102 - Over promise and under deliver

102 - Over promise

and under deliver

"Over promise and under deliver" or "Under promise and over deliver" are two famous age-old business adages that everyone must have heard of and as well experienced the real meanings personally.

Let us get into the first adage that is "Under promise and over deliver" as an example. If a business states a product will be dispatched in five working days and it is despatched in three working days instead, it has performed better than it promised to. Customers are delighted to receive their products earlier than expected and is likely to feel satisfied and likely buy more products from the company in future.

On the other hand, an example of "Over promise and under deliver" happening  situation could be a potential buyer is promised of extensive wide coverage of after sales warranty package. But after buying and facing a defect problem, he discovered the warranty package has many hidden strict Terms and Conditions (which wasn't explained in details properly by the seller to the buyer in the first place) and his claim is rejected.

Once the client is not happy with this failed warranty claim, he is most probably not going to buy any future products from this company again.

In our every daily lives, we encountered either one adage each time we have a "transaction" done with any person or a company.

One of the most prevalent of "Over promise and under deliver" happenings can be found especially in the insurance and investment industry. (My apology, I don't mean to say the people or the company from insurance and investment are dishonest, but it is usually the related agents and consultants that tends to misrepresent a colour picture of over promise returns that attract potential buyers/investors).

Personally I have my fair share of such over promise and under deliver encounters. Many years back, I was inside a bank enquiring something about my current account at the customer's service desk. When the teller or rather customer service assistant checked my account and discovered I had some money in it, she shared with me their latest insurance cum investment plan that promised higher returns over a period of 20 years that fixed deposit rates could not match.

Mind you, she even wrote down that amount of return on a piece of paper that is simply too enticing to say no. What she didn't know was that I had some experience in insurance industry before, so I innocently expressed I would buy the plan, but out of curiosity if such plan comes with a proper policy, she said yes. Then I further said that amount of return (after a period of 20 years) would be stated in the policy, she bravely said yes.

But when I said if after signing up and discovered the policy didn't state the amount of return as mentioned by her, how? This put her back nervously suddenly and she "pretended" that she will confirm with her superiors immediately.

Several minutes later, she came back (no longer confident anymore herself) and said that the amount would not be stated in the policy. Then how would I know I would be receiving that amount you mentioned earlier? I further asked her how did you get that amount of figure when the policy didn't even mention any amount of return?

At this point, she knew she has been "caught" selling me a product that in a very misleading way by someone with knowledge in insurance and investment. She then explained that the amount of return is based on the "projected" rate of return of investments over the years.

She further elaborated that normally the "projected" rate of return is based on three levels, i.e. low (about 2-3%), medium (about 4-5%) and high (6-8%) return. Then I asked which level is her "projected" rate of return for my case and guess what? Mine is on the "projected" rate return of the high side (6-8%).

See, she was daring enough to sell me a policy with a projected rate return of 6-8% over the next 20 years! If I have been a simple layman with no knowledge of insurance and investment, I would have been misled and bought the policy with high hopes only to know the real rate of return in 20 years time!

By then, when the so-called projected rate of return is not achievable, do you think I could still find her and seek any justice? She might even be no longer in this job or had moved to some where else!

There must be many naive people who bought such misleading plans from such misleading agents/consultants. I came across many such clients who were not aware that the policies they bought were based on projected rate of return of the high side over the next 20 years!

A few even claimed that their agents/consultants are their good and trusted friends and would not misled them. It was only when they found out from their policies that there were no such confirmed printed "promised" amount of figure that they realised that I was actually talking the truth.

Even up to this days, this kind of misleading selling ways are still in the market here and there. This year alone, I was approached several times by agents/consultants selling the same misleading ways during their companies' road shows at various shopping malls.

This brings us the questions of why are they selling this way?

One, agents/consultants are under pressure to sell to fulfil their required quotas or they will be out of job for failing to meet sales targets requirements. As such the pressure to sell in any ways by hook or crook tend to happen.

Two, the commission is roughly 20-30% over the next few years and is quiet attractive if one is able to sell many policies.

Three, many people tends not to understand the technical details of how insurance and investment work and are easily misled by those attractive "projected" rate of returns. So we all know the human nature of greed, the more  returns, the better.

There was even one agent who told me during a roadshow at a mall that such plan is offered for a limited time or whenever the quotas are taken up! I was advised not to miss such a good investment opportunity. When I asked him personally did he buy such plan for himself or any from his family, he could not answer truthfully from the way he responded to my unexpected question.

Many agents/consultants are not in this career for the long haul. Many are young graduates, most probably trying out this insurance/investment selling for the first time and will see how it goes from there. That is why most of us must have bought policies from previous agents/consultants only to discover months or years later they are no longer in the industry anymore.

So the next time you are approached by agents/consultants selling such insurance/investment plans anywhere, remember to be cautious especially over the overly promised return rate for the next many years. It is just a projected rate of return only.

As we all know, nothing is guaranteed when it comes to investment. There is always the element of risk involved.

Meantime, have a nice Merdeka celebration day!

A question from

Lucas Lee on August 4, 2017:

Please enlighten if there are any other food/ consumer counters worth investing at the moment.

My reply : I personally think many food/consumers stocks are facing compressing margin erosion pressure. Besides the stiff competitions from one another, the subdued economy has prompted many to shop thriftily as many companies are forced to raise their prices due to a weakening ringgit and rising raw materials.

Of course there are a few doing good exceptionally, but their share prices are not at attractive valuations to buy.

I am still searching for the next ..... Hup Seng Industries Berhad?

101 - Not So Titanic After All

101 - Not So Titanic

After All

According to orddictionaries.com, there were several definitions of the meaning of TITAN. But one of them is being described as noun A person or thing of very great strength, intellect, or importance.

Most of us would have been impressed if we come across any person or company with the name of Titan being part of it. A scroll over the thousands of companies listed on Bursa Malaysia could only yield one company with such name with the word Titan.

By now if you still have no clue which "Titan" I am referring to, then let me refresh you again. Yes, I am referring to this most popular Titanic stock, Lotte Chemical Titan Holding Berhad (LCT) that is currently sending shivers down the spin of those investors who thought anything below its IPO price of RM6.50 is a bargain buy!

There has been hardly such dramatic actions of such comeback-re listing mega giant stock such as LCT. Right from its pre-IPO exercises that were under-subscribed and instant immediate working round the clock co ordinations between the promoters, corner stone investors and others to ensure a much reduced price IPO of RM6.50 (from RM8 initially) and also at a reduced numbers of shares.

Further hints of how bad things to come was when it traded below its IPO price at its debutant day (although it touched as high as RM6.53 at one stage). and from there the selling pressure was absorbed by Maybank Investment Bank (Maybank IB) buying the LCT shares as part of its exercise to stabilise the share price of the integrated petrochemical firm. (Maybank IB is allowed to buy up to 27.77m shares, equivalent to a 4.8% of the total number of shares offered under the IPO).

But once Maybank IB announced it has ceased its stabilising exercise because it has bought the numbers of shares required, LCT saw its price trending near its RM6 base.

I am quiet convinced many investors were waiting to see how its share price perform by itself (without the Maybank IB's support) and should it stabilised at that RM6 range for sometimes, it seemed quiet a safe entry point to enter.

I admit I was amongst those waiting to look for a safe entry point to enter too.   But then when LCT announced its quarterly results on July 31, 2017, its poor earnings of just 6.58 sen (Quarter on Quarter / Year on Year - 71.88% down), there was only one way the share price would head and i.e. south all the way.

LCT dropped as much as RM1.40 (opened at RM6.10 and closed at RM4.70 on that historical titanic day!) Since then, its share price has been hovering around the RM4 plus range (as low as RM4.14).

Now the whole fiasco of this crumbling LCT stock raised a lot of many questions  of how the episode has been scripted out right from the start. Some pointed out that the promoters were very anxiously to list its shares at whatever cost while the opportunities are there.

And its initially over-priced IPO price of RM8 was indeed very luckily under

-subscribed  for those initial eager investors. But if they thought they had a good bargain at a reduced price of RM6.50, they or anyone else (perhaps other than the promoters themselves who should have privy informations of the progress of LCT of the last few months) didn't expect the coming scripts to be that way.

Few days after its IPO debut, LCT coincided the occasion with its very poor April to June 2017 quarterly results and the rest is history! Since then, LCT has been struggling to stay just above the RM4 mark.

The whole titanic saga has once again raised many doubtful questions of the level of transparency of public listed companies. 

Now if this set of poor results had come out just before its pre-IPO exercise of RM8, do you think the subscription rate would receive any response from anyone especially the corner stone investors? By then, it is a foregone conclusion that LCT will have to reprice its IPO to most probably as low as RM4 per share (to justify this kind of just 6.58 eps).

Or similarly shouldn't LCT practices good governance at least by issuing a pre-statement of how its operation has been affected by a water disruption that caused its plant to shut down for a total of 13 days in April 2017 and caused a decline in production volume of 75,000 tonnes and also higher consumptions costs.

All this has a very serious effect on its share price. Now those retailers or any fund managers who bought from the open market must have felt disgusted and realised why the IPO was urgently listed at RM6.50 once the take up rate for its  earlier initial IPO price of RM8 flopped.

What about the corner stone investors? The fund managers or their investment experts or their research teams must have done a poor job not knowing about this too. If the fund managers themselves didn't know or have any access to this disruption water issue, then the only one who knows is the company themselves. And when you are armed with informations other don't, the advantages are there for those who have.

It is even worse for those retailers who won't even know anything other than what is being written about the prospects of the company. And I am always cautious about these kind of  promoters of any going to be public listed company.

If the promoters don't paint a nice rosy picture ahead, the take up rate will be under-subscribed  and they might lose a client and future business. It is either my survival than your interest.

So beware again of future mega listed public listed companies. Sometimes it is better to invest in those smaller ones that are managed by the founders themselves, companies such as Hup Seng Industrial Berhad where not only the founders are helming the key positions, their immediate relatives are in too and their interests at stake is much more than our meagre numbers of shares invested.

Selling Apollo Food Holdings Berhad shares at RM5.37 on July 18, 2017.

Yours truly decided to sell snack confectionary maker Apollo Food Holdings Berhad at RM5.37 on July 18, 2017.

A regular good dividends stock bought at RM 2.45 on May 24, 2006, the dividends received since that day amounted to RM2,500.00 which is more than my original capital invested.

Normally I do not like to sell such regular paying dividend stock, but the last few quarters of results looked not promising for Apollo. Hence I am worried if such trend continues, it will report lower profits and future dividends will be less. Already it has earned less than for Financial Year 2017 than 2016 which is reflected also in its dividends payout from 30 sen to 25 sen respectively.

But this is my decision and if you are holding Apollo shares, please make your own judgements. Apollo could just prove me wrong later with improving results. At the time of posting, Apollo share price is traded at RM5.18 on August 3, 2017.