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1

As I understand it book value per share = shareholders equity/number of shares. What does it mean when expressed as a percentage?

That's correct. A company's book value per share is shareholders' equity divided by the number of shares on issue. The same result will be achieved by deducting total liabilities from total assets and then dividing the result by the number of shares on issue. Book value per share is also sometimes called 'net asset backing'. If you were to deduct intangible assets from the numerator, then it would be called 'net tangible asset backing' (or NTA per share)

We're unsure about it being expressed as a percentage, though, as it is a value per share, not a percentage. Sometimes book value per share is expressed as a ratio of the share price, which may be what you are referring to.

Say a company has a book value of Rs1.00 per share. If the shares were trading at Rs3.00, then you could say the stock is trading at '3 times book'. Alternatively, if a stock with a book value of Rs1.00 was trading at 70 cents, then you could say it was trading at '70% of book'.

2

I have never bought shares before and am interested in buying something 'ethical' to hold for at least 5 years. Any advice?

We're unable to provide individual stock recommendations unfortunately. And the problem we have, as value investors, is we don't want to buy something ethical unless it is also good value. But therein lies a problem - just what is ethical? To different people it means different things, and selecting stocks must therefore be an individual decision. Some people regard banks as ethical because they don't generally hurt the environment, others regard them as unethical because they make huge profits - the choice is never clear. First and foremost, we suggest you select cheap stocks, and if they also meet the ethical criteria you specify, only then should you invest. Finally, congratulations on your long term time frame - we agree that it's the best way to build wealth.

3

When a company announces a non-renounceable rights issue, what does 'non-renounceable' mean? Also, when the offer includes one new option with each new share, what does this mean?

A non-renounceable right issue means that you will not be able to sell the rights on market (whereas with a renounceable rights issue, you can sell them). In other words, you either take the rights up (pay money for the new shares) or you lose the entitlement. It's not uncommon for explorers to offer options with new share issues, either. An option is the right, at some point in the future, to buy more shares in the company at a certain price. They are sometimes offered as a carrot to induce shareholders to take up their rights.

4

Why does the NTA sometimes vary greatly from the share price?

Your question should probably be phrased the other way - why does the share price often vary from NTA! - this sort of discount to NTA is rare, which suggests there is more to the story than meets the eye. Further analysis would be required, but this sort of 'bargain' is rare. There are many reasons why a stock can trade above NTA - indeed it is normal for companies do so. This is usually because the market believes the company is worth more than the value of its assets. Some companies, such as media businesses, can trade way above NTA because most of their assets are intangible. Poorly managed companies that are businesses, sometimes trade below NTA.

5

How can I find out if i have any unclaimed share dividends?

If you think some of your dividend cheques may have gone astray, you should contact the share registry of the company involved. Most listed companies will have contact details for their share registry on their websites.

6

How do you calculate the intrinsic value of a stock in order to ascertain whether the stock is under or over valued?

Unfortunately we could write a book on your question! Calculating the value of a company is a process that takes into account both quantitative and qualitative factors. Some of these include management, market position, industry characteristics, balance sheet analysis and assessment of underlying cash flows. It is a complex process - and not one where you follow a specific set of rules to get a set outcome. It therefore involves a high degree of judgment, which is why some people think a stock is a buy while others think it is a sell. The best way to learn about assessing companies and working out possible values for them is to read as much as possible.

7

I would like to try day trading but only have a small amount to start with. What is the minimum trade I can make and who will trade small amounts on line.

As long-term value investors, we would discourage day trading. Unless you're extremely experienced, are able to watch the market constantly, and have a large amount to invest, it's a great way to lose the money you've saved. Still, if you wish to try it, any internet broker will be happy to take your money –

8

I would like to know if I can buy shares for my kids as an investment for their future, and what are the tax implications if the account in is in my name instead of theirs. And if the account is in their name when I sell or trade the shares, are they subject to tax etc. Would really appreciate some guidance on this subject.

It is not possible to buy shares in a minor's name. You will have to open an account in your name on their behalf . Please consult your tax adviser for information on the tax implications.

 9

I'm new to the share market and was wondering, when I want to sell some shares do I have to wait for someone who wants to buy them ? If I have a stock that is starting to tumble and everyone is getting rid of that stock does it mean I could miss out on taking a profit and maybe end up with a loss ?

Yes. A transaction can only occur if a buyer and a seller agree on a price in the market for that stock. You may want to open an internet broking account to get an idea of what that market looks like - the 'market depth' screen will list buyers and sellers. If a stock is falling, you own it, and there are not many buyers, it can be difficult to sell, yes. For that reason, if you are new to the sharemarket, it is probably a good idea to stick with stocks that are very 'liquid' (ie that always have lots of buyers and sellers in the market). These are usually larger, lower risk companies.

10

Can a company just keep issuing shares to an unlimited number?

Theoretically, yes. But if a company proposes to issue more than 15% of its current issued capital in one year, it needs to seek approval from shareholders, which helps check management from making too many silly acquisitions financed by shares, for example.

11

What is 'Net Tangible Assets'? Please explain why companies sometimes issue information about the company's Net Tangible Assets.

Net tangible assets per share (NTA) is calculated from the company's balance sheet. You take the company's net asset figure (total assets minus total liabilities) then deduct any intangible assets. Then you divide this figure by the number of share on issue. The resulting figure is the NTA (per share). It is meant to provide a good indication of what the assets of the business would fetch in a 'fire sale'. Like all ratios it needs to be used with care as the accounting values of assets do not necessarily represent their real market values, especially in any liquidation. Also, it is only really useful for companies with significant 'hard' (tangible) assets. Some service businesses and media companies, for example, have few hard assets, and often their NTA figure can actually be negative.

12

Is this a good time to buy blue chip shares ? The prices are rising. However over a long time frame such as 7 years would this matter.

It's important to realise that rising prices is actually bad news for value investors. We want to buy when stocks are cheap, not when they have been rising for some time. Over the long term, good quality shares should still perform well assuming they are not too expensive when bought, but we are generally encouraging people to be patient and wait for lower prices. And don't forget that there are always pockets of value in the market - you just need to know where to look. Value-based sharemarket newsletters can help identify these opportunities.

13

Is book value NTA/No shares? If not what is it?

No, book value (per share) is 'net assets/No. of shares', which is the same as 'shareholders' equity/No. of shares'. In other words, you don't subtract the intangibles when calculating book value.

14

I am having trouble understanding PE ratios. Is a high PE ratio better than a low PE ratio?

Unfortunately there is no easy answer to this question. Very generally, a low PE ratio is better than a high PE ratio because it means the stock is cheaper. BUT, poor quality companies often sell at low PE ratios because they are bad businesses or they have low growth prospects. It is often better to buy a stock with a slightly higher PE ratio than average if it is a better business or if it will grow faster than average. All in all, the PE ratio is only one tool investors should use to help value a company. If you want to learn more about valuing a company, and the difference between a good business and a bad one, The Fortunate Management newsletter is a good place to start.

15

Is a spread of Listed Investment Companies a good core holding for a long term portfolio, and if so, what percentage would you hold in them?

Listed investment companies (LICs) are listed companies that invest in other listed companies. So, they're a bit like a listed managed fund. Like managed funds, LICs are a good way to get diversification if you don't have a large portfolio. You shouldn't need to buy more than a three or four because they are already diversified. It's not really possible to state whether LICs as a group are 'good long term holdings'. It depends on the individual LICs themselves - some we like, other we don't. What percentage you hold in them depends on your individual circumstances and investment objectives.

16

I am hoping to buy shares for my infant child. Some brokers have said infants can't own shares directly. Is this correct?

Correct. Companies generally won't let minors (anyone under 18) buy shares now. The solution is to buy the shares in your name, but on your child's account.

17

Why do some companies define their debt-to-equity ratio differently?

We define the debt-to-equity ratio as: short term debt plus long term debt minus cash (the total of which is called ‘net debt’)/shareholders’ equity’. But some companies define it differently as: net debt/(net debt plus shareholders’ equity).
The ‘rationale’ behind this latter ratio is that it shows what proportion of the company’s total financing comes from lenders.. Apart from the fact it really is a ratio of debt to equity, it provides a much starker illustration of a company’s financial position.

18

What are Tax deferred dividends?

This is a complex issue, and applies to dividends distributed from a trust rather than a company

19

What are options? Can I consider it dodgy if company directors buy options in the company rather than shares?

Options give the holder the right, but with no obligation, to buy shares at a set price in the future. In this way, the holder gets the potential upside, without the any of the downside. That's because if the shares are trading below the stipulated 'exercise price' on the relevant date, then the holder can just let the options lapse. While it's not 'dodgy', options do give company management the upside without the potential downside. We'd therefore prefer that management bought shares in the company with their own money than issue themselves options. If the latter is occurring instead of the former, then we're more inclined to think they are feathering their own nests.