Category Archives: Z-STOCK INDICES

Stock indices

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.

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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.

Tackling the current uncertainties

To date, we have already completed 14 trading days in the month of February. The ST index closed 2629.11 on the last trading day of January and of today, it ended at 2660.65. In other words, ST index advanced only 30 points over that past 14 trading sessions, with almost equal number of days of rises and falls. Certainly, to predict whether the ST index is going to go up or down at this time as good as betting a head or tail in a coin-toasting game. All the bad news about commodities prices falling, tanking of crude oil prices, hiking of US interest rate and China slowdown that can lead Singapore into a long-drawn recession have been priced in the recent stock market shake-out. At this moment, the bulls and the bears are in equal force causing the situation to be in an almost stalemate position. So, whether you are a punter, trader or a long-term investor, perhaps, there is nothing exciting to brag about, except perhaps to look forward to some dividend payout dangled out by companies for being shareholders as most of the companies close the financial books in December.

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Has the market bottomed?

Frankly, I did not look into Hang Sheng or Footsie or the Dow Jones, but I think they are more or less the same story as the world financial markets become more efficient. But then, does it mean that the market has bottomed? Maybe yes, maybe no. What the market did was that it priced-in the news until now, but what about tomorrow, next week, next month or even next year? Frankly, nobody can tell with pin-point accuracy. I remember that about 20 years ago when the STI fell from its high of about 2425.70 in 31 December 1993 to 2239.60 in 31 December 1994, it actually stayed around that level for the next two years. By end 1996, the STI was 2216.80. If you think that the market had bottomed, you may be in for a rude shock. In the year that followed, it tanked 30%. By 31 December 1997 it was 1529.80. Then it tanked again by another 100% following the Asian Financial Crisis to 805.04 on 4 September 1998.

Of course, I don’t mean that the current situation will follow exactly the same pattern as it had happened 20 years ago. What I am illustrating is that stock market meltdown sometimes come in so shockingly that we simply do not know how to react.

Can we really able to buy at the bottom?

In a similar way, we are also somewhat influenced by the pessimistic sentiment around us as market falls. It is generally fair to say that our decisions can be highly influenced by the market sentiments. When the market hits its low, we tend to procrastinate in hope for the market to tank further even though we know that stocks have become cheap. During one of the courses that I conducted somewhere in April 2013, one student pointed out to me that he wanted to wait for the market to hit low before he goes in with “big amount of money”. He also told me that he had not been investing all this while. My point to him was, he might probably not able to see where really the bottom is. Especially, when the market advanced two-days for every two days of drop, it is hardly possible to see where the bottom is. By the time, one knew where bottom was, it might have already passed the market trough. So, at end of the day, it is important to invest regularly in small quantities to smoothen out the financial shocks that time and again surfaced. It applies to shares, unit trusts and ETFS, a technique that fund managers called as dollar cost averaging. Sure, as we increase the frequency of purchase, the brokerage charges can unconsciously increase, but do remember that it can more than offset by the lower price that we pay for the shares as the share prices fall. So, it always makes sense if we make small purchases in times of extreme uncertainty. After all, we do not know how long this market brawl is going to last even though we seemed to be in a period of lull right 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.

Banks may be cheap now, but…

Cash is king. Yes, during financial turmoil like this when stock markets all over the world are sinking, having cash is the key. According to The Straits Times on 20 January 2016, just last year alone, about US$735 billion left emerging market. China accounted for $676 billion which formed the bulk of the outflow. Similarly, the fund inflow last year was about US$231 billion against US$1.2 billion per year from 2010 to 2014.

On the corporate front, banks are natural victims during times of liquidity crunch too. Most bank share prices have sunk more than 30% from their recent high when the ST index hit 3500. Right now, banks are trading near or below their book value (BV). Exactly, five months ago, I had written in my blog that there was always a possibility that banks might start to raise funds through rights issue if the turmoil persists. So far, none of the banks have raised alarm, but still it is possible if banks deem it fit to do so. After all, there were past precedence of fund raising activities during financial crises. For example, DBS raised S$4.2b in end 2008 through 1-2 rights issue. Similarly, OCBC and UOB raised $1 billion each through preference shares issue. In a similar way, during Asian financial crisis in 1998, DBS acquired the POSB. Looking ahead, it is still a possibility especially during such times when other banks or companies may fall into bad times. Such huge fund raising activities can come in handy for future acquisitions.

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.

The 7% plunge in the SSE Index does not auger well for global stock markets

The first day of trading in Year 2016 had seen Shanghai Stock Index dropping 7% and triggered the activation of circuit breakers to close the stock exchange for the day. This had, in turn, caused other major markets in Europe, US and Japan to tank as well. It may not auger well for the global stock markets in the near-term, and it is certainly not going to be smooth-riding going forward.

Of late, the Capricorn effect that used to be an indicator for the stock market trend has been losing its shine. With the advancement of the information technology, news and information are now able to reach their intended recipients around the world almost at the same time. In other words, stock markets have become more efficient. So, when the FED signaled a buying program for bonds or when FED announced a possible interest rate hike or any major events happening in any parts of the world, stock markets all over the world are almost able to react immediately. In other words, the Capricorn effect that happens in January has lost its usefulness to be forward indicator of the stock market direction.

But then, what about the 7% plunge in Shanghai Stock Exchange (SSE) that triggered the circuit breakers yesterday? The extremely significant drop and it happened on the 1st day of trading in the year clearly indicated that investors were not optimistic of Chinese economy going forward. Never mind if the massive sale orders were due to the anticipation that there would be a massive sale by major shareholders after the 6-month lock-up period following the mid- 2015 stock market rout. The point is that the economy is not going to be good going forward and that is why investors are heading for the exit door at this early point in the year. Today’s further sell-offs of about 2% further confirmed this inference. In fact, it had happened twice, at the opening bell and in the early afternoon although it managed to claw back most of it losses to end about 8.55 points down. The volatility goes to show that the investors’ sentiment is indeed very fragile. Certainly, being the world’s second largest economy, a plunge in its stock market is going to be impactful on the other stock markets as well.

Adding to the dismay, with FED’s interest rate hike likely to continue into 2016, the escalating tension in the Middle East between Saudi Arabia and Iran, we are heading for a tough time going forward.

So, conserve cash. Be vigilant!

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.

IPC – Capital reduction

Just 2 days ago, IPC announced a capital reduction exercise. This exercise is to return $1.60 for every share owned following the recent consolidation of 10 IPC shares into one share.  With a total shares issued of 85,291,885 shares and no shares in the treasury, it would mean that IPC will be paying out a total sum of $136.48m. With a ‘windfall’ of $1.60 per share for the shareholders against the yesterday’s close price of $1.99, it is likely that this proposed exercise be accepted in the EGM.

However, up until recently, IPC’s development has not been plain sailing. It started off as a PC maker in the 90s, and made its debut on the SGX in 1993. (If I have not mistaken, the IPO share price was $0.76 per share). Following the dot-com bubble bust, the share price of IPC plummeted to around 2.5 cents in early March 2003. (IPC might have raised some rights at that time to shore up its capital base) It was even thought that IPC might not survive the onslaught following the dot-com bubble burst. Even the share consolidation of 4 shares into one in February 2005 did not help either. It continue to sink from about 13.5 cents after consolidation to about 7.1 cents in late April that year. Honestly, after all these years, many investors would have lost a lot of money and would have given up hope on this company.

Meanwhile, IPC transformed itself from a technology company into a real estate developer. With some help from Lady Luck, IPC was able to transform itself buying into the Japanese real estate at historical low prices after years of recession. However, real estate development normally takes years to bear fruit, and IPC would have slide into a forgotten stock if not for Oei Hong Leong effect that had caused the share price to blip each time he made a general offer. Even up until September this year before the share consolidation of 10 shares into one, he still made a general offer to pay 17 cents per share.

Fundamentally, the company was getting better although it appeared that not many people discovered it. Perhaps it was due to the bruises that it had caused during the initial years, causing many people to give up this stock. The share price  has been holding above 10 cents (or $1 based on the recent consolidation of 10:1) after the global financial crisis in 2008/2009. Frankly the relatively range bound share price and Oei Hong Leong effect, which caused occasional blips in the share price had enabled me to sell above 19cents and then buying back at 13 cents helping to bring down my average price. (my first board lot was purchased during IPO at a whopping price of 76 cents a piece!).

Based on annual report of 2014, Mr Oei Hong Leong has a total shareholding of 254,332,000 or 25.4332 million shares after consolidation. This made him the biggest shareholder with a shareholding of 29.82% as of March 2015. With the capital reduction exercise, he would be able to get almost $407m from this exercise. Certainly, being a substantial holder, it is likely that he would agree to this exercise, barring unforeseen circumstance. Also, thanks to him, the exercise would also help me cash out several times over my average purchase price without losing control of my shareholding. Certainly, I would be more than just happy to say yes to this proposal for it would mean that I have invested in the company with no money down. Not only would I not lost control of my shareholding, I would have recovered several times of what I have paid for the stock during these years, not including dividends that have been received over the past 10 years. (That’s why I am in stocks!)

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Finally, the justice is done.

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.

Don’t be afraid to sell first and then buy back later

Conventionally, we tend to think what stocks to buy and then sell them, hopefully, at a high for some profit. But in a situation when money is cheap when the bank interest is so low, it is always important to have a stock portfolio on hand. In fact, I always advocate having a stock portfolio irrespective of whether the environment is good or bad for stocks. It should be, and it should be only a question of in what proportion eg, cash-to-stocks proportion, cash-bond-stock proportion. Simply put, we should not be holding 100% cash or 100% stocks at any one time.

But the question is when you have a stock portfolio, especially when it is a sufficiently large, one of the situations that we tend to be afraid of is when there is a stock avalanche or there is a serious hit in one sector. Just about a year ago, O&G come under pressure and until today, it has not fully recovered yet. Perhaps, the stock prices had hit their lows and had sprung back to some extent. It is not sure, going forward, if it is going to test new lows or to go up. Similarly, just 6 months ago, the commodities were also hit. Companies dealing with palm oil and metals also came under pressure. share prices in this sector have  recovered a little bit as well, though not fully.

Sure, as a long term value investor, I never trade for a living. I always take advantage of dividends and long-term stock appreciation to build my portfolio. I keep stocks for many years and, as far as possible, try not sell unless really necessary. After all, stocks should be considered as part of our wealth. Why do we need to change from one asset class to another so often. In fact, many stocks were no short of being multi-baggers as what Peter Lynch might have called. After all, as we know, good stocks always appreciate with time though not necessary in a straight line. But sometimes, when the tide is against us as a long-term investor, it may be important to sell first and then to buy it back later. After all, if we sell first and buy back the same quantity, our portfolio, remains the same and we indeed earned back the price difference. So actually, we still can make money when the market is down. So, in effect, we can make money both in the up or down situation. The only difference is that in down situations we tend to get more gloom than when the market is in the up situation. However, we really have to be practical that we need some volatility to sell some stocks and buy back some stocks in order to gain from the price difference. As mentioned, I do not trade for a living, but sometimes when the situation is permits so, we have to do so. You may think that it is trading just by looking at a snap-shot of the timeframe, but my long-term objective is still intact. Some market psychology and trading experience helps.

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.

Market movement (这星期股市迈动)

经过好几个星期的逐渐下泄之后,股市终于稳住阵脚。上个星期五闭市虽然稍微跌破2800点水平,但过去五天交易日当中,快速收回失地,把指数推上接近3000点水平,闭市时指数为2998.5点。仅仅五天交易日就上扬了205.35点,上升幅度7.4%。区域及亚太股:印尼、马来西亚、香港及日本都不例外,上升幅度4.0%-9.0%不等。只有南韩和台湾股市上升较微小,为2.5%及1.7%。就连渡过了黄金周假期的上海股市在星期五第一天交易日也上升了4.3%。

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那到底什么缘故把这淡静底迷的股市转变成这样活跃的市场呢?其实市场预测非常难于捉摸,股民的心态转变非常难于预料。本人觉得原因只有单一:美国联邦处局再三考量之后。把原本要提高股息的决定无期限延后。理由为中国的经济快速缓慢,可能会导致美国经济的衰竭,所以不敢条理清晰,暂时不把利息提高。因此本来的坏消息就被列为利好消息,把股市带来冲击。股息的延后也当然导致美金兑其他国家汇率偏低,所以许多发展中国家的货币也开始稳定,股市回升。

当然股市是往前看,下星期会有什么走向?除非发生不可预料的大事件,下来几个星期应该不会有巨大波动,市场应该利用这短期的时间消化或等候公司的第三季度的收盈成绩发晓。市场预测可能是第三季度的收盈表现比第二季度来的差。如果事实上没有比预期差,那可能指数会偏高一些,相对的,如果第三季度收盈非常糟糕,那当然会导致股指偏低。

(以上的预测只是写者的个人看法,不可当为读者买卖股票决定的任何考量。)

[写者拥有26年买卖股票经验,他最近也写了一本书,书名为<Making Money Together Through Stock>。读者可以上网站 www.bpwlc.com.sg 购纸字本或上网站 www.investingnote.com 购买电子本。]