companies to implement drastic reform, such as restructuring, through investment and loans.

The government expanded its guarantee lines for JIC and Regional Economy Vitalization Corp. of Japan, or REVIC, in June.

Investment capacity expanded from ¥1.5 trillion to about ¥3 trillion for JIC and from ¥1 trillion to some ¥2.5 trillion for REVIC. The two funds have also strengthened their workforce.

This summer, JIC launched some initiatives, including an investment fund for medium-sized and large companies, in an attempt to spur digitalization to deal with the coronavirus crisis and industry reorganization.

JEVIC is said to be looking for a large-scale business rehabilitation project involving debt forgiveness. The predecessor of JEVIC led the corporate rehabilitation procedures for Japan Airlines in 2010-2011.

Amid the coronavirus crisis, tourism-related businesses, restaurant operators and airlines have been thrown into an earnings slump. The government has stepped up financial support for them, with bank lending led by the government totaling ¥40 trillion.

But the excessive debt can hamper new investments and structural reform by companies.

A corporate rehabilitation specialist predicted that an increasing number of companies will eventually be granted a debt waiver and accept investment to clear heavy debt, and be forced to undergo drastic reform.

Public-private funds are considered to be prospective sponsors for such corporate rehabilitation efforts.

At the same time, state-backed funds need to avoid causing financial burdens on the people as they use public funds.

The predecessor of REVIC secured proceeds totaling ¥300 billion when JAL returned to the stock market in 2012. But the predecessor of JIC effectively failed in its attempts to bolster semiconductor manufacturers and reorganize the liquid crystal display industry.

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Should You Be Adding Australian Ethical Investment (ASX:AEF) To Your Watchlist Today? – Yahoo Finance

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Like a puppy chasing its tail, some new investors often chase ‘the next big thing’, even if that means buying ‘story stocks’ without revenue, let alone profit. And in their study titled Who Falls Prey to the Wolf of Wall Street?’ Leuz et. al. found that it is ‘quite common’ for investors to lose money by buying into ‘pump and dump’ schemes.

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Australian Ethical Investment (ASX:AEF). While profit is not necessarily a social good, it’s easy to admire a business that can consistently produce it. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.

Check out our latest analysis for Australian Ethical Investment

How Quickly Is Australian Ethical Investment Increasing Earnings Per Share?

The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually. That makes EPS growth an attractive quality for any company. I, for one, am blown away by the fact that Australian Ethical Investment has grown EPS by 47% per year, over the last three years. While that sort of growth rate isn’t sustainable for long, it certainly catches my attention; like a crow with a sparkly stone.

One way to double-check a company’s growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. The good news is that Australian Ethical Investment is growing revenues, and EBIT margins improved by 4.3 percentage points to 29%, over the last year. Ticking those two boxes is a good sign of growth, in my book.

You can take a look at the company’s revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

earnings-and-revenue-historyearnings-and-revenue-history
earnings-and-revenue-history

While profitability drives the upside, prudent investors always check the balance sheet, too.

Are Australian Ethical Investment Insiders Aligned With All Shareholders?

I like company leaders to have some skin in the game, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. So it is good to see that Australian Ethical Investment insiders have a significant amount of capital invested in the stock. With a whopping AU$121m worth of shares as a group, insiders have plenty riding on the company’s success. That holding amounts to 25% of the stock on issue, thus making insiders influential, and aligned, owners of the business.

It’s good to see that insiders are invested in the company, but are remuneration levels reasonable? A brief analysis of the CEO compensation suggests they are. I discovered that the median total compensation for the CEOs of companies like Australian Ethical Investment with market caps between AU$284m and AU$1.1b is about AU$1.0m.

The Australian Ethical Investment CEO received total compensation of just AU$482k in the year to . That’s clearly well below average, so at a glance, that arrangement seems generous to shareholders, and points to a modest remuneration culture. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. It can also be a sign of good governance, more generally.

Is Australian Ethical Investment Worth Keeping An Eye On?

Australian Ethical Investment’s earnings have taken off like any random crypto-currency did, back in 2017. The cherry on top is that insiders own a bucket-load of shares, and the CEO pay seems really quite reasonable. The sharp increase in earnings could signal good business momentum. Big growth can make big winners, so I do think Australian Ethical Investment is worth considering carefully. It’s still necessary to consider the ever-present spectre of investment risk. We’ve identified 1 warning sign with Australian Ethical Investment , and understanding this should be part of your investment process.

You can invest in any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies with insider buying in the last three months.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.

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Alberta launches program to attract petrochemical investment – Western Standard

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The UCP has announced a massive new incentive programs with the hope of attracting petrochemical companies to Alberta.

But the Canadian Taxpayers Federation is slamming the plan, in part, because of its lack of a cap.

The province claims the Alberta Petrochemicals Incentive Program (APIP) will help attract billions in petrochemical project investments and continue to diversify the province’s economy while drawing directly on our abundant reserves of natural gas.

“The goal is to aggressively compete with several jurisdictions across Asia, the Middle East, and those in the Gulf of Mexico in the United States, many of which also offer similar incentives for petrochemical manufacturers, to become a global destination for petrochemical investment,” the province said in Friday release.

“According to Alberta’s Industrial Heartland Association, there is an opportunity to grow Alberta’s petrochemical sector by more than $30 billion by 2030, resulting in more than 90,000 direct and indirect jobs over the construction and operations of new facilities, and more than $10 billion in revenue for the Government of Alberta from corporate and personal income taxes.”

APIP offers a direct financial incentive on new petrochemical or fertilizer facilities, or on expansions to existing ones.

Once a project is up and running, companies that have successfully applied will receive grants worth 12 per cent of their eligible capital costs.

The grant will be issued in the final step in the process, ensuring that only projects already built and employing Albertans receive funds, said the release

Prior to the grant, companies will need to show their project meets the program requirements by detailing the scope and expected cost of the project.

The application window for small projects (between $50 million and $150 million in capital costs) will be open for five years. Applications for larger projects will be open for 10 years.

Projects eligible for the program must have a minimum $50 million in capital investment, consume natural gas, natural gas liquids or petrochemical intermediaries, create new and permanent jobs in Alberta and meet the federally set definition of a manufacturing and processing facility.

There is no cap to the program, but the government will report on expected costs each fiscal year, based on applications received and projects approved.

“Today we’re adding another incentive to Alberta’s already world-class opportunities for petrochemical development. On top of our existing petrochemical producers and all the companies that feed in and support them, we have a multi-generational supply of natural gas, an experienced workforce, and one of the lowest tax rates in North America. By launching this program, Alberta moves towards achieving the goal of becoming one of the most attractive investment opportunities for petrochemicals in the world.,” said Dale Nally, Associate Minister of Natural Gas and Electricity.

The Canadian Taxpayers Federation is slamming the government for failing to put a cap on the program.

“Taxpayers shouldn’t be forced to sign a blank cheque for the petrochemical industry,” said Franco Terrazzano, the CTF’s Alberta Director.

“It’s bad enough that taxpayers are already paying for one bad petrochemical subsidy, but it’s completely unacceptable for Premier Jason Kenney to let another petrochemical subsidy to be rolled out without a cap on taxpayer costs.”

The APIP is in addition to the current Petrochemicals Diversification Program, which costs taxpayers $1.1 billion.

The CTF obtained a leaked briefing note produced by Treasury Board and Finance officials warning former finance minister Joe Ceci about the risks associated with subsidies for the petrochemical industry, which states: “the proposed incentive program cannot be justified on economic merit alone” and “there is no guarantee that the incentive program will actually lead to additional investment.”

“Kenney deserves credit for lowering the business tax rate so job creators can invest more of their own money into their business, but the government is taking a wrong turn by adding another petrochemical corporate welfare program on to the backs of struggling taxpayers,” said Terrazzano.

Dave Naylor is the News Editor of the Western Standard
dnaylor@westernstandardonline.com
TWITTER: Twitter.com/nobby7694

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Grantham’s 10 tips for investment success in both good & bad times – Economic Times

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Famed value investor Jeremy Grantham says the best returns on investments do not come from taking biggest risks, but from buying cheapest assets.

He says the lesser an investor pays for a stream of earnings, the higher will be the chances of his return over time.

“You don’t get rewarded for taking risk; you get rewarded for buying cheap assets. If the assets you bought got pushed up in price simply because they were risky, you are not going to be rewarded for taking the risk; you are going to be punished for it,” he told investors in his quarterly letter.

Jeremy Grantham is a British investor and Co-founder and Chief Investment Strategist of Grantham Mayo Van Otterloo (GMO), a Boston-based asset management firm.

Grantham has a reputation for accurately predicting about three major market bubbles: Japan’s asset-price bubble in 1989, the dot-com bubble in 2000, and the US mortgage crisis in 2008.

Grantham’s investment strategy

Grantham’s investment strategy is built on the idea of mean reversion. He makes his investment choices by looking for irrationally priced stocks.

He says financial assets can be too expensive or too cheap at any given moment, but will always go back to average. The worst thing investors can do is to get in or out of an investment for the simple fear of lagging behind their peers, says he.

Why individual investors are at an advantage

Grantham says the basic truth of investment is that investor behaviour is driven by career risk. He feels most investment managers fear taking bold calls and prefer going with the flow and doing what their peers are doing, because it is the safest option to survive in the investment industry.

Grantham says individual investors can take advantage of this practice of investment managers, as it creates herding and thus drive prices well above or below their fair values.

“The prime directive is first and last to keep your job. To do this, you must never, ever be wrong on your own. To prevent this calamity, professional investors pay ruthless attention to what other investors in general are doing. The great majority ‘go with the flow’, either completely or partially. This creates herding, or momentum, which drives prices far above or far below fair price,” says he.

Giving the example of the Internet Bubble, he says companies that were suffering big losses and had no future were getting billion-dollar valuations and fund managers were buying them at excessive prices, just because they feared missing out or deviating from the performance of their peers.

10 lessons for individual investors
Grantham lists out 10 timeless investment lessons for individual investors setting out on dangerous investment voyages.

1. Believe in history: In investing, history tends to repeat itself and all investment challenges pass away in due course. Investors should try and survive the tough times and ignore vested interests of the industry who try to mislead them from time to time about the market, says Grantham.

“The market is gloriously inefficient and wanders far from fair price but eventually, after breaking your heart and your patience (and, for professionals, those of their clients too), it will go back to fair value. Your task is to survive until that happens,” he says.

2. Don’t be a lender or a borrower: If an investor plans to borrow capital for investment, it tends to interfere with their survival in the industry. The temptation to borrow has proven to be so seductive that individuals have shown themselves to be incapable of resisting it, as if it were a drug.

“Unleveraged portfolios cannot be stopped out, leveraged portfolios can. Leverage reduces patience, an investor’s critical asset. It encourages financial aggressiveness, recklessness and greed. It increases your returns over and over until, suddenly, it ruins you. For individuals, it allows you to have today what you really can’t afford until tomorrow,” he says.

3. Don’t put all of your treasure in one boat: It is best not to put all the capital into one investment, as several different investments give a portfolio resilience and the ability to withstand shocks. “Clearly, the more investments you have and the more different they are, the more likely you are to survive those critical periods when your big bets move against you,” he says.

4. Be patient and focus on the long term: It is important for investors to have patience to exploit favourable market conditions. There will always be ups and downs in the market. So it is best to invest for the long term when a good investment opportunity arises. “Wait for the good cards. If you’ve waited and waited some more until finally a very cheap market appears, this will be your margin of safety. Now all you have to do is withstand the pain as the very good investment becomes exceptional. Individual stocks usually recover, entire markets always do. If you’ve followed the previous rules, you will outlast the bad news,” he says.

5. Recognise your advantages over the professionals: Individual investors have a big advantage over professional managers as they don’t have to report their results to anyone but themselves. Also, they don’t have to match the market’s return every year and don’t have the fear of getting fired. Also, unlike a professional investment manager, individuals can afford to hold a temporary loser for a winning outcome in the long run which is a huge advantage for many reasons like minimising taxes and transaction costs.

“The individual is far better positioned to wait patiently for the right pitch while paying no regard to what others are doing, which is almost impossible for professionals,” he says.

6. Try to contain natural optimism: Although optimism is often regarded as a positive survival characteristic in the investment world, it comes with a downside, especially for investors who don’t like to hear the bad news. “In a real stock bubble like that of 2000, bearish news in the US was greeted like news of the bubonic plague; bearish professionals were fired just to avoid the dissonance of hearing the bear case, and this was an example where the better the case was made, the more unpleasantness it elicited,” he says.

Investors should not be overly optimistic and learn to give importance to both the good and the bad news of the investment industry. One should be willing to hear bearish, bad news about the risks they have taken with their capital and make informed decisions about them.

7. On rare occasions, try hard to be brave: Professional investors have the ability and the skill to often spot bargains, but they can’t and don’t always act on it. This is due to the fact that professional investors don’t want to risk lagging behind their peers and lose their jobs if they go wrong on an investment bet.

But Grantham feels individuals don’t have that worry and they should trust their research if they find an investment that looks cheap even if it’s likely to be out of favor for a while. “You can make bigger bets than professionals can when extreme opportunities present themselves because, for them, the biggest risk that comes from temporary setbacks – extreme loss of clients and business – does not exist for you. So, if the numbers tell you it’s a real outlier of a mispriced market, grit your teeth and go for it,” says he.

8. Resist the crowd, cherish numbers only: It is toughest for investors to resist the enthusiasm of a crowd. “Watching you neighbours get rich at the end of a bubble while you sit it out patiently is pure torture,” he says. So, Grantham advises investors to do their own simple measurements of value, or find a reliable source and check their calculations from time to time.

He says investors should ignore especially the short-term news like the ebb and flow of economic and political news. “Stock values are based on their entire future value of dividends and earnings going out many decades into the future. Shorter-term economic dips have no appreciable long-term effect on individual companies let alone the broad asset classes that you should concentrate on. Leave those complexities to professionals, who will on average lose money trying to decipher them,” he says.

9. In the end it’s quite simple. Really: Investors should look to calculate estimates and forecasts of an attractive investment proposition by using simple methodology and shouldn’t let any external factors affect their research. “These estimates are not about nuances or PhDs. They are about ignoring the crowd, working out simple ratios and being patient,” he says.

10. This above all, to thine own self be true: To become successful, it is imperative for investors to know their limitations as well as their strengths and weaknesses. “If you can be patient and ignore the crowd, you will likely win. But to imagine you can, and to then adopt a flawed approach that allows you to be seduced or intimidated by the crowd into jumping in late or getting out early is to guarantee a pure disaster. You must know your pain and patience thresholds accurately and not play over your head,” he says.

He also believes that if investors cannot resist temptations, then they should absolutely not manage their own money. People can either hire a manager who has those skills to manage their money efficiently or they can pick a sensible, globally diversified index of stocks and bonds for investment which they should never look at again until they retire, says he.

Grantham also feels that if individuals have patience, a decent pain threshold, an ability to withstand herd mentality, some basic college level education in math, and a reputation for common sense, then they can be successful in the investment world.

“In my opinion, you hold enough cards and will beat most professionals which is sadly, but realistically, a relatively modest hurdle and may even do very well indeed,” he says.

(Disclaimer: This article is based on Jeremy Grantham’s GMO Quarterly Letter).

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