Category Archives: Z-STOCK INDICES

Stock indices

Value investing – is it wise to stay in cash or remain invested?

I read in a recent article that a value investor has now holding mostly cash. Over the past few years, he probably had made some money. He mentioned that he has already divested out of stocks and stay mainly in cash for the past two years.  In all likelihood, he is timing that there will be a market crash or at least a major correction not too far ahead perhaps in a matter of 1-2 years.  In fact, he did mention that he will pick up some good stocks when the market crashes. Now the question is – should one cash-in or should one to continue to remain invested sitting on unrealized profit even after a good run. The chart below showed that many stock markets had a good run in the last 5 years.

 

A few possible scenarios could happen in the next 1-2 years.

(a)     If the market did really crash or undergoes a huge correction

In this case, he will be very glad that he had timed the market correctly and was able to pick up some good stocks and earned a difference between his higher sale position and his lower purchase position.

(b)   If the market continue to advance

In this case, he is likely to regret his action for selling ‘too early’. He is unlikely to buy at higher price any time soon and will be stuck with cash for a total period of 3-4 years since he had already cashed out. Given that he is a ‘value investor’ probably meant that he no longer saw value in stocks and decided to get out of them. Certainly, he would not buy the stocks when the prices of those stocks went up even higher unless he has ascertained that the fundamentals of the stocks that he had sold have changed for the better.   

 

(c)    If the market moved sideways or even in a gradual decline

Initially, he is likely to continue to wait in hope to get a ‘better price’ for his stocks. There probably would come to a time when he lose his patience and start to dabble in stocks again. As one of the readers rightly pointed out, it is actually quite ‘expensive’ to stay in cash in hope time the market. The opportunity cost lost in collecting dividends for the last few years could have more than off-set the gain even though he may manage to sell at a higher price and buy them back at a lower price. In timing a market, we need to be two time right – both in the buy and sell, in order to gain from it. 

 

Of course, if one is possible to see what is ahead of us, in every boom and bust of the stock market, then market timing is the best strategy. But when things are generally uncertain, the time in the market appeared to be a better strategy than timing the market. The simple logical reason to that is that stock markets generally go up higher in the long run. Just simply by being a passive arm-chair investor could have helped us make a huge profit as the market tends to go up in the long run. That was actually endorsed by Warren Buffet who mentioned that one should buy an S&P low cost index fund consistently to gain from it in the long run.

 

Brennen has been investing in the stock market for 27 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.

Not all stock portfolios can be turned into cash easily

It was already quite some time back when a friend of mine showed me his Central Depository Statement (CDP) statement of his stock holdings. He hoped that I was able to provide some ideas how he could revamp his stock portfolio. Below was what I saw when I unfold the statement:

  1. The total sum of the stockholding was more than $200,000
  2. He has slightly more than 2 full pages of stocks. Yes, more than 2 pages.
  3. Many of the stocks are in odd lots. Some even less than 100 shares.
  4. The worth of some stocks was like $20+ to $30+ in total value.

 

On paper, it appeared that he had a net worth of more than $200k, which is quite a decent sum. However, on a closer look, I told him that he will have a hard time cleaning up this stock holding. Some of the stocks are either I do not know them or they are so illiquid that it is quite difficult to sell out totally given the odd lots that he had. In fact, it may even be better to ‘ring-fence’ the stock-holding and re-start a new one than try to micro-manage those stocks that are not even worth the while to have a second look. I felt painful for him that he was not able to convert his stocks quickly to cash without taking a significant ‘haircut’ on his more than $200k of stocks.

What I believe could the problems in this stock portfolio?

The first obvious mistake was that he probably held too many stocks. Imagine CDP statement list out the stock counters in single-lines, ie. without any line-spacing in between. Just within the first page, it could have accommodated a listing of 30 stock counters. I do not know how many stocks are on page 2, but let us put an estimate of 50 counters to occupy full page, and several stocks listed on page 3. In all, they should add up to about 85-100 stock counters. That means he owns about 10% to 13% of all the stock counters listed on the Singapore stock exchange. Just by the sheer number of stocks, I personally think it is too much for him to manage. In fact, in my opinion, the number of counters that can go beyond page one of the CDP statement is probably far too many. Think about it. Many indices around the world are made of about 30 components stocks, and this is already very representative of the respective markets. Surely, we do not need to own more shares than what is needed to form the index. With the advance in technology, it is of course possible to include more stocks in indices, but that cannot be said if we want to formulate a stock portfolio manually. In fact, according to past literatures, by the time when we hold about 12 to 18 stocks, we have already reaped 90% of the benefits of a diversified portfolio.

Another problem of his stocks holding is that many of them come in odd-lots. This means that he is not able to buy or sell efficiently. And because some of the odd lots are less than 100 shares, he may even have to buy in some shares and the sell out all the shares to combine the total shares to reduce the brokerage charges.  As expected, it does not go down well on him because the fact that he reduced his holdings by selling out the full lots and leaving the odd lots, we cannot simply expect that he will make a reversed move to buy more shares of those counters in the near future. Furthermore, I do not know if he had made any money when he sold the full lots as he might have reacted out of fear to sell out the full lots during times of impending crises. In summary, he could have write-off all these odd lots, which would otherwise impede his move to clean up his portfolio.

As a stock investor, it is important to understand that the stock market is a quasi perfect competition and many of us have no control over the on-going transaction price. In other words, we are price takers. The only thing that we can possible control is the quantity to buy or sell.  Even that may still be a limitation because, as individuals, we have limited resources. We simply cannot buy or sell any quantities of shares that we like. So it is important that whenever we buy or sell, we are mindful of the next move and how to react when something unexpected happens. It is like playing chess. We are not able to anticipate all the moves of our opponent. What we can do is to limit our damages when we encounter an attack by our opponent and leap on a strong attack when we see an opportunity. Trying to build a stock portfolio without some kind of strategy in place is doomed to fail.

Wish you luck in your investing!

Brennen has been investing in the stock market for 26 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.

If we missed the best stock upsides

Today marks a little more than one month after Donald Trump won the US election. When he first won the election, the market at first reacted negatively, followed by a strong rally and then tapered off in the last two days. The banking stocks, in particular, were the biggest beneficiaries of this rally. DBS has advanced from about $15.20 to a high of $18.32 and then settled at $17.83, an increase of $2.63 or about 17.3%. Similarly Overseas Chinese Banking Corporation (OCBC) had also advanced $0.73 or 8.6% from $8.53 to $9.26. United Overseas Bank (UOB) also showed a significant increase of $2.31 or about 12.4% from $18.59 to $20.90. Of course, if one holds the bank stocks, the return for this month alone is extremely significant.

Despite the rally, many people still asked the same question just a few days ago– DBS bank, can still buy now? Does it mean that these people missed boarding a stationary wagon and is now chasing a moving one? Actually, if we look at the bank stocks, in particular DBS, it has been parking below $16 for many months, right from the beginning of the year or even before. Why do we need to wait for it to move up to chase it? Why can’t we buy it at our own pace and wait for the rising tide to raise our boat?  It appeared logical right now in hindsight, but seemed to be an irrational decision when the share price was oscillating between $15 and $16 per share for a long time. Very often, when a stock or the market rallies, the onset is often the sharpest and this is when the smaller players start to take note. By the time when one start to confirm, double confirm, triple confirm, a significant part of the upside has already been priced in the stock. So by the time retail investors start to buy into the market, perhaps there is only the last 20-30% upside. We always come across a statement to the effect that if we missed the best 10 trading days, our stock performance would just appear ordinary. Worse still, it could even be negative performance despite that the STI moved up significantly. To me, stock market has a place for both big and small players. Big players cannot play like a small player and a small player cannot afford to play like a big player. Big players buy into the market to cause the market rally, but the advantage of small players is to be able to buy into stocks without causing big ripples in the stock market. That’s where we should play to our advantage. Remember that our wealth is not just measured by the amount of money we have in the bank. Our wealth is measure by the sum of our cash, stocks, properties and whatever assets that we possess.  So, there is no need to be in cash all the time. It is important to engage the stock market all the time than to wake up only when the rally has already been well underway.

Happy investing!

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Brennen has been investing in the stock market for 26 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.

I was there 6 years ago

Today marks a little more than six years since this article was featured on The Sunday Times on 21 November 2010. The STI was 3197.3 then, and by today, it ended at 2859.33, about 10.6% down. It is time to take stock again after the span of 6 years.  The real time is the best endorsement of how our stocks perform over time.

 

ST, 21 Nov 2010
ST, 21 Nov 2010

By and large, the components in my portfolio were relatively intact. I might have added one or two stocks to replace two of my beloved stocks that were taken off my portfolio due to privatisation. The first was Cerebos Pacific which was delisted in 2012/2013. The offer was attractive at a whopping $6.60 per share. The second was OSIM which was delisted in the first half of this year. The offer was at $1.39. Both of these stocks had been multi-baggers apart from receiving the good dividends that had been distributed in all these years.  I have also parted with SPH due to its weakening fundamentals and reduced my stake in Comfort-Delgro when the share price went past $3.00 per share. I had left some stocks in my portfolio waiting for the good news for a one-off dividend announcement when it entered the asset-light regime but it never came. Perhaps, I would consider to buy back the stocks again when the time is right.

 

Meanwhile, there were people who mentioned that bank stocks, in particular, DBS did not really gained in terms of capital appreciation in all these years. I agree with that totally based on the price chart because in the last few years, DBS share price was hovering below $16, then gained momentum and went above $20, then fall below $16 for a significant amount of time. By today, it is back above $16 and ended up at $17.05 today, which is still well below $20 reached some years ago. So, if we look at the two end points, we may not see a significant capital appreciation. This means that if we apply a ‘buy-and-hold’ strategy, we may not have gained anything or could even have suffered some paper losses if we had bought it high. As mentioned in my previous post, a long-term strategy does not mean buy and don’t sell. What I meant was we should buy when it is time to buy and sell when it is time to sell, but our focus still remains on it. In fact, over the last week, the increase of $1.20 in two days gaining 8%, and then around 56 cents made within this week had made it a strong showing, following the widely belief that the FED is likely to make a hike in the interest rate by December. If not for this sharp increase, DBS share price would still be lingering below $16. That said, isn’t it important that stocks must have some degree of volatility to be able to buy low and sell high. Certainly we cannot expect a stock to be increasing all the time because at some point in time, the share price will go past its fundamentals and a crash would certainly be imminent. This indeed happened to the penny stocks in October 2013. In fact, just yesterday, the ISR Capital also crashed 55% from 28 cents to 12.7 cents. Many investors/traders had been sucked into these stocks thinking that they were the next blue chips in the making or probably to make quick profits. In a similar way, we cannot expect a stock price to remain constant all the time because it means that the only thing that we can depend on is, hopefully, a fat dividend. So, in a market place of different groups of people, we should be mentally prepared that there is bound to be volatility and we should be prepared to embrace it. Otherwise, it is difficult to take bold decisions in our stock investments. In fact, in all these years, slowly but surely I have increased my bank stock component. Perhaps, it may crash tomorrow, next month or next year especially when they have been quite exposed to the offshore and marine sector. But I would still stick my belief that bank stocks should be part of our portfolio so long as Singapore exists as a financial centre regionally.

 

But not everything is a fairy tale story in my portfolio development. There was a stock which I held for easily more than 20 years when I started off as a rookie. By today, it had lost 99% of the price which I had bought. I have decided to leave it there to decay to serve as a reminder not to believe in promises and glamorous stories painted by the management. After all, the residue value is only a few hundred dollars. Even today, it has been struggling to keep its price above 20 cents MTP after consolidation. The second was a company whose products seemed to be promising, but apparently, the management seemed to be taking a different direction thus sabotaging the share price. This again showed the misalignment of what the management claimed and what their actions are. The third was a recommendation by a ‘self-declared guru’ who aggressively coaxed investors out there to buy bombed out counters that crashed during the penny stock crash. Frankly, I did not carry out my homework for this stock. In a fit of the moment, I simply threw in some money to buy the stock. The share price has been going down and down and never return back to even near the after-crash price.  It was one of those acts of impulse that can happen from time to time but I learnt a lot of lessons from this episode. Firstly I did not do my homework, which was not my usual self. I was probably too carried away with other things back then. Secondly, I was too trusting to believe a speculator who ‘disguised’ himself as a guru. Thirdly, buying into a bombed out counter does not always mean a good buy because at end of the day, the fundamentals of the company still counts. In fact, I think many people got this basic notion wrong that when a stock crashes, it means a good buy. From past history, many counters that had tanked badly had never been able to come back up again because the stocks simply lack the fundamentals to trigger a turn-around in their stock prices.           

 

Now comes the blessing part. I had managed to avoid the crash that had plaque the offshore and marine (O&M) stocks. I find most of these stock prices are too intertwine and the crash of any one stock would bring down the other stock prices as well. The survival of the companies behind these stocks hinges largely on the oil price, which we do not have control over it. This means that our fate lies in the hands of the oil producers and users. Even as a country, we are only but a price taker.

I would also consider it fortunate that I had also avoided the corporate bonds. At one time, I was considering to buy Genting bond as it was trading below par while the perpetual bonds was trading above par. However, I seemed to have an impression that the relationship manager was trying to impress upon me to buy O&M bonds offering higher coupon rates. Personally, I find that there is too much concentration of risks to support the bond-issuer even though the coupon rates were attractively priced at between 5% and 7% compare to the bank interest rate of less than 1% offered to retail clients. Furthermore, I would not have much bargaining power as an individual in case of a dispute. Thirdly, there was lack of liquidity in these investments. The bid and offer spreads were often wide and far in-between. Certainly, if we are not able to execute an exit plan at our wish, it is never a good investment. This decision paid off well and I felt extremely blessed following the default of Swiber in July this year. Now with the defaults catching fire across the industry, I felt that I learnt some good lessons without paying a price. Many who had bought bonds, particularly in the O&M sector would now been licking their wounds and would likely to be entangling with long-drawn legal tussles with the bankers, lawyers and the bond-issuers. These are unfortunate events that bankers, investors and bond-issuers would not like to be in.

Thanks god, despite the drop of about 10.6% over the 6 years, I feel lucky that portfolio had actually grown and I have avoided several major stocks setbacks that had derailed many investors and traders out there. Essentially, the best test for our stock performance is the real time.

  

Brennen has been investing in the stock market for 26 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.

Some notes about Investingnote

About two years ago when my stock-broker friend introduced InvestingNote to me, I was not exactly keen initially. The reason was that I have a business to develop and a family to take care. All these will draw away all my awake hours. Where can I find the time to socialize and get into it? Nevertheless, I still register my name, perhaps, to keep myself current with new developments as well as to know some investors and traders out there. It was a good decision. Today, I have met several distinguished investors and traders via this platform and had even met them personally.

In the meantime, InvestingNote has grown by leaps and bounds, and now with members in tens of thousands. All these came about because more and more features have been incorporated in the platform to have everything that we need to know about local stocks within the platform. Not only can we find the price chart featuring real time price, we can also discuss about the potential of each stock on the SGX with fellow investors and traders. Apart from that, one can also horn his trading skills making estimate about the share price of each stock for a particular time-frame. This can help one sharpen his investing/trading skills before taking the plunge using real money to buy or sell stocks. Frankly, I have not come across another platform that offers this feature.    

With all these said, there is no cost. You need not pay anything to be a member of InvestingNote. Registration only requires an email and a password, and is extremely easy. Just register by clicking this link.

Register me at www.investingnote.com now!

It’s an additional tool for your stock investing.

Brennen has been investing in the stock market for 26 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.

Just stay on course

In the blink of our eyes, we are at the half-way mark of calendar year 2016. So, where are we now? The ST Index closed at 2882.73 on 31 Dec 2015, and today it closed at 2840.93, a difference of 41.8 points down (or a loss of about 1.5%) since the beginning of the year. After battling with the Chinese stock market rout in early part of the year, the possibility of interest hike and, very recently, the Britain exit from EU or Brexit in short, we are still more or less where we were since the beginning of the year.  So, generally speaking, the market has been quite resilient.

In fact, the bonds and perpetuals that were raised in the last few months were several times oversubscribed, and many companies actually raised more debts than originally planned. This shows that there is indeed a lot of liquidity at the sidelined waiting to pounce on opportunities that may surface from time to time.

Even in the latest happening that led to Britain, the world’s 5th largest economy, having to break away from the European Union (EU), it did not impose any real threat after one to two days of market disorientation. In a situation when central bankers are prepared to do whatever it takes to stabilise the market, it probably pays to be in the market and not to sell out prematurely. It is like playing football with the referee on our side. The outcome is slightly biased favouring those who hang on.

 So, what do we really learnt from this episode? During times when the market gyrations are expected to be significantly violent, all we need is to stay calm and rationally think through how to react (or even not to react) to the changing situation going forward. Usually, it is the calmness that helped us think rationally. Furthermore, there is ‘Hands of God’ (the central bankers) a term used by Diego Maradona in 1986 world cup to help along. Suppose when we go into a panic and sell out on Friday, 24 June, it is very certainly that one is not able to buy back the stocks that they had sold without incurring some additional costs. Today may be the end of the 1st half of the year, and there is a possibility that there was some kind of window addressing that drove the ST index up. Of course, there can be profit taking in early July. However, the way I see it, the depth of the market rise appeared to be more than just window dressing as the market anticipates that interest rate hike may take a back-seat. Also, almost certainly, there will be stock market volatility ahead as the breakaway of Britain may result in more uncertainties brewing in the EU. And, perhaps, some black-swan events can pop up unexpectedly. But these happenings are not something that we can control and there is no point to lose our sleep over it. What we really can do is to stay on course in our investing journey. Many stock market routs actually got diffused over time. As new ones come along, the old ones get blurred out of the picture.

After having gone through so many ups and downs of the stock market during all these years, I find that most of the time, we do not need to be too reactive to the market gyrations.  The market may have gone crazy momentarily, but we really do not have to go along with it. In fact, there is more to lose, not only financially but also mentally when we react too much to the market gyrations. Unless that we hold on stocks that totally lack fundamentals, the market normally heals itself after some time. Perhaps, we should treat such isolated events as if the stock market is offering some discounts, just like the supermarkets do from time to time. Once the discount period is over, we find ourselves much better off than we originally were.

To me, stay on a long-term course is the best policy.

Brennen has been investing in the stock market for 26 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.

Brexit: My take on the sterling pound

Even though the sterling pound was bashed badly on Friday, 24 June to as much as 10% against the US dollars, my take is that it could be in for more bashing. While I cannot profess myself to be an expert in the forex market, I am of the view that England’s decision to leave the EU may cause disunity among the GB countries. England’s huge voters by proportion had overwhelmed the stand of the other economies such Scotland, Wales and Northern Ireland. A post examination of the poll results showed that Scotland, next biggest economy after England has a voting population of only 2.6 million voters compare to England’s 28.4 million, let alone that of Wales and Northern Ireland of 1.6 million and 0.8million respectively. In other words, the English’s votes on Brexit may not be representative of the other three economies. In fact, the post examination results showed that Scotland and Northern Ireland had more than 50% on the ‘remain’ camp. This could further surface the disunity of the Great Britain (GB) leading to holding more independent referendums. Needless to say, it is to likely to further affect the value of the sterling pounds.  

Brennen has been investing in the stock market for 26 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.

Investing personality is all that matters

It is quite common to hear people making references to those famous billionaire investors, like Warren Buffet, Benjamin Graham, George Soros and Peter Lynch and many top-notch investors out there. Yes, we should learn from them, but how many of us can really able to mimic the style or to have the financial means of these investors to influence the companies in our favour?

Like I always tell students, two people investing in the same stock, one could make money and the other could lose money. So, what actually is the something that separates the two – simply investing personality. For example, Warren Buffet’s style of keeping stocks forever would certainly not be able to go down well with investors who are unable to keep stocks for 10 weeks, let alone 10 months, 10 years and, certainly, forever.

In Sun Tze’s chapter on preparation for battle in the Art of War, he pointed out the following anecdote:

知彼知己、百战不殆,

不知彼知己、一胜一负,

不知彼不知己、百战必殆。

In a similar way, we are pitching ourselves against the investing environment. Unfortunately, we can never completely understand or control the investing environment. The only thing we probably can do is to be able to control ourselves. Even that, based on the above saying, our probability of a win is only 50%. But it is an important hygiene factor as not knowing our investing personalities will see ourselves perished in all investments.

However, it is really not easy to know our investing behavior. Especially in times of a crisis, we may act in a different manner from our normal self. Very often, we tend to describe what we want to be rather than what we really are. Many people professed that they are able to ride through a stock meltdown, but when a crisis did happen, they fled so fast and sudden that ‘their tails were not even in sight’.

There were also cases that people professed themselves to be long-term investors following the style of Warren Buffet and Benjamin Graham. But when the market became too volatile, their investing style changed automatically to short-term trading.

Then there were cases when people bought into illiquid stocks or even stocks of loss-making companies in hope that they are next take-over targets. However, when the wait for the ‘white-knight’ got too long, the investors simply gave up and sold back to the market, maybe even at a loss.

Then there were cases when stocks experienced such runaway price that people were sucked into buying a stock at any price so long as somebody was willing to sell it. The bandwagon was simply too attractive to miss.

All these are classic examples of human investing personalities, and when everybody acts in concert, becomes a herd behaviour.

Unfortunately, it is not easy to fully understand even our investing behavior, especially in a crisis. I, for one, was a classic example. During the Asian crisis in 1997-1998, I thought I was able to ride through the financial storm. But when the crisis turned out to be too long and far too deep, I started to get panic and sold my stocks. The worst thing was that I sold my shares at the peak of the crisis, only to discover that the stock index recovered 75% within the following three months, and then another 75% by the following year. Should I able to hold my shares longer, I probably would have not incurred any loss, or perhaps even managed to make some. In hand-sight, it is a combination of being too foolish and too naïve for I had never encountered such a threatening crisis before. Unfortunately, I discovered my shortcomings at a high cost.

Discover your investing behavior early. It carries a long way.

Invest with care!

Brennen has been investing in the stock market for 26 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.

Sell in May and go away strategy: Why not a contrarian view?

The old saying sell in May and go away strategy seemed to have taken its toll this year when STI was sharply sold down from 2960.78 on 21st April to 2730.8 on 6th May 2016, a drop of 230 points, representing about 5.8% decrease on the ST index. After that, there appeared to be an increase in volatility as the bull and the bear tussled to tip over each other. By the end of today, after approximately 3 weeks of trading or so, the ST index ended at 2791.06, a mere increase of 60 points from 6th May.

According to The Straits Times (ST, 30 May 2016), it happened four out of five times in the last five years. If that view still holds true, then would it not be interesting for us to take a contrarian view and buy into the market when we bade farewell to the last ship that left us. And, of course, if they do return going forward, we can slowly sell back to the market.

Slide28

Frankly, taking advantage of this apparently universal ‘market theory’, I was actually a net buyer in the month of May. After all, isn’t it important that to gain from stocks, we should either be ahead of the market or, if we are courageous enough, even to act against the market movement. Otherwise, we are just a market follower moving up and down with the market. When market tanks, we lose; and when the market roars, we win. That said, I bought back some of the stocks that I had sold in April such as Jardine C&C and IPC to pocket the difference and yet maintain my original exposure in these stocks. In other words, I ‘squared off’ my position.

Hopefully, I am well-positioned when there is a big buy to propel the market. There could, however, be a stumbling block this year as the spectre of higher interest rate can derail this strategy. Big investors and fund managers may not return any time soon as they go in search of better yield elsewhere especially when local economic outlook still looks uncertain. Should such an event happens, it would affect the market liquidity. Accordingly, we should expect the spread between lending and saving to widen, thereby benefiting the bank stocks. With the cash return from OSIM, following the privatization plan by its chairman and CEO, Mr Ron Sim, I had also increased my stake in the bank stocks. However, one has to be careful about over-exposures in bank stocks in an increasing interest rate environment as non-performance loans (NPL) will also increase as well. If the interest rate continues to perk up, it will come to a time when the deteriorating asset quality will overwhelm the benefits of higher interest margin.

Happy investing!

Disclaimer:

This article is not a recommendation or an advice to buy/sell the mentioned stocks. It is a sharing of his opinions with the readers.

Brennen has been investing in the stock market for 26 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.

Making sense out of this market

The interest in the stock market returned with a vengeance over the last 6 trading days. By Friday yesterday, it had ended at 2837, an increase of 234 points from the closing at 2603.40 on 25 February. This represented an increase of 9% on the ST index. Imagine if one were to continue to wait in hope that index tanked further, then he would have missed this rally. It may be the best rally for this year.  Thanks to this changing global sentiment, I managed to pick up some battered blue-chip stocks after the Chinese new year to add to my portfolio. This is in anticipation of additional liquidity that will come April and May when companies distribute out their year-end dividend.

The fact that stock markets all over the world were retreating in the last two months was that people were generally fearful about the world economy – the retreat of commodity prices, the collapse of crude oil prices and that the Chinese economy growth rate slowed to 6.9% was the worst in the last 25 years. Similarly, the European as well as the Japanese economies were only trudging along even with huge stimulation packages. Naturally there is a lot of pessimism over the local economy that led to a huge retreat in the ST index over the last two months in January and February.

As pointed in my book “Building Wealth Together Through Stocks”, markets tend to undershoot the pessimistic outlook (and of course it also tends to overshoot during massive optimism at the other extreme). Consequently, windows of opportunity will present themselves time and again. Take DBS for example. Six months ago, it was trading at around $20 per share, but it fell to $13 per share just recently, a drop of about 35%. In between, there were only two quarterly of reporting. Were the results that bad for the share to tank so much? I am not saying that DBS share cannot drop to $13 if it really did badly. What I am saying is that the market tends to anticipate too much before it really happens. And when things were not as bad or when there were some signs of good news, it would start to leap forward. That was exactly what I mentioned in my earlier post (Market rout: A test of our mental fortitude.) that the market is likely to roar with ferocity because the market had already dropped too much.

 

Let us examine the stock market index. About 20 years ago, if the ST Index were to reach 2500, we can safely say that it had reached its high. But today, if ST index 2600 level, it would be have been considered it as a historical low. There were only two occasions since global finance crisis in 2008/2009 that had hit below 2600, namely the euro-zone crisis in 2011 as well as after the collapse of oil prices recently. Again, it is of course possible that the ST index can go lower than 2600 and even 2500 and below, but it is important to note that stock indices represent the value of a sample of selected companies. As stock indices retreat, values of companies will emerge because market is “under-pricing” the value of companies more and more. Stock prices are driven by sentiments, and very often, the market may become so pessimistic that it starts to price themselves grossly below companies’ intrinsic value thus causing big price differences between stock values and stock prices. Consequently, when the sentiment changes, the bounce back becomes forceful. Now that this force had already pushed up the stock index significantly, perhaps the strength to push up the index further may start to weaken or even collapse going forward.

Invest carefully now.

Brennen has been investing in the stock market for 26 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.