Successful

Investing in
Unit Trust
 Explaining Equity Fund
• How do you explain Equity Fund to an
illiterate person?

• What is Equity?
 When a person Invest in Equity
Funds.....
• What are they really Investing in?

• Equity Funds invest in Equities, called

Shares or Stocks.

• What is Shares / Stocks?

• Fractional Ownership of a
business.
 Fact of Life
• Inflation will be around most of the years in
our life.

• Inflation = prices goes up.

• Consumer pays more, but owners makes

more.
 Causes of inflation to profit
• Before Inflation • After Inflation

• Selling Price • Selling Price

= $ 2.00 = $ 4.00

• Cost • Cost
= $ 0.80 = $ 1.60

• Gross Profit • Gross Profit

= $ 1.20 = $ 2.40
 To Invest
Successfully
for the
Future,
Learn from the
Past
 In 1926, If you had put $1,000 in
each of the 4 investments below, 68
years later you’ll have:
• Treasury Bills $ 11,680 (3.68%)
• Government Bonds $ 28,360 (5.04%)
• Corporate Bonds $ 40,340 (5.59%)
• Common Stocks ?
$ 800,530 !! (10.33%)

(Source: 21st Century Investment, by Frank

Armstrong)
 Inflation Adjusted Returns
from 1926 to 1993:

• Treasury Bills $ 1,430 (3.68%)

• Government Bonds $ 3,480 (5.04%)
• Corporate Bonds $ 4,940 (5.59%)
• Common Stocks $ 98,100 (10.33%)

(Source: 21st Century Investment, by Frank

Armstrong)
What if in 1926, your $ 1,000 earns
these rates ?
Annualised Return Amount
• 3.68% $ 11,680
• 10.33% $ 800,530
• 20% $ 242 Million
• 30% $ 56 Billion
• 40% $ 8.6 Trillion

Any “investments” that promises above 15% per

year, should be screened with extreme caution.
 Lessons Learned
• Common stocks (called as shares/
stocks/ equities) represents
fractional ownership of a business.

• Over a long term, Common stocks

gives the highest return, because
you’ve got the company’s growth on
your side.

• You’re a partner in a prosperous

and expanding business.
Equity Fund : Historical Charts
Equity Fund : Historical Returns
How to minimize
Risk in
Equity fund
 Case Study: Public Savings Fund
(PSF)
• A representative of an Equity Fund,
because since the fund manager invest at
least 70% in Equity most of the time.

• More than 29 years history (The fund was

launched in 1st April 1981).

• The fund invest mainly in Blue Chips (the

biggest companies in Malaysia).
 Yearly Return of PSF
120.0%

100.0%

80.0%

60.0%

40.0%

20.0%

0.0%
81

83

85

87

89

91

93

95

97

99

01

03

05

07

09
19

19

19

19

19

19

19

19

19

19

20

20

20

20

20
-20.0%

-40.0%

-60.0%
 Yearly Return Analysis of PSF
Average Total Return 10.6%
Best Total Return 102.8%
Worst Total Return -33.3%

Total Periods 29
No of Positive Periods 19 65.5%
No of Negative Periods 10 34.5%
-60.0%
-40.0%
-20.0%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
April-82

April-84

April-86

April-88

April-90

April-92

April-94

April-96

April-98

April-00

April-02
(Overlap by months)
Yearly Return of PSF

April-04

April-06

April-08

April-10
 Yearly Return Analysis of PSF
Average Total Return 10.4%
Best Total Return 102.8%
Worst Total Return -34.9%

Total Periods 339

No of Positive Periods 217 64.0%
No of Negative Periods 122 36.0%
 Rule No. 1:
Invest for
Medium to Long
Term
(3 years or more)
 Total Return

-60.00%
-40.00%
-20.00%
0.00%
20.00%
40.00%
60.00%
80.00%
100.00%
120.00%
140.00%
April-84 160.00%
April-85
April-86
April-87
April-88
April-89
April-90
April-91
April-92
April-93
April-94
April-95
April-96
April-97

Year
April-98
April-99
April-00
April-01
April-02
(Overlap by months)

April-03
3 Years Return of PSF

April-04
April-05
April-06
April-07
April-08
April-09
April-10
3 Years Return Analysis of PSF
Average Total Return 32.0%
Best Total Return 146.9%
Worst Total Return -31.6%

Average Annualised Return 9.7%

Best Annualised Return 35.2%
Worst Annualised Return -11.9%

Total Periods 315

No of Positive Periods 244 77.5%
No of Negative Periods 71 22.5%
 Total Return

-50.00%
0.00%
50.00%
100.00%
150.00%
200.00%
250.00%
April-86 300.00%
April-87
April-88
April-89
April-90
April-91
April-92
April-93
April-94
April-95
April-96
April-97
April-98

Year
April-99
April-00
April-01
April-02
April-03
(Overlap by months)
5 Years Return of PSF

April-04
April-05
April-06
April-07
April-08
April-09
April-10
5 Years Return Analysis of PSF
Average Total Return 60.1%
Best Total Return 251.1%
Worst Total Return -33.8%

Average Annualised Return 9.9%

Best Annualised Return 28.6%
Worst Annualised Return -7.9%

Total Periods 291

No of Positive Periods 244 83.8%
No of Negative Periods 47 16.2%
 Chance of Losing Money
(based on previous slides of PSF)

• 1 Year Holding Period = 36.0%

• 3 Years Holding Period = 22.5%
• 5 Years Holding Period = 16.2%

• 7 Years Holding Period = 3.7%

• 10 Years Holding Period = 0.0%

• Conclusion: The longer you own your fund, the

lower the possibility of losing money.
 Chance of Losing Money
40.0%
35.0%
% of Loss Period

30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
1 2 3 4 5 6 7 8 9 10

Holding period (in Years)

 But why …..?
• Why after 3 years (or 5 years), some
people investment in Unit Trust haven’t
shown a +ve return?
 For Example:
• A person invest in PSF on 3rd April 2000,
RM 100k. (excl. Service Charge)

• After 3 years (on 1st April 2003), market

value is only RM 70.9k.

• Why is it so?
Is it because PSF is a bad fund?
 Understanding P/E Ratio
House A House B

• Price • Price
= $ 100,000 = $ 200,000

• Annual Rental • Annual Rental

= $ 4,000 = $ 10,000

Which is a better buy, and why?

Investor’s Return vs Fund’s Return
• Study by Dalbar: Avg. Investors earn
below avg. Market returns.

• 20 years ending 31st Dec 2008:

– Market Return = 8.35% a year.
– Investor’s Return = 1.87% a year.

• Why?
 Conclusion from Dalbar Study
• Investor’s Behavior Causes Poor Market
Returns
– Most people are excited AFTER the market
has gone up, pouring money in Equity Funds.
– When market goes down, they pull money
out. Bear market, even worse!
– Chase Trends, leading to “Buy high, Sell Low”
– Over react to Good and Bad News
– Emotional Reaction causes illogical
investment decisions.
 Quotes
• “The Investor’s chief problem, and even
his worst enemy, is likely to be himself”.
– By Benjamin Graham.

• “Those who have knowledge, don’t

predict. Those who predict, don’t have
knowledge”.
– By Lao Tzu
 3 main reasons for people’s bad /
negative returns in Equity Funds

1. Buy “High” (usually ONLY lump sum)

2. Buy at high, then current Price is “Low”,

(or sold/ switch out of Equity at “Low”
Price)

3. Combination of the above two.

 2 Ways to overcome “Buy High”
syndrome

1) Spread your purchases (Dollar-Cost

Averaging), or

2) Don’t overpay (P/E above 20)

 Total Return

-20.00%
0.00%
20.00%
40.00%
60.00%
80.00%
100.00%
120.00%
March-87
March-88

March-89
March-90
March-91

March-92
March-93
March-94

March-95
March-96
March-97

March-98

Year
March-99
March-00

March-01
March-02
March-03
monthly for 3 years

March-04
March-05
March-06
March-07

March-08
DCA monthly for 3 years, then sell

March-09
March-10
 DCA then Sell, 3 years of PSF
Average Total Return 33.9%
Best Total Return 104.9%
Worst Total Return -9.3%

Average Annualised Return 10.2%

Best Annualised Return 27.0%
Worst Annualised Return -3.2%

Total Periods 280

No of Positive Periods 238 85.0%
No of Negative Periods 42 15.0%
 Total Return

0.00%
20.00%
40.00%
60.00%
80.00%
100.00%
120.00%
140.00%
160.00%
March-91

March-92

March-93

March-94

March-95

March-96

March-97

March-98

March-99

March-00

Year
March-01

March-02

March-03

March-04
monthly for 5 years

March-05

March-06

March-07

March-08

March-09
DCA monthly for 5 years, then sell

March-10
 DCA then Sell, 5 years of PSF
Average Total Return 64.9%
Best Total Return 141.4%
Worst Total Return 11.7%

Average Annualised Return 10.5%

Best Annualised Return 19.3%
Worst Annualised Return 2.2%

Total Periods 232

No of Positive Periods 232 100.0%
No of Negative Periods 0 0.0%
 Chance of Losing Money
(based on DCA, then sell monthly of
PSF)

• 3 Years Lump Sum = 22.5%

– 3 Years DCA, then sell monthly 15.0%

• 5 Years Lump Sum = 16.2%

– 5 Years DCA, then sell monthly 0.0%
 Chance of Losing Money
(based on DCA, then Sell Monthly)
Buy and Hold DCA your purchases, and sell monthly

40.0%
35.0%
% of Loss Period

30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
1 2 3 4 5
Holding period (in Years)
 How about Returns?

• Ok, chance of losing money (and thus

“Risk”) is reduced.

• But how about Returns?

 Annualised Returns
Lump Sum DCA, then sell monthly

Holding Average
Average
Period Returns
Returns
1 Year 10.4%
3 Years 10.2%
3 Years 9.7%
5 Years 9.9% 5 Years 10.5%
7 Years 10.0%
10 Years 9.5%
Alternative No. 2:
Don’t Overpay
( P/E above 20)
(when you Invest)
 Total Return

0.00%
20.00%
40.00%
60.00%
80.00%
100.00%
120.00%
140.00%
160.00%
January-90

January-91

January-92

January-93

January-94

January-95

January-96

January-97

January-98

January-99

January-00

Year
January-01

January-02

January-03

January-04
(Overlap by months)

January-05

January-06

January-07

January-08

January-09
3 Years Return of PSF + Don’t Overpay

January-10
 3 Years Return Analysis of PSF
+ Don’t Overpay
Average Total Return 47.1%
Best Total Return 146.9%
Worst Total Return -3.6%

Average Annualised Return 13.7%

Best Annualised Return 35.2%
Worst Annualised Return 1.2%

Total Periods 98
No of Positive Periods 98 100.0%
No of Negative Periods 0 0.0%
 Total Return

0.00%
20.00%
40.00%
60.00%
80.00%
100.00%
120.00%
140.00%
160.00%
180.00%
January-90 200.00%

January-91

January-92

January-93

January-94

January-95

January-96

January-97

January-98

January-99

January-00

Year
January-01

January-02

January-03
(Overlap by months)

January-04

January-05

January-06

January-07

January-08

January-09
5 Years Return of PSF + Don’t Overpay

January-10
 5 Years Return Analysis of PIX
+ Don’t Overpay
Average Total Return 87.8%
Best Total Return 180.7%
Worst Total Return 10.9%

Average Annualised Return 23.4%

Best Annualised Return 41.1%
Worst Annualised Return 3.5%

Total Periods 76
No of Positive Periods 76 100.0%
No of Negative Periods 0 0.0%
 Chance of Losing Money
(based on previous slides of PSF)
+ Don’t Overpay

• 3 Years Holding Period = 0.0%

• 5 Years Holding Period = 0.0%
 All 3 Rules
Rule 1: Invest at least 3 years

Rule 2: Don’t overpay (anything

above 20)

Rule 3: Don’t undersell (anything

below 16)
 Quotes by Warren Buffett
• "If you think about it [i.e., the markets], you
get these huge swings in valuations. It's the
ideal business arrangement, as long as you
don't go crazy. The 1970s were
unbelievable. The world wasn't going to
end, but businesses were being given
away. Human nature has not changed.
People will always behave in a manic-
depressive way over time. They will offer
great values to you."
 Quotes by Warren Buffett
• Most people get interested in stocks when
everyone else is. The time to get
interested is when no one else is. You
can't buy what is popular and do well.
 Quotes by Warren Buffett
• The future is never clear, and you pay a
very high price in the stock market for a
cheery consensus. Uncertainty is the
friend of the buyer of long-term values.
 Conclusion
• Current P/E is at average P/E.
However, interest rates (as a benchmark) is at
one of the lowest rate in the history.

• At current price, the risk of losing money over

the next 3 to 5 years is Negligible.

• P/S: This can only be applied to a well

diversified Equity Fund. Worse applied to
individual companies!
 Road to Riches
• The Poor – buy 4D, Toto, Lotteries,
Casino.

• The Middle Class – save in Banks, EPF,

Sukuk.

• The Rich – Owns 4D, Toto, Lottery

companies, and Banks!
Thank You!
 Disclaimer
• Past performance is no guarantee of future performance.

• Performance are no NAV to NAV, without service

charge.

• Data are obtained from FP Advisor, and the accuracy of

the data determines the accuracy of the analysis.

• Where P/E of the market is not available or doesn’t

seems to be correct, an estimate is used.