Patersons Perspectives Issue 11

P E R S P E C T I V E Sissue 11 | autumn 2012 Patersons private client magazine

psl.com.au

Stop losses A core principle of trading

Cash is King, Production is Princely A closer look at gold and coal

Is uncertainty and associated volatility the new norm? Strategies to adopt when uncertainty lingers

Can the market fire in the year of the Dragon?

A bullish view

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P E R S P E C T I V E S | 3

ContentsPAGE

20 Are investors afraid of unconventional success?

Leveraged Equities

22 Reviewed by Sam Fimis Book and web review

23 Men’s health worth a ride

Brisbane Adviser raising awareness

10 Can the market fire in the year of the Dragon? A bullish view

14 Cash is King Production is Princely

A closer look at gold and coal

18 Is uncertainty and associated volatility the new norm?

Strategies to adopt when uncertainty lingers

6 Stop losses A core principle

of trading

page 24

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The Chairman’s Voice

Global stock markets have steadied over the first three months of calendar 2012. With the March quarter drawing to a close, the US

S&P 500 index has rallied by 10per cent+, as a run of US jobs- and spending-related indicators pointed to a moderate recovery in the globe’s number-1 economy. Despite ongoing challenges for Europe on the fiscal front, major euro-zone stock indexes have managed worthwhile gains since the start of this year. This bounce has been helped by some success in shoring up Greece’s fiscal woes and reduced fears of near-term severe financial events in other European countries.

Asian stock markets, Australia included, have also rallied over 2012 to date, although their gains have been short of those seen in the US. The S&P/ASX 200 and All Ordinaries are for example, around 6per cent above levels seen three months ago as the two-speed Australian economy continued to exhibit some growth potential. The upcoming FY13 Federal budget will hopefully clear up some uncertainties on the government policy front. From an external account angle the all-important Chinese economy has clearly lost a little momentum. However, we fully expect Chinese authorities to further ease their banks’ reserve ratio requirements – and perhaps even reduce interest rates – if additional stimulus initiatives are required.

Despite the recent recovery in global stock markets, there has of late been some vigorous debate about the worth of material exposure to Australian equities. Some financial market experts have called for investors – especially those nearing retirement – to place more of their superannuation nest eggs in ‘lower risk’ assets like fixed interest. There are however trade-offs in more conservative investment strategies that include increased exposure to money market and fixed interest investments. Fixed investment assets can still yield capital losses while historically long-run returns on fixed interest investments have been less than equities. We continue to see definite worth in investors owning direct stakes in quality Australian companies.

Michael Manford Executive Chairman, Patersons Securities Limited

NEWS | COMMENT

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ARTICLE CONTRIBUTORSAndrew QuinJane GrljusichJulie McKayMarcus PadleySam FimisSimon TonkinTony FarnhamRobert Kolodzej

6 | P E R S P E C T I V E S

COMMENT

STOP LOSSES

The life of a trader is not what most of us might imagine it to be –

ie. glamourous, exciting and paved with gold.

More likely it is solitary, private, a bit boring and when done correctly, provides a living.

words - Marcus Padley


STOP LOSSES

We could all be traders.

We could all be Arnold Schwarzenegger too.

Go to the gym every day, lift heavy weights, drink protein shakes, avoid chocolate, and talk in a vague middle-European accent. But the reality is, who can be bothered?

And who can be bothered to be a trader because to do it properly is pretty much a full-time job, and most of us already have one of those, and those of us who don’t probably don’t want one.

But in a market full of risk that isn’t trending, we need to better than ‘set and forget’ and we would do well to adopt some of the core principles of trading, principles that apply not just to traders but to investors as well, principles like ‘preserve your capital’ and ‘cut your losses’. Clichés all, but as any trader will tell you, no trading system will succeed without them and in the post credit boom hangover, no long-term investor will either.

The big mistake for long-term investors is that they see things as being part of a portfolio in which the winners make up for the losers. With that mindset, long-term portfolio investors ‘excuse’ the losers and do nothing about them. But if you really want performance, the losers are just as important as the winners and you need to protect against them. To do that you have to pull the weeds and plant flowers in their place. And if flowers turn into weeds, cut them and plant some more. Do this relentlessly and you will end up with a garden full of blooming flowers.

COMMENT


yourself setting very wide stop losses because of the volatility and you are uncomfortable with the loss the stop loss might imply, then you are trading the wrong stock.

There are a lot of ways of setting stop loss levels. As noted, a flat percentage is very basic. But the core to it is to make the decision to use them rather than rely on guts or divine inspiration. It’s a good idea to set your stop loss levels early, set them for each individual stock and stop thinking in terms of ‘the greater portfolio’.

Of course, all of this takes a bit of monitoring and this is where most of us fall down. But it is not as complicated as it might seem.

All you need do is get a list of your stocks, a list of current prices and next to that a column defining your stop loss levels. Every so often update the current prices and compare to the stop loss price. It’s that simple.

If you consider yourself a long-term investor and your concern is Armageddon rather than a correction, you can be a bit relaxed. Set your stop losses nice and wide and update current prices once a month or whenever the news ‘vibe’ suggests something could be going wrong. Dance to your own tune.

If you are more concerned about short-term fluctuations check in more often. Hard core traders use live intraday prices. The average trader would check against daily closing prices. Other investors might check stop losses against weekly prices. Whatever suits.

But the main thing is to pay at least some attention to what’s happening and have an understanding with yourself that you will take action when a price falls a pre-determined amount, and stick to your guns.

If you work stop losses diligently and treat every stock as an isolated skirmish, then when

What are stop losses? An order that closes your trade at a predetermined price, thus limiting your loss. A stop loss is a mechanism that short-circuits debate and emotion and provides certainty.

Requirements: Forget the concept of ‘portfolio’. Think of every stock you hold as a separate trade. Preset a stop loss for each individual holding, preferably when you are unemotional and in possession of a clear mind. At the time of purchase would be good, but any time will do.

The mechanism: It is impossible to set a rule for everyone. For those of us without trading systems, you can use any number of different methods to set stop loss levels. The most obvious is a flat percentage. For example, if it falls by five per cent (or the number you believe is right for the stock), sell it. But that’s very basic and most of us struggle doing that in practice. The market is so volatile these days.

Most (hard core) traders use the two per cent rule. That doesn’t mean they sell when the stock falls two per cent. It means that they risk a maximum of two per cent of their trading capital on any one trade. In other words, on $100,000 of capital (a portfolio of $100,000) they would cut a trade that makes a $2,000 loss. Notably, this is not the same as a two per cent drop in share price. If they have put $10,000 of the $100,000 portfolio in the trade it could be a 20 per cent loss on that one trade ($2000 of the $10,000).

Another way is to set stop loss levels is by reference to a chart rather than a percentage. For instance, if you are trading price breakouts (buying stocks that break a resistance level), the stop loss can be set at the price at which it breaks out, meaning the resistance level that was broken serves as the stop loss level if it reverses again.

Then there are rolling stop losses. As prices rise, you raise the stop loss to eventually guarantee a profit if the price then falls from its new high. These are an essential mechanism that allows a share price to run until it reverses, but means you won’t have to wait for it to come all the way back to your purchase price before selling. You sell when the fall from the very top meets the same conditions as your initial stop loss (falls five per cent from the top, or loses you two per cent of the capital it was worth at the top).

Others set stop loss levels with reference to the volatility of the stock. Setting stop losses at a level that allows the trade to develop without being stopped out by a ‘normal’ fluctuation. The way to avoid this is to learn about volatility and average true range (1ATR ). Simply put, this means accounting for how volatile a stock is when setting a stop loss. Volatile stocks need more room to move. If you are trading a volatile stock, then the ATR will tell you and you can set your stop losses a bit further out. And if you find

1ATR - Average True Range - First of all you calculate the ‘true range’which is the greater of the difference between the current period high and low, the current period high and the previous close or current period low and the previous close. To get the average true range you take the average of the true ranges each day over a set number of periods (usually 14). The result is expressed in cents and suggests that this is how much a share price can move in a day. So if a 300c stock moves 10c a day you might set your stop loss initially at two ATRs from the purchase price, ie at 280c.

How do you cut weeds? Simple. Use ‘stop losses’. How? Let’s cut to the substance.

the market falls over, you will find yourself selling each individual stock as it turns down and you end up in cash through a lot of small decisions that add up without having to make some impossibly big call on all your holdings (your portfolio) at once.

Yes, you will make mistakes. Yes, you will sometimes sell stocks that then go up again. But nine out of ten stocks that are going down are going down for a reason and are likely to keep going down. And if they don’t, don’t worry about it. The game is to learn what works and whatever you do it has to be better than setting and ignoring.

One of the hardest things to do for long term investors is sell, but in a market that doesn’t trend up, you are going to have to learn. It is a traders market. You will also finding selling quite cleansing, cash is power, selling puts you in the eye of the storm, gives you clarity and you know, you can always buy back.

This is a huge subject to consider so let me leave you with a core tenet: when it comes to controlling losses and taking profits anything is better than nothing – and if your mechanism doesn’t work, you can always change it. P

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COMMENT


Can the market fire in the year of the Dragon?

After 32 months of the All Ordinaries ranging sideways, there remains much negativity in the stock market. But, with a range of financial and economic factors on the improve, can the market fire up in the Year of the Dragon?We are taking a more Bullish view on the market despite the short term downside risk to US stocks to allow for positioning and to take advantage of the current lower macro risk period, which allows a window for traders to become more aggressive.

The S&P500 has moved up strongly since October 2011, assisted by very low interest rates, and the US consumer and property market recovery play. In contrast the Australian stock market has on a relative basis been underperforming as a strong Australian dollar, high relative interest rates, Australian domestic economic factors, and Chinese growth concerns subdue the market.

The All Ordinaries (XAO) has tested the strong 4400 resistance level nine times. Several times the XAO has broken this level during these tests only to fail. Yesterday the market broke 4400 on the ninth test a highly unusual happening for a large market index. The break is however, not yet technically confirmed.

It is important to understand that strong resistance once broken commonly becomes strong technical support.

It is reasonably likely that the S&P500 will experience a slight pullback possibly to around 1370 points given the strong run up and seasonal factors. However, this could provide traders with an opportunity to get set in the market to make the most of what appears to be an interim period of lower macro structural risk.

We are primarily moving to a more Bullish view on a risk reward play, given current macro background and market technicals.

On the XAO we move from Neutral on a Month view, to Bullish, maintain our 12-month Bullish view; and move from Neutral Materials to Bullish this index.

words - Andrew Quin Research Strategy Coordinator


A number of important factors will need to fall into place to sustain this latest test of 4400 and these are detailed below.

US recovery SUStainabilityMost obviously US economic numbers and thus market performance will need to continue to present a picture of economic recovery. The move up in US stock markets has been quite strong and it is possible the market, which is slightly technically overbought, could have a brief move down again.

However, positively the US employment situation, and housing outlook appears to be improving against a backdrop of very low interest rates, this being sustaining for the stock market. US companies are holding high levels of cash and current interest rate levels also mean that debt capital is relatively cheap.

Housing affordability in the US is very high and more investors and home owners may come to see the current situation as a unique opportunity ultimately supporting the property market and assisting a confidence boost in the US economy.

Inflation in the US is relatively low allowing interest rate policy to be kept very accommodative. There are, apart from base economic growth factors, two intermediate risks to the US recovery; Crude oil prices and the Political debt risk scenario. Both these factors cannot be controlled significantly by monetary policy. It is clear from commentary that these factors concern the US Federal Reserve.

High Crude oil prices are potentially inflationary and also act as a drag on US economic growth. However, at this stage the Political debt risk scenario likely presents the more concerning factor.

US debt to GDP is now above 100 per cent, while it is highly likely that this percentage can be pushed much higher, political management of debt ceilings and as yet lack of success in fully addressing this problem means that debt concern and its influence on fiscal policy implementation may come back periodically to haunt the stock market.

Indeed in the US, Japan, UK and EU central banks and governments have not found a solution to high government debt. They have found innovative ways to manage and delay potential problems in this area. Essentially, they have bought time in the hope that ultimately faster economic growth will better sustain debt levels. However, as yet it is not known if sufficient global growth will develop to allow for improved government debt servicing abilities in future.

COMMENT



Thus at this stage the debt problem must be viewed as delayed not fixed, and leads to the conclusion that hedges such as certain Bonds and gold are unlikely to move too out of favour in the immediate future. In fact central banks will not want to see a major switch out of Bonds into alternative asset classes as some commentators suggest, because they still need to maintain debt servicing abilities.

However, it is possible that the stock market may perform well on an interim basis while the growth verses debt situation is still to be clarified as idle cash chases more risk in the stock market on a period of reduced or delayed macro risk, and given the low interest rate background setting in many countries.

china – play for a Soft landing – Move to bUlliSh MaterialSChinese PMI numbers for March out 1 April will be an important factor in this the market’s ninth attempt to break and sustain the 4400 technical resistance level and potentially chase the US markets higher. The last available official Chinese Government PMI figure was 51.0 in February, this still showing growth.

To sustain 4400 the market likely needs to form an opinion that the slowing in China is not overly severe, this lifting the Materials sector. Effectively, for the 4400 break to be sustained either the Materials, Financial or both these major indices need to lift.

We feel that playing for a soft landing in China is justifiable given scope for the Chinese Authorities to adjust what is at the moment quite tight monetary policy, and with the European Central Bank (ECB) recently pushing one trillion euros of low interest soft loans out into the economy and Greece issues in part addressed, in the interim term risks are somewhat diminished.

We would rather play the China slowdown as a type of “buying the sentiment dip” opportunity in a ranging market, and at least as far as the LME commodity market is concerned this appears the view of traders at the coal face who have not sold off commodities particularly strongly despite the Chinese economic numbers weakening off.

It is important to remember that even though China has reduced its growth target to 7.5 per cent, former strong growth over a long period means that as a total the Chinese economy is significantly larger today than it was only a few years ago and thus aggregate demand is proportionally still high. This demand view also assisted by improving demand prospects in the US.

Therefore we move from Neutral to Bullish Materials because:

• Follow through on the China slowdown is as yet not being seen in the commodity markets;

• Aggregate demand on a China, US recovery view remains market neutral to positive;

• China has scope to relax restrictive monetary policy;

• Risks appear partly factored into the Australian stock market;

• Materials and Resources have lagged the US Consumer focused stock recovery trade; and

• The Australian Materials index is trading close to its technical base, thus if we are in error not too much portfolio damage is likely to be done as logical stop points are close.

Preferred sectors are: Thermal coal, Zinc and Copper.

The danger here is of course if the Chinese PMI number disappoints, although we feel some of this risk is already factored into the market. A less aggressive view would hold off positioning until after the number is released on 1 April. However, with the Materials index trading close to its technical base this allows a somewhat aggressive move to Bullish Materials on a risk reward basis and somewhat counter market sentiment view.

eU – MeaSUrable riSk, and on the back bUrner for a periodAs far as the EU is concerned realistically there are still many challenges ahead for the region, however there are reasonably clear risk measures such as Collateralised Debt Obligations (CDS) and Bond yields to use as gauges to how well the EU is travelling. This helps assess macro EU risks and allows some warning on possible forward risks for the EU zone.

To an extent we see the European Central Bank (ECB) one trillion in soft loans to the banks as buying a respite in the EU for a period, and while growth across the zone is somewhat slower powerhouse Germany appears to still be travelling reasonably at this stage.

Japan remains an economic wildcard with the economic, derivative and Bond market structures such that risk assessment is extremely difficult. We maintain a close watch on this market.

a bear riSk - central bankS and the growth iMperativeA risk for the Bears in the stock market is the central bank growth imperative. The major central banks are fully aware of the need to push growth in order to allow governments to better manage debt levels. As such there will be considerable incentive to hold stimulatory monetary policy at accommodative levels for a longer than normal period. This could ultimately act to create an asset price bubble in some markets such as stocks. Thus while the debt growth management balance exists and inflation allows, expect central banks to maintain accommodative monetary policy. This is particularly true for Japan, the EU, UK and of course the US FOMC which will likely want to see sustainable lifts in property prices before tightening interest rates.

More bUlliSh viewIn conclusion we move to a more Bullish view on a variety of complex factors, but perhaps most importantly based on the lower risk macro background, relative market placement within the trading range allowing more aggressive positioning on the long side, and what appears likely to be lower risk exit opportunities should the more positive scenario fail to emerge.

Essentially, the move is made on a risk against reward basis and to take advantage of what is likely to only be an interim period of macro improvement.

All Ordinaries (XAO) Month: Bullish. 12-Months: Bullish. Materials: Bullish. The market is trading just above 4400 technical resistance, though the break is yet to be confirmed. Macro risks are partly declining. While EU problems remain significant, EU Bond demand has been assisted by increased ECB liquidity being provided to the banks and greater conviction in the development of backstop bailout support. Italian and Spanish Bond yields are below critical risk levels. The US economy is showing clear signs of improvement. At this point in the cycle given US stock market value and the economic outlook we are Bullish on the US markets. EU countries have been downgraded and face further credit downgrades in future. As EU growth declines debt servicing difficulties will increase. Lower inflation rates suggest greater flexibility is now available to allow Chinese monetary policy changes. We maintain our view that ultimately the EU will be forced to monetise significant periphery debt. Very strong resistance is at 4400 (tested nine times the recent break yet to be confirmed). Support: 4200. P


RESEARCH

Cash is King, Production is Princely

Investors should be cautious of resource companies requiring access to further funding for large capital project developments and further exploration/development. Raising capital is becoming more difficult and has the potential to be overly dilutive.

Therefore, as we highlighted in our recent Resources Review, being stock selective is important. We believe identifying companies with value, catalysts, and solid management if you want them to deliver. Finally, we highlight that the resources market is cheap and we expect mergers and acquisitions to increase. It is cheaper for companies to buy established resource assets than build them from scratch.

We have updated our Cash is King Report from 2011 and while the market is improving, we continue to highlight, that

‘Cash is King’.


• WE BELIEVE THAT ‘CASH IS KING’: Companies with cash are in an excellent position to weather the macro debt storm that has taken a grip on global markets. Companies with low cash, or projects that require large capital commitments, are likely to struggle in the current environment. The market is likely to place a discount on these stocks.

• ‘PRODUCTION IS PRINCELY’: While it is especially important in the current market to have a solid balance sheet, we also believe those companies in production, with good margins and positive earnings, can offer investors stability. The ability to service debt is important to maintain a going concern, and move into a positive net cash position. Any market turnaround will likely include a commodity price appreciation and these companies will be well positioned for an earnings upgrade.

• BE STOCK SELECTIVE: It is important in the current environment to be stock selective by targeting companies with value, catalysts and solid management to deliver. Board’s with significant holdings (i.e. skin in the game) provide a strong incentive to not dilute shareholders. Another note of caution is those companies with large administration costs which typically mean less money is going into the ground.

• CONSOLIDATION LIKELY IN 2012: With the market heavily discounted on a historical basis, we believe M&A activity will increase over the next 12 months. Now is an opportune time for large cashed-up resource companies and/or state owned enterprises to pick off quality stocks that will add significant value when the commodity cycle turns. We have already seen plenty of M&A activity in the gold, copper, coal, iron ore and uranium spaces.

Figure 1(below) highlights our preferred picks across all major resources sectors.

Gold Sector

In 2012, we expect the gold price to outperform given the continued overhang of the Eurozone debt crisis and likelihood that nations

will move to monetise debt. Gold is the only commodity to have experienced ongoing price appreciation over the past 10 years, which is a reflection of gold as a store of value (currency). We expect this trend to continue with strong demand for physical gold from China, India and the Middle East. Based on technical analysis of the gold price, our short term target is US$1775/oz with the medium term potential for gold to go above the $2000/oz mark.

Gold equities remain cheap. In our recent 2011 Gold Book, we calculated that gold equities were trading at a 32 per cent discount to the AUD spot price. The opportunity to invest in gold equities has become more attractive following the 2011 price divergence between the gold spot and gold equities. We expect M&A activity to continue in the gold space as companies with cash look to grow through acquisitions. Both Endeavour (EVR) and Evolution Mining (EVN) are good examples of the creation of companies with the platform to grow.

In Figure 2 (overleaf), net cash per share (December reported cash minus debt divided by shares) are displayed as a percentage of the current market price (as at close of business 3 February 2012). This provides investors with a picture of which stocks are trading close to cash backing, and those to which the market is attributing value for their resource assets. We have colour coded each bar into three distinct categories: BLACK = needs cash within next 6 months; YELLOW = needs cash within next 12 months; and RED = should not require cash in the foreseeable future. In addition, the value at the top of the bar is the cash position of each company as at the end of December 2011, including any subsequent capital raisings.

At current cash burn rates, Midas resources (MDS), Noble Resources (NMG) and Westgold Resources (WGR) will need to raise money in the next six months to continue their exploration and project development programs. Tanami Gold (TAM) recently extended its debt facility by $20m (to $50m) and delayed development of its Central Tanami Project, but will likely need to raise further capital ($50-60m) within the next 12 months.

Since our initial note, two companies that were flagged as having imminent cash needs, Azumah Resources (AZM) and Golden Rim (GMR) have subsequently raised money. AZM raised C$20m ahead of the release of the DFS on its Wa Project to be completed in early 2012. GMR raised A$6.9m to fund ongoing exploration in Burkina Faso and Mali.

Figure 1: Patersons Preferred Exposure by Sector Sector Ticker Company Name Price ($) Mkt Cap ($m) Rating

Sector Ticker Company Name Price ($) Mkt Cap ($m) Rating Target Return (%)

Gold TRY Troy Resources 4.59 404 Buy 7.50 63%

PVM PMI Gold 0.96 236 Buy 1.81 89%

Nickel WSA Western Areas 5.28 949 Buy 6.44 22%

Copper SFR Sandfire Resources 7.74 1216 Buy 8.64 12%

BTR Blackthorne 1.35 173 Buy 2.30 70%

TGS Tiger Resources 0.36 242 Buy 0.73 103%

Coal CPL Coalspur Mine Ltd 1.69 977 Buy 2.50 48%

ZYL ZYL Limited 0.18 85 Buy 0.50 186%

Iron Ore FMG Fortescue Metals 5.89 18336 Buy 7.49 27%

Uranium AGE Alligator Energy 0.18 28 Spec Buy na na

Source: PSL estimates


In terms of consolidation in the gold space, the following stocks are flagged:

Evolution (EVN) will continue to look at further acquisitions: We believe EVN which has created a platform for growth in the Australia gold space and will look at further acquisitions. Its close relationship with Newcrest (NCM) has the potential to provide EVN with smaller high quality projects for acquisition.

Azimuth (AZH) potential target: We believe AZH is a potential takeover target given its attractive greenfields discovery at its West Omai project in Guyana. Guyana is an attractive hotspot for gold companies and the most advanced TSX-listed Guyana Goldfields recently received its mining permits. AZH has the opportunity to significantly increase the project resource from our estimated maiden resource of 1.3Moz. Potential acquirers would likely come from North America given the geographical synergies.

Ramelius (RMS) looking for acquisitions: RMS has a cash position of ~$100m and with Wattle Dam’s mine life only extending to the end of 2013 the company will be looking for new acquisitions to fill the void. In 2011, there was market speculation about RMS acquiring Doray Minerals (DRM) as it increased its stake to 7.7 per cent. More recently, RMS has made a number of small acquisitions around the goldfields, which should support a growing production profile in the medium term.

PMI Gold (PVM) potential target: Despite our preference for companies that don’t require cash injections, we believe PVM has a cracker of a project at its Obotan project. PVM recently tripled its resource to 4.5Moz (previously 1.2Moz) at 2.4g/t Au with 3.2Moz in the measured and indicated category. PVM expects to have a pre-feasibility study and an updated resource in early 2012. PVM will need to raise additional funding with capex of +$200m required for development. We believe that the quality of the project will secure the funds needed while also leaving PVM vulnerable to opportunistic M&A in the interim.

Coal Sector

Metallurgical and thermal coal prices have been moving lower over the last six months as Australian producers

bring capacity back online after the heavy rain and floods early in 2011. Thermal coal (6,700kcal) prices in Indonesia and Australia have found support around $110/t and hard coking coal prices were fixed at $285/t for Q4 2011. In the latest results from early April for the start of the Japanese Fiscal year, thermal benchmark prices were settled at $115/t, down 11%, and for hard coking coal prices were down by 35% to $210/t. However, prices remain significantly above the marginal cost of production and longer-term drivers point to robust global demand. These long term drivers have been one of the reasons for the large amount of merger and acquisition activity at the top end of the coal sector. Over the last six months, Yancoal has acquired Syntech Holdings and it is currently bidding for Gloucester Coal (GCL); Rio Tinto (RIO) and Mitsubishi bought the remaining 14 per cent of Coal and Allied they did not own; Peabody acquired Macarthur Coal; GVK acquired 86 per cent of Hancock Coal’s Alpha and Kevin’s Corner in the Galilee Basin; and Aston Resources and Whitehaven Coal have proposed a merger that is now close to completion. New Hope Coal was evaluating expressions of interest but has decided to continue as an independent producer. This will reduce the number of coal companies on the ASX with a market cap greater than $1B to only three.

As corporate actions have removed the majority of coal producers, we have highlighted the developers and explorers in Figure 3. The majority of these have negligible or no debt as production is a number of years away, and they must rely on the equity markets to raise capital to progress feasibility studies and develop resources and reserves. The companies producing coal, Coal of Africa (CZA), Continental Coal (CCC), Cockatoo Coal (COK) and Gujaret NRE Coal (GNM), are grouped at the right extremity of Figure 3 as they have the ability to raise debt. However, it is likely these companies will have to raise capital from both the equity and debt markets to bring new projects

Figure 2: Gold Universe Net Cash Per Share as a Proportion of Share Price

RESEARCH

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PX

G

BS

R

SB

L

AU

C

CH

N

NM

G

NA

V

Source: PSL estimates/company reports. Note: The value on the bar [top] represents actual cash in $Am as at end December Q 2011 and includes any capital raisings conducted after December 2011. Colour coding: [red] = requires cash in next 6 months [yellow] = requires cash in next 12 months and [green] = should not require cash in the foreseeable future


Figure 3: Coal Universe Net Cash Per Share as a Proportion of Share Price

-40%

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TIG

AJM

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ZYL

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AFR

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CP

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CW

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KR

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-137

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63.9

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.5

19.9

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-271

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into production. COK recently refinanced a short term $65m debt facility with an $85m facility and its growing debt levels have raised some concern. We view companies with more than 35 per cent of their market cap — as cash: Bandanna Energy (BND), Tigers Realm Coal (TIG), Altura (AJM), Xanadu (XAM) and ZYL Limited (ZYL) — as being in a strong position to develop their projects over the next 12 months. We view explorers with less than 10 per cent of their market cap as cash Coalbank Limited (CBQ) and African Energy Res (AFR), as having to raise capital within the next three to six months. Exceptions to this are Coalspur (CPL), which has $65m in cash reserves to complete a BFS which is close to completion, a BFS which is due to be published this quarter, and Guildford Coal (GUF) which has sold an option for 25 per cent of Terra Energy, the subsidiary holding its Mongolian assets, with an exercise price of $25m.

In terms of consolidation in the coal space, the following stocks are flagged:

CPL is a Takeover Target: We believe that the completed BFS will be the catalyst for Multinational or North American players (Arch, Peabody) to emerge as potential acquirers. There have been several coal takeovers in North American and Vista is the only remaining large scale coal project in Western Canada not in the hands of a major or consumer.

BND to JV its Bowen Basin projects: The long-running sales process has now been terminated without a transaction. The company is well funded with $125M in cash and it is now focused on selling minority stakes in Springsure Creek and Dingo West to pay for the development costs. P

Source: PSL estimates/company reports. Note: The value on the bar [top] represents actual cash in $Am as at end December Q 2011 and includes any capital raisings conducted after December 2011. Colour coding: [red] = requires cash in next 6 months [yellow] = requires cash in next 12 months and [green] = should not require cash in the foreseeable future



Is uncertainty and associated volatility

the new norm?

INVESTOR EDUCATION

It’s has been a wild ride in local and offshore financial markets over the past six to 12 months. A steady run

of negative economic news stories have caused periodic bouts of excessive market volatility. This nervousness has detracted from the proper functioning of global financial markets, although thankfully the “rude” health of our banks has cushioned Australia to some extent.

The big question is, will the proverbial ‘salad days’ of pre-Global Financial Crisis (GFC) times, which were accompanied by a long period of rising stock markets, ever return?

The short answer is, yes, but not for a while yet. Being a little more time-specific here is where the views of finance industry pundits diverge. All one can say with certainty is that the global economy’s recuperation from the GFC, inclusive of a material de-gearing of the private and public

sectors in the US, is still a work in progress. This at a time when other more recent growth impediments have come to light.

The key uncertainties outlined

The uncertainty and volatility that has characterised our financial markets in 2011 will not be laid to rest while the following sentiment negatives are still hovering:

• A European sovereign debt crisis that progressively worsened over 2011: The EU is struggling to find a way to guarantee that fiscally deficient countries will become more austere in its spending. Creditor countries want to see evidence that this restructuring is occurring before they hand over additional bailout funds. Debtor countries for their part are unwilling to see their sovereignty compromised. The

first step here has been moves to get a serious restructuring of the Greek economy underway. The jury is still out on whether this will be a success. Other fiscally-strapped EU economies must also implement a long term plan that will stretch well beyond their respective electoral cycles. Any economic slowdown in the US and/or the BRIC country bloc would obviously complicate attempts to right the euro-zone economy.

• More difficult global credit markets: Funding markets have been clogged by heightened counterparty risk concerns. These uncertainties have in turn slowed lending growth in the all important US and European economies. Major central banks have attempted to lessen the economic dislocation caused by mediocre bank lending by making funding available. Now the banks receiving said funds must lend them out!

Patersons Economist Tony Farnham examines the issues contributing to market uncertainty, and intermittent bouts of volatile trading conditions

over the past 12 month or so.

While we don’t attempt to put a time-frame on when current market nervousness will end, we do highlight the fact that stock

markets, just like our macro economy, go through cycles of varying intensity and duration.

So what are the best fundamentals-oriented stock market strategies to adopt in a trading

environment where uncertainty lingers?


• Evidence of economic slowdown in China: Fears are that the all-important Chinese economy, which now accounts for a material slice of total global GDP growth, will slow over the medium term – the latter in part due to attempts to deflate asset bubbles in that country, plus the mediocre economic prospects of key regions like Europe that buy Chinese-produced goods. This will remain a watching brief.

• Political uncertainties in the US: Policy inertia in the US has been apparent for some time, as President Obama faces off against a hostile Congress. This standoff, in place at least until the upcoming Presidential elections, has slowed efforts to right fiscal imbalances in what is still the globe’s number-1 economy. At least US economic growth prospects have revived a bit of late, on a pick up in consumer spending and an improved export sector.

While these negatives occupy cautious investors’ minds, the best one can do is monitor shifts in stock markets and underlying volatility to see whether market players are at least becoming more optimistic about trading conditions. Of course, early identification of any new growth driver, á la the IT boom of the 1990s and the Chinese economic miracle of the noughties, would be beneficial to the broader economy and financial markets. In the absence of such a fortuitous event, markets will take time to repair the damage caused by the GFC, European debt crisis and other drags on sentiment, meaning uncertainty and volatility is here for a time yet. But how can we identify when volatility in markets is cooling?

How is this volatility measured?

Uncertainty engenders volatility in various segments of our financial markets. Without getting too complex, this volatility is reflected in big movements in prices for stocks and other assets. High volatility goes hand in hand with increased riskiness.

Volatility in the stock market and associated indexes is encapsulated in an index called, appropriately enough, the volatility index, or VIX for short. The VIX, which is managed by the Chicago Board Options Exchange, has been operating for many years. An Australian version of this index has more recently started up.

When the VIX index is at relatively high levels, this usually points to market expectations that big changes in equity indexes are likely in the near term. That is, investor sentiment is highly uncertain. Relatively low volatility index numbers usually imply market expectations of very little change. In the latter case, investor sentiment is relatively high.

Note the downtrend in the VIX over the late 2011/early 2012 period as hopes rose that the European crisis was heading towards some form of resolution. This aligns with the basic premise that stock markets strive to pre-empt market-sensitive developments.

Do stock market investments make sense in these uncertain times?

Uncertainty and volatility in stock markets has made for nervous investors. Many have found it all too hard and retreated to the relative safety of cash and cash-like investments such as bank term deposits.

But all is not lost in the current environment. While it would be mischievous to claim that the challenges currently impeding global economic growth and market stability will quickly fade, there are still opportunities presenting themselves. We see scope for selective buying as:

• Stock specific stories have still materialised: Witness the bounce of sorts delivered by our Telecommunications sector, headed by a rally in the much-maligned Telstra. And our coal sector has been of interest to active traders, helped by some resilience

The chart immediately below shows trends in the US version of the VIX relative to movements in the Australian S&P/ASX 200. Note that when ever the VIX has spiked, as was patently evident at the peak of the GFC in 2008, our stock market has tumbled. But stock markets have eventually settled back over the goodness of time. To use the jargon, the index has mean-reverted. That is, stock market prices tend to return to longer term averages over time. The implication then of mean reversion is that high levels of volatility eventually recede. On the flip side of the coin, very low levels of volatility are often pre-cursors to an increase in volatility – such is the joy of stock cycles!

Source: IRESS, Bloomberg, Patersons Research

The following two charts highlight the volatility and subsequent stabilisation apparent in markets during and after the GFC (chart below left) and the recent European zone sovereign debt crisis (chart below right).

Source: IRESS, Bloomberg, Patersons Research Source: IRESS, Bloomberg, Patersons Research

in prices for this energy commodity as the Chinese economy continues to grow. Some corporate activity in coal stocks has also helped the mix.

• Quite respectable dividend yields are still available: Good dividend yields, often fully franked, have continued to be delivered in some important segments like the Banks. These payments have been well in excess of rates on offer in deposit markets that are of course unfranked.

So investors should by all means be cautious in markets experiencing high degrees of volatility and uncertainty. But to go completely into cash-like investments could be overkill especially when returns on such safe haven investments are next to nothing and opportunities are available in riskier investment classes for well-informed investors. P

VIX V's Stock Market - GFC

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S&P/ASX 200 (12 Week Mov Avg) (RHS)

VIX Indicative Ask (12 Week Mov Avg) (LHS)

VIX V's Stock Index - European Worries

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VIX V's Stock Index Movements

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The current over-weighting toward cash by many investors indicates that few are prepared to call the

bottom of the share market any time soon.

This may be the right call given persistent headlines about the European debt crisis.

However, it’s worth considering the biases that may be driving a decision to sit on the side lines.

a $100 gain is far less than the pain we feel when losing $100. In other words we are hard-wired to avoid losses, making us inherently risk averse.

To complicate matters, we typically don’t like uncertainty. Given a choice between a certain $100 loss and an investment with an equal chance of losing $500 or earning $600, many investors will prefer the certain $100 loss. This flies in the face of traditional financial theory which predicts that an investor will prefer the other investment with its expected return of $50.

One strategy we often use for dealing with uncertainty is to form beliefs. For example, we assign probabilities to events which are inherently unpredictable. Problems may arise because of the way we form these beliefs and estimate probabilities.

We estimate the chance of future real world events based on the past. But we tend to anchor on the recent past or events that we readily recall. During the global financial crisis many investors experienced significant losses. These investors may anchor on those recent, painful experiences and form the belief that we are now in a long-term bear market.

These investors will readily accept information that reinforces this belief and will tend to under-react or give less credence to any news that contradicts it. Unfortunately, we tend to be over-confident in our ability to correctly predict the market. In other words, it will take

We tend to think of returns in nominal terms. For example, a return of one per cent is unacceptable. But we’d be happy with a return of four per cent, even though inflation is running at three per cent - in effect a one per cent real return.

It’s called money illusion. A six month term deposit currently earns around six per cent p.a. This sounds reasonable until you factor in tax and inflation. Income tax can take around 45 per cent and a three per cent inflation rate reduces the real after-tax return on cash to close to 0.3 per cent p.a. in this example. Even within the superannuation environment, with a 15 per cent income tax rate, the real return on cash is only around two per cent p.a.

Many plans for building or maintaining a sufficient nest egg assume real, after-tax returns closer to five per cent p.a. With a five per cent p.a. return, $100 becomes $265 over 20 years. A two per cent p.a. return over the same period turns the $100 into only $149. Even assuming two per cent p.a. over four years and reverting to five per cent p.a. thereafter, means the investor needs a further two years, at five per cent p.a., to make up the shortfall.

If we knew for certain that markets would fall, then staying out and earning no return is clearly the better strategy. But we rarely, if ever, know the future for certain, and our perception of gains and losses is not without biase. Generally, the enjoyment we get from

words - Julie McKayTechnical and Research Leveraged Equities

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a major positive event to shift this pessimistic investor into believing that the market has bottomed, by which time they may have missed an investment opportunity.

Typically, we aren’t aware of how much our emotions influence our investment decisions. Here’s a simple self-test to gauge how much we are driven by our emotions.

n Judge your level of resistance to two simple investment scenarios. Assume you have to invest 25 per cent of your current cash balances in the share market. In the first scenario, you have a small cash balance (say $10,000) which is a small proportion (say 10 per cent) of your overall wealth. You are probably not too reluctant to make this decision. Alternatively, assume you have a large cash balance (say $50,000), which represents three quarters of your overall wealth. This scenario will likely meet with more emotional turmoil. This turmoil arises even before making an assumption about share market performance.

n During bull markets, prices are high but the emotional cost of investing is low. Conversely, during bear markets, prices are low but the emotional costs are high. To quote John Maynard Keyes, “the difficulty lies not in the new ideas, but in escaping from the old ones”.

n It’s virtually impossible to avoid our behavioural biases, but some steps may take the potential sting out of our investment decisions.

n Take a scientific approach by attempting to disprove your current view about the market, rather than seeking out or tuning in to evidence that supports your view. Be careful to avoid the trap of over-confidence in your predictive abilities by keeping in mind a medium to long-term time frame and don’t try to pick the bottom.

n The ‘dollar cost averaging’ or ‘value averaging’ strategies are methodical approaches that don’t rely on your ability to predict the market or decisions biased by an emotional response.

n In a ‘value averaging’ strategy, assume you plan to invest $500 per month. The first $500 investment falls to $480 by the second month. In this case you invest $520 so that you have $1,000 invested by the second month as planned. Assume that the $1,000 investment increases to $1,050 by the third month. In this case, you invest $450 so that you have $1,500 invested. This way you buy more when the market dips and buy less on a market rally.

Your current investment strategy may suit your circumstances and expectations about the market. But it may be a good idea to test your investment decisions for potentially unhelpful biases and consider implementing methodical rules that could reduce the emotional cost of breaking away from herd. P

Opinions contained in this article are that of the author based on the author’s own expertise and other information and expertise accessed by the author. They do not represent the opinions of Bendigo and Adelaide Bank Limited nor any of its related entities. Examples are for illustration only and are not intended as recommendations and may not reflect actual outcomes. The information provided in this document has not been verified. Accordingly, no representation or warranty, expressed or implied, is made as to the fairness, accuracy or completeness or correctness of the information, opinions and conclusions contained in this article. This article contains general information only, is not financial advice and does not take into account your objectives, financial situation or needs. It is recommended that you seek financial advice that is tailored to your personal circumstances.


COMMENT

Book Review

More Money Than God: Hedge Funds and the Making of a New Elite By Sebastian Mallaby

With a title like More Money Than God, it just has to be about hedge funds doesn’t it? Since the Global Financial Crisis put the kybosh on finance markets in 2007, there have been numerous publications painting the hedge fund industry in a bleak light. Not this one. I introduce to you author Sebastian Mallaby, opening batsman for the Hedge Fund XI. To say he is a hedge fund fan would be a massive understatement.

In just under 400 pages, Mallaby provides an easy to follow and detailed history of the hedge fund industry, its managers - who he describes as the “new elite” - and their investment strategies that either turned them into gurus or sent them bust. Believe me when I say it makes for some interesting reading. Since hedge funds reward those who enjoy excessive risk and leverage, they tend to attract those larger-than-life flamboyant characters.

You might have heard about George Soros, the man who broke the Bank of England and made $1 billion overnight, or John Paulson, whose subprime mortgage wager netted him $1.25 billion in a single morning, but there is every chance you haven’t heard of Alfred Winslow Jones, the chap who opened the first ever hedge fund in March, 1949. Mallaby provides in depth analysis on billionaire Paul Tudor Jones, the man who, every time he put on a multi-million dollar bet, would engage in a strange ritual of putting on Bruce Willis’s tennis sneakers, and Michael Steinhardt, who once responded to a colleague’s threat, “All I want to do is kill myself”, with “Can I watch?”. Mallaby introduces you to successful investors worth learning from such as Julian Robertson, whose Tiger Management kept up with Warren Buffett’s returns for many years, and James Simons, a virtual unknown who founded Technologies Hedge Fund and is arguably the most successful investor of all time. Although it was a little surprising that the world’s biggest hedge fund, Bridgewater Associates, with almost $120bn under management, didn’t get a mention.

Towards the end, Mallaby argues that hedge funds aren’t all that bad. Yes they engage in leveraged transactions; and the fee structure can result in a manager’s remuneration blowing out, but there is risk associated with all investments and in most cases, the manager invests his own capital in his own fund. Mallaby also points out that in 2008, the hedge fund industry as a whole didn’t get as torched as what many thought. The industry was down 19 per cent compared to the 38 per cent fall in the S&P 500. And unlike the banks, investments banks, home lenders and others, the hedge funds that went belly up imposed no costs on taxpayers or society.

You might have read all about the hedge fund industry and its wealthy and powerful moguls before, but nothing of this depth and detail (thanks to Mallaby’s unprecedented access), including 300 hours of interviews with those on the inside. A definite for anyone who loves finance and who knows, you might even be converted.

Website Reviewwww.businessspectator.com.au

It started in 2007 with a few journalists leaving Fairfax Media to start up their venture and turned into a website visited by millions of Australian investors. Business Spectator is a real-time, 24-hours-a-day business news and commentary website providing, in its own words: “timely and indispensable information for people in business, finance, government, the professions as well as investors. It is free to users and is funded by advertising revenue.”

The team includes Alan Kohler, the chap who hosts Inside Business on ABC TV, James Kirby, who held senior positions on the Australian Financial Review and Stephen Bartholomeusz, a former correspondent of the Sydney Morning Herald. Feel free to become a subscriber, it’s free and you can log in to get all up to date news and commentary, videos and insights from the Business Spectator team. P

Revie

wed b

y Sam

Fim

is


PEOPLE | NEWS

It was no ordinary annual leave for Arnold Keuker, Business Manager for Patersons Corporate Authorised Representative, Ashfield Capital Pty Ltd, when he set out on his Harley Davidson.

In 10 days he covered more than 5,000 kilometres from Brisbane to Sydney via Broken Hill, South Australia, and Victoria, and back again.

Arnold took off with hundreds of other passionate motorcyclists on the Long Ride 2011 to raise awareness and funds to fight prostate cancer.

The Long Ride is designed to encourage adventure and networking, through road trips that double as awareness campaigns and fundraisers, to help the less fortunate.

Riders make new friends and make a difference.

The Long Ride 2011 raised $172,000 for the Prostate Cancer Foundation of Australia (PCFA).

Arnold said it was an important journey for him.

Like many others, he has been affected by cancer through the loss of his father and sister. His mother is a cancer survivor.

“Based on the fact that some of my uncles have suffered from prostate cancer, I am passionate about helping and have been involved in raising funds over the past 10 years,” he told Perspectives.

“I love riding and I am concerned that men don’t pay enough attention to their health, so I thought why not combine the two?”

Along with some of the friends he has made on his fundraising journeys, Arnold continues to raise awareness about prostate cancer through regular weekend trips and fundraising events every second month.

PCFA is the peak national body for prostate cancer in Australia leading in research, raising awareness and supporting the men affected and their families.

Prostate cancer is the most common cancer in Australian men, and the second most common cause of male cancer deaths.

This year, almost 20,000 Australian men will be diagnosed with prostate cancer, and 3,300 men will die of the disease.

What is not commonly understood is that men can be diagnosed with prostate cancer as early as in their forties. P

For more information about prostate cancer, speak with your doctor, contact PCFA on free call 1800 22 00 99, or visit www.prostate.org.au.

Arnold will be participating in the next Long Ride planned for May 2013 to Cairns.

If you would like to support him, please contact him at [email protected]

Men’s health worth a ride

Sitting with friends, talking about the usual things in life, I put forward an idea to do something a bit more meaningful.

To go to Africa to do some volunteer work; and the challenge to climb Mount Kilimanjaro.

Kilimanjaro Conquering

The SeedAn infective excitement and sense of adventure swept through the group and 12 like minded people put their hands up.

Just half were to begin the challenge, and four complete it.

With four months left to departure, it was time to take training more seriously. Carol was waking to work every day with a 10 kilogram pack.

Her lunch breaks were consumed with climbing the fire stairs in our 40 story office building.

On weekends we’d complete the 1000 steps in the Dandenong’s and regularly hike up Mt Donna Buang, a seven hour stretch.


words - Robert Kolodziej

The PlanIt was important to get maximum acclimatisation.

We’d need to take the longest route - Lemosho - part of the western breech and more than 70 kilometres.

We wanted to see the crater and the famous glaciers and then push for the top.

But considering altitude and temperature risks, and the recent deaths, we still decided to take the Arrow glacier route, the more technical route and one of the two routes out of the Lemosho.

It meant less time at higher altitude, reducing risk of altitude sickness or the deadly pulmonary edema.

Four of us set out - Melbourne-based Patersons Private Client Advisers, Rob Kolodziej and Mark Trent, and Treasury Officer Carol Patterson; and a Patersons client, Kasia Domanski.

The MountainOur crew was fourteen - guides, porters, and the all-important cook.

Mostly of the local Chagga tribe who live near the base of Kilimanjaro, they trek the mountain because it pays better than farming.

Looking across the savannah towards Kilimanjaro, it’s vastness is gobsmacking.

To conquer it, you must be reasonably fit and able to cope with the higher altitude.

Oxygen levels are 40 per cent those at ground level.

Terrain ranges from tropical to arctic.

Our first campsite is at 2,700 metres and over the ensuing days, our trail will gradually steepen.

At just under 4,000 metres, one of our guides enters my tent and tells me he is suffering altitude sickness. He has chest pain, nausea and cramping in his legs.

He knows we have Diamox - the wonder drug that supposedly reduces the chances of altitudes sickness – but only gives you one chance.

If you get higher and the sickness returns or doesn’t abate, there’s no more you can do.

To reduce the risk to his life, we all have to move ‘pole-pole’, which in Swahili means ‘slowly, slowly’.


Half way up Kilimanjaro, Mark Trent and Carol Patterson with the team

Following six gruelling days, standing on top of the highest peak in Africa — Robert Kolodziej, Carol Patterson, Mark Trent


The ElementsAnything can happen in this place. Snow falls when it shouldn’t, fierce winds blow, sunshine burns and temperatures drop sub zero, all in one day.

At 4,900 metres, our last camp lies before the ascent. The sight of Kilimanjaro makes us anxious, climbers die here every year.

Tonight, we cross the glacier where, in 2006, a rock fall killed three Americans and seriously injured five others. The danger lies in the melting glaciers. Four hours planned sleep, became four hours of desperately trying to sleep, and we were ready to.

Water was being rationed because it had frozen. Temperatures inside our tents must have dropped below 0C.

The SummitFor the summit, most of our crew stay behind, apart from the two guides. The snow has stopped falling, and the night is clear.

Light-headedness sets in, then nausea and headaches, and the overwhelming urge to lie down on the snow to get some sleep.

We were moving up in formation but Mark and a guide were gradually left behind. We didn’t know it, but Mark’s boots could not get enough grip in the ice.

We scrambled with our hands to move higher to find a ledge where we could rest and call out for Mark.

Eery silence.

We were in a zone of no return. It was virtually impossible to go down to look for them and we couldn’t wait. At dawn, the boulders which are frozen together, will come loose.

We had no choice but to continue towards the rim where we would wait for them.

To our relief, they appeared a few hours later. By now the sun was starting to come up. The sunrise was stunning, and we could see as far as the horizon.

We decided to have a look at the glaciers; formidable and beautiful. We could see where the cracks appearing and the ice melting. The crater is a lifeless place; like walking on the moon.

We needed to move.

We saw crosses signifying tragic ends; ends following dreams. We could almost see the peak in the distance. One more cliff and we’d be there. The thought instilled the energy to scale the last cliff.

We stood atop Kilimanjaro.

We’d conquered it.

But our journey wasn’t just about this moment. It wasn’t about the photos. It was about the journey that began 12 months before, and the ones to follow.

The HelpIt was important to us to achieve more than just reaching the Kilimanjaro summit.

Pre-climb, we visited Kilptown - a suburb of the formerly black township of Soweto in Gauteng, South Africa - located about 17 kilometres south-west of Johannesburg.

We needed to obtain permission and a guide from the local authorities as the townships are not exactly tourist-friendly areas.

We visited schools to hand over the monies we’d raised to help them.

We spent as much valuable time as we could with the children there, and some of us remain in contact, and plan to return to provide further assistance.

Post-climb, we visited homeless children in Moshi, Tanzania, about 100 kilometres from Kilimanjaro, again spending time with them and donating over $1,500 to assist them with basic needs and education.

We remain in touch with our carriers, our porters, our mates who led us up the mountain.

We have sent them big loads of the bare necessities – basics like gloves and jumpers, other clothing, and basic writing materials.

And if you go there - and see these dedicated people in shirts and hats emblazoned with the all-Australian Patersons Securities logo – you might remember this story!

We won’t lose touch.

The EndRob, Carol, Kasia and Mark are planning their next trip to Aconcagua.

At 7,000 metres, it is the highest peak in South America. P

Mission accomplished, time to celebrate

Captio Old Man’s Beard Forest at 3000 metres — Robert Kolodziej, Joseph, Abeid Mdoe, Kasia Domanski, Carol Patterson, Mark Trent


Patersons Securities Limited ABN 69 008 896 311 AFSL No. 239 052Participant of ASX Group; Stockbrokers Association of Australia Principal Member; Financial Planning Association Principal MemberImportant Notice: © Patersons Securities Limited 2010. The contents contained in this publication are owned by Patersons Securities Limited (‘Patersons’) and are protected by the Copyright Act 1968 and the copyright laws of other countries. The material contained in this publication may not be copied, reproduced, republished, posted, transmitted or distributed in any way without prior written permission from Patersons. Modification of the materials or use of the materials for any other purpose is a violation of the copyrights and other proprietary rights of Patersons.Disclaimer: Patersons believes that the information or advice (including any financial product advice) contained in this publication has been obtained from sources that are accurate at the time of issue, but it has not independently checked or verified that information and as such does not warrant its accuracy or reliability. Except to the extent that liability cannot be excluded, Patersons accepts no liability or responsibility for any direct or indirect loss or damage caused by any error in or omission from this publication. You should make and rely on your own independent inquiries. If not specifically disclosed otherwise, investors should assume that Patersons is seeking or will seek corporate finance business from the companies disclosed in this publication.Warning: This publication is intended to provide general securities advice, and does not purport to make any recommendation that any securities transaction is appropriate to your particular investment objectives, financial situation or particular needs. Prior to making any investment decision, you should assess, or seek advice from your Adviser, whether any relevant part of this publication is appropriate to your individual financial circumstances and investment objectives. Disclosure: Patersons, its directors and/or employees may earn brokerage, fees, commissions and other benefits as a result of a transaction arising from any advice mentioned in this publication. Patersons as principal, its directors and/or employees and their associates may hold securities in the companies the subject of this document, as at the date of publication. These interests did not influence Patersons in giving the advice contained in this publication. Details of any interests, which is relevant to any personal advice to you, may be obtained from your Adviser. Patersons as principal, its directors and/or employees and their associates may trade in these securities in a manner which may be contrary to recommendations given by an authorised representative of Patersons to clients. They may sell shares the subject of a general ‘Buy’ recommendation, or buy shares the subject of a general ‘Sell’ recommendation. Stock recommendations: Investment ratings are a function of Patersons expectation of total return (forecast price appreciation plus dividend yield) within the next 12 months. The investment ratings are Buy (expected total return of 10 per cent or more), Hold (-5 per cent to +5 per cent total return) and Sell (> 5 per cent negative total return). In addition, we have a Speculative Buy rating covering higher risk stocks that may not be of investment grade due to low market capitalisation, high debt levels, or significant risks in the business model. Investment ratings are determined at the time of initiation of coverage, or a change in target price. At other times the expected total return may fall outside of these ranges because of price movements and/or market volatility.

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Patersons Perspectives Issue 11

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Transcript of Patersons Perspectives Issue 11