Tag Archives: Financial Education

Final post for the year 2017

Yesterday marked the end of the last trading day for the year. On the whole, it has been a great year even though the advancement of STI could not match that of the other markets like Dow Jones, Nikkei 225 or Hang Sheng Index. Still, it has been a decent climb of about 18%.

Looking back, it has been a good year in the backdrop of the stock market performance. It is also a year that 2x baggers or even 3x baggers touch-lines were crossed after having invested and accumulated those stocks for some time. Apart from the need for good stock selection, other essence such as patience and mental fortitude to act against times of adversity are also the necessary ingredients to make them happen. But again, life has not been without woes. Comfort Delgro did not perform as expected as it tussled between the bulls and bears the whole year long. The only saving grace has been that a huge percentage of this stock holding was purchased at an average cost of about $1.50 level many years ago and partially sold around its all-time high 2 years ago, thus providing a good cushion as the stock price fell from about $2.48 to $1.98 this year. Another was Midas Holding, which perhaps, was one of those things that we act out of character from time to time.

Taking a longer term snapshot of my stock investment journey, I would have considered that it has been a great blessing. Despite the close to nothing active income for the past 9 years, the stocks advancement had well-compensated for it. The focus on long-term goal has worked well for me to continue to accumulate stocks slowly. It has also taken a lot of pressure off unlike the younger days. This has enabled me to do and develop things that we do not have opportunities to lay our hands on while working full-time.

Perhaps, the generally low interest environment, coupled with the generally mild inflation, in the new millennium has benefitted stocks. By this time, many of us would have forgotten the hardy times when the fixed deposit (FD) rates of around 5% in the late 90s and around 10% in the early 80s. Going forward, I believe going back to the days of FD at 5% could still be some way off, but still, 2% or even 2.5% could be within striking distance in the next 2-3 years barring unforeseen circumstance.  So, to expect the stock performance for the next 2-3 years to be as good as this year would probably be too far-fetch. It could even be down significantly if the unexpected happens.

Until today, I still lament over the first 10 years of my investing journey. It all started even without knowing that a cheque-like paper attachment on a perforated A4 paper was indeed dividend from this company call Singapore Bus (a predecessor of Comfort Delgro). Unfortunately, it had been trial-and-error methodologies that lasted a good 10 years until the Asian financial crisis struck in the late 90s. The greed in me then was trying to chase every single so-called money-making opportunity that came along, attending countless hours in seminars on Saturday afternoons and weekday evenings. Still, I did not make good money in the early nineties when the stock market was red-hot and end up incurring losses when the Asian financial crisis swept across Asia in the end of 90s. In hindsight, I could have probably done much better if I had sought proper guidance and adopting strategies that suited my personality. By today, I do not attend any of these seminars or even some annual general meetings (AGMs) anymore. I think I could have spent those times to learn and improve other skills and to develop things that I can leave a legacy. That said, that was also the time of awakening that had helped laid the foundation stone that enabled me to rely on this investment mode to this day. After all, we cannot learn how to swim without drinking some pool water or learn how to cycle without falling off from a bike. There are always learning lessons no matter where we are in this journey.

Going forward, maybe it is also time to tone down on stocks and focus on other developments as stock investing may become a weary chore.

Brennen has been investing in the stock market for 28 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is the instructor for two online courses on InvestingNote – Value Investing: The Essential Guide and Value Investing: The Ultimate Guide. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.

Cash is not always the king

It is quite common to hear people mentioning that “Cash is king” especially during bad times such during a recession or a market crash. This is only half truth. Yes, during times of uncertainties, cash is king, but it is good only for that short time window. If it is not duly deployed, cash remains as cash and there is nothing that we can get out of it except for a paltry bank interest if we continue to put it in the bank. Therefore, cash is only a king when it is able to find its way in picking good-value investments that present themselves during those trying times.

Personally, I have met people on several occasions who told me that they were “heng” (lucky) because they did not invest in anything and therefore did not suffer any financial loss during a crisis or a stock meltdown. Their ‘investments’ did not go beyond some insurances that they have been paying. Frankly, I am not sure if they are really that “heng” if they have not been investing in anything at all. This means that all this while, they have not been making money work hard for them. In fact, it even occur to me that a person who rides through his investments without selling out during a major stock crises may be better off than another who rides through it holding cash alone. Of course, that is very dependent on the quality of the investments as some of them do not regain their previous shine after a crisis. However that is not the critical success factor. It is likely that a person who rides on his investments during a meltdown actively sniff for good investments that have been battered down as a result of the general pessimism than the one holding cash during those fearful times.

Here, the best lesson is to learn from the billionaires both locally and abroad. Most of these people know that they are unable to time the market as they have more important day-to-day things to do. During times when there were major meltdowns, they continued to hold their company shares. When a crisis was brewing for some time, they accumulated either their own company shares or bought into investments that had never been on discounts. Yes, for a short period of time, their wealth may be hit and it is not uncommon to read reports that their wealth has been decimated by 30-40%. However, once the crisis period is over, they become richer than they were before the crisis. Of course, one may argue that a billionaire would become a lot richer if he were to sell out everything just ahead of the crisis, and then bought back everything when the crisis happened. But that was hindsight. We only knew when events have gone passed us. There are always possibilities that a small setback would not turn into a major crisis. Furthermore, he cannot be seen to be jumping in and out of the market trading his own company shares, and this will not be positively viewed by the minority shareholders. A good example was the fall of Bear Stearns in March 2008. When it fell, nobody thought that it was a precursor to a global crisis six months later. Everyone probably thought it was an isolated bank crisis, and businesses were going on as usual. Otherwise, many people would have sold out everything and come back six to twelve months’ time to buy them all back. It was only when Lehman Brothers Bank fell exactly six months later during mid-September 2008 in a perfect storm leading to the downfall of a series of banks and financial institutions that everyone discovered that a crisis was already underway.

So, bringing ourselves back to the original topic, cash is king is only half correct and it is only true when the cash is deployed into good opportunities. In extreme cases, there may be some people who have been accumulated too much cash, but only to discover that the cash is not working hard enough for them. So they start looking around for so called ‘value investments’.  Short of the necessary financial knowledge, they end up looking for the highest possible yield as that is the only evaluation criterion on their mind. Consequently, they may end up shortchanging themselves by buying into investments with mouth-watering offers that they simply could not possibly refuse. There were no short of examples. Over the last few years, people were buying into gold trading businesses, into land banking businesses, structured deposit products, mini-bonds and corporate bonds. The promise of these investments was very attractive, but the end point remains the same.  The value of these investments end up shrinking to 20% to 30% of their original investment. Worse still, they are also caught in the middle of legal tussles and court cases. Even that, there is no guarantee that they can even claw back the residue value of their investments. This further undermines their trust in financial products. While ignorance is main culprit of their losses, the necessary condition that set them into such a plight is they have cash.

While mentioning all this, I am not saying that we should immediately convert our cash into investments whenever we get our hands on it. What I advocate is that we should arm ourselves with sufficient financial knowledge and appropriately allocating the cash into the investments while leaving sufficient cash holding to tap on opportunities that may present themselves from time to time.

Happy investing!

Disclaimer – The above write-up is purely the opinion of the author, and it does not constitute an advice to buy or sell the mentioned stocks or the sector. Readers, who buy or sell stocks, if any mentioned on this article, are fully responsible for their own action.

Brennen will be conducting a one-day stock review for the past students of BPWLC on 11 March. A 2-day new course on Wealth Building in stocks investments will be conducted on 22 and 23 April 2017. Enquiries can be made via info@bpwlc.com.sg

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.

It’s time to take stock of how our stocks performed this year

At the close of calendar year 2015, the STI ended at 2882.73. And today, the last day of trading for year 2016, the STI ended at 2880.76. In effect, the STI lost less than 2 points or less than 0.07% for the year 2016.

However, if we were to slice the STI movement month-by-month within the year, it tells a different story. In the first two months, namely January and February, the STI actually fell below 2,600, down more than 10% from the beginning of the year following the uncertainties in China due to the sudden devaluation of the RMB. The free-fall that triggered the circuit breakers in the Shanghai stock exchange seemed to instil more fear than stabilising the market, causing even more selling when the market resumed. In the meantime, the oil price that reached a high of more than US$100 per barrel in 2014, had been falling throughout the year 2015 and was heading to below the $30 per barrel by January 2016. There was even a widespread fear that it could even go below $20 per barrel. Needless to say, the two simultaneous events that happened at the beginning of the year caused the Straits Times Index (STI) to dip ferociously from 2882.73 to below 2,600 losing more than 10% in less a month during January.

 

By early March, the oil price had somewhat stabilised at around $30 per barrel and made a u-turn gradually towards the $40 per barrel level. The STI that has been tracking the oil price also climbed gradually passing the 2,800 mark. However, the oil price that had been gradually falling since second half of year 2014, had already brought irreversible damage to the offshore and marine (O&M) sector. The share price of many stocks in this sector was relegated to super penny stocks when it was between 70 cents to a dollar just one to two years ago. Defaults become a commonplace for many bonds that were raised during the good times 3-4 years ago. The default of Swiber bond in the middle of 2016 triggered many O&M bond-issuers to seek bond-holders approval to re-structure the coupon payments. To date, these issues have not been fully resolved and they are likely to snowball into 2017. In the meantime, the bond defaults also spread to other sectors such as properties as well as other asset class such as perpetual bonds. Several short-term bonds and perpetual bonds that like Oxley Holdings, Aspial Corporation and Hyflux that were issued in the first half of this year had the share price fell below their respective issue price. Much to the expectations of stock investors, the surprised Britain-Exit (Brexit) in June 2016 turned out to be a non-event, at most affected a few isolated stocks on the SGX. 

 

Then, of course, the spectre of interest rate hike began to be in the forefront of investors’ mind again by the last quarter of 2016. The widely expected first interest rate hike became a reality in December after the American presidential election in early November. Shocking the political scene was the selection of Donald Trump, who was considered a rookie compared with Hillary Clinton. The interest rate hike in December as well as the expectations of more hikes into 2017 shifted the whole investing landscape. Bank shares were widely favoured while REITs and property shares lost their shine.

 

With the US presidential election behind us, it is likely that the FED has more leeway in calling the shot. Consequently, the fear of more interest rate hikes will continue to haunt investors going into the year 2017. REITs and property developer counters are likely to continue under pressure, although there could be a possibility that the government eases the property curbs especially when the economy is not functioning as expected. Although interest rate hikes are a great boost for banks’ interest margin, it is only good at the beginning of the interest rate cycle. Economic performance and non-performance loans are likely to put a lid on the banks’ profit margin going forward. In effect, the upside on the share price of banks may be limited unless the economy, on the whole, turn for the better going into 2017. Yields, be they bond yield, perpetual bond yield or REIT yield will continue to edge higher in anticipation of more interest rate hikes. This means the bond/REIT price is likely to stagnate or even experience downward bias if FED starts to be more aggressive in hiking up the interest rate. Although many REITs managed to re-finance and to resolve their loan issues for year 2017, they may start to feel pressure again into the years for 2018 and beyond.

 

Whilst the oil price has passed the $50 mark per barrel recently, it is unlikely to go very far beyond the $60 per barrel mark as shale oil is likely to supply aggressively into the oil market, thus putting a ceiling on the oil price. This means that oil rigs and peripheral industries such as OSV suppliers will still not benefit in the short term. Apart from the need for oil price to reach at least $70 per barrel level, it needs to remain sustainable at that kind of price level for at least 9 months before the oil giants can convincingly decide on investing in offshore exploration. This means that the profit visibility is still dicey for the oil and gas counters in general listed on the local stock exchange for the year 2017. For the other commodities, it appears that the worst is over after retreating in the last few years. However, it appears that the stock prices have already run up recently. Thus, I do not expect much upside unless there are some game-changing developments, which could tilt the balance in either way.

With that, let’s look forward to another interesting investing year!

 

Disclaimer – The above write-up is purely the opinion of the author, and it does not constitute an advice to buy or sell the mentioned stocks or the sector. Readers, who buy or sell stocks based on this article, are fully responsible for their own action.  

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.

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.

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.

现金不是净利,净利也不是现金

说到盈利,许多人总是会把公司现金流动及净利扯在一起,以为在账目上的净利就是相等于公司那年所取得的现金。不仅是刚出道的投资者,甚至一些已经在股市混了一阵子的股友也有这错误概念。其实净利及现金流动是两回事。当然在定义上它们具有一定的关系,但在操作或分析时,我们必须把它们扯开。在一些行业,现金及净利数据可能非常接近,但另一些企业这两个数据却是天差地远。就用我们对面的煮炒摊位打个比方:除非摊主必须付出一些特异开支,我有十全的把握奠定其企业每天所收取的现金总是会高于其营业净利。

于同样说法,一家公司可能每年都取得正数净利,但是现金一直没有流入,那家公司如果还没倒闭就可能已经摔入一段非常艰难的日子。 以下是我教育中心给一家在新加坡交易所上市公司所整合的数字。通常我们在年度报表只能取得两年贯的数据,所能看到的信息非常浅薄,所以本中心特意为上课的学生设置合计版才能够更深厚了解公司的动向。图案的一览表数据正是我从合计版所取出的讯息。

slide43

为了避免读者能够寻出讯息背后的公司,本人特地把真实的股价乘上了一个定数。这样,读者才能够于非常中立的目光探讨所呈上的讯息。如果我们只是单靠每年所发出的两年贯报表买入股票,我们所采取的买卖策略有大可能非常不理想: 一卖就跌,再买又跌,逢买逢跌。因为近几年来公司股价一落千丈,从2011 年每股$3.00 的高峰掉到2014年的$0.60,跌幅百分之八十。公司最近的股价更显著低迷,已经跌破了每股 $0.35 的大关。

 

所以说,如果我们一直把重点集中在许多媒体所重视的净利数据上,那我们就疏忽了一些其他同等重要讯息而买进了已经正在腐烂的股票。

但我也必须预先警告:现金流入也并非是好事。在一些特殊情况下,公司钱库增加可能意味公司的领导人没办法有效的把现金流动发挥效应。更糟糕的情况,可能导致公司以后营业状况显著疲弱,甚至翻不起身。

祝大家股市行好运!

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.

An essential product does not mean its company share price will continue grow

I met two persons, who told me that they had Hyflux shares. I met one of them some 4-5 years ago and the other 2-3 years ago. Both of them have held the stocks for some time. So I presume they have bought the shares 5-6 years and 3-4 years ago respectively. If I remember correctly, first one told me she bought the stock at $2.10 and the other bought at $1.02 per share. When I asked them why they bought the stocks, the common reply was “Everyone needs water.”

When I checked the price today, it is about $0.46 per share. Should they have kept the shares till today, the loss would be about 78% and 55% respectively. This goes to show that it is not necessary that the share price of companies producing essential products will continue to grow. Essentially, the stock price still depends very much on fundamental results like profitability, capital structure, management etc. When I look into the historical chart, the share price went up as high as $3.50 in year 2010. So, I believe when they bought the stocks, they must be thinking that stock was cheap compared to the price reached in 2010. After all, “everyone needs water” as they claimed. Perhaps they have been in it for a wrong reason. I agree that everyone needs water, but may I add that not all drinking water has to come from Hyflux.

Since then, I took note of Hyflux share price from time to time. It has already been falling gradually. In all these years, it has been quite deep in debts. They also had raised two perpetual bonds. The amount raised in the latest perpetual bond was $500m up-sized from the original planned amount of $300m. The total amount raised was higher than its market capitalization of about $362m based on today’s price at 46 cents. The heavy debt has taken a toll on the share price. Perhaps, the decent financial results released this week helped to break the continual fall in the share price, but still, it needs to resolve its debt issue before the stock price can climb convincingly again. So, the conclusion I have is that the two people who had bought the stock might have overlooked the capital structure and had focused too much on the stock price.

Extending the same arguments, there are actually many non-essential but sexy and well-loved products on the market. The share price of these companies has been very strong and their cash holding can be tremendous. Apple Inc is one of them. Think about it. We do not really need an iphone to live. Years ago, there were no iphones, but yet we still continue to survive as a civilisation. Even till today, they are many who simply live by surviving on food, water and shelter, but go without an iphone. Yet, the share price of Apple Inc. continues to be strong and unrelenting.

In summary, it does not mean that a company producing a product viewed as essential (not exactly though, as the process is not essential) will always see its share price growing. It is still very much dependent on a few fundamental attributes like management, profitability, cash flow etc.

Happy 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.

Business model

When I first read about a business model to better understand why it was entangled in the bond feud with the note-holders, I felt quite loss. I read it again, but still I did not get a good picture of the working business relationship among the companies involved. Reading at the first level to understand the working business relationship among the various partners was quite a challenge actually. If comprehending just the working relationship among the business partners cannot be understood by a person who reads passionately about business news, I wonder how many people out there can fully understand it, let alone the legal and accounting aspects that the company had with its business partners. Certainly, not all the note-holders and shareholders are corporate lawyers and accountants to fully appreciate the legal and accounting aspects to fully understand the risks involved when investing in the company. In fact, when business partnerships get very complicated among business partners, it surfaces more links, and if any of these links weakens and give way, it is likely to cause a domino effect to bring down the company as well as a lot of companies associated with it.

By the same token, prior to Alibaba’s launch as an e-commerce website, Jack Ma, the chairman pointed out that he personally made fool-proof tests of the system. It means that he tried to mimic a fool trying to use the system. His argument was if a fool knows how to use the website, then it should be widely understood and useable by the commoners on the street. That brings me to the point – If one cannot understand the business model of the company, why bother to take the risk to invest in it. Why do we need to invest our money to buy headaches?

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.

Buy-and-hold strategy does not mean buy and don’t sell

For those who may not know, buy and hold strategy is a proven strategy and is used by long-term investors in hope to benefit from the capital appreciation of the component stocks in a portfolio. It is often associated with Warren Buffet (WB)’s style of investing, especially when he mentioned that the holding period for the Berkshire Hathaway portfolio is FOREVER. It is probably a sweeping statement, but many people had taken it to the extreme that when we buy a stock, we should not sell it. Of course, if we look at the ST index from its all-time high and compare it with today closing of 2869.74 as of 30 September 2016, one would have thought that by adopting the buy and hold strategy, one would have lost more than 25%. But does it really mean that buy-and hold strategy does not work anymore? Not quite. Otherwise, why would fund houses and insurance companies still continue to adopt such a strategy? Remember, these are big fund managers and when they hold a stock, they do not just own 2,000 shares. They probably own 200,000 shares or even 2,000,000 shares even if it means $20 per share. For the fact that they continue to use this strategy means that it is still relevant even with the advent of high-frequency trading computers. In my opinion, if it works for big funds, it should also work for individuals as well. And because big fund managers hold large quantity of stocks, we simply cannot expect them to empty their portfolio of, say 200,000 of OCBC in one day, and then buying it all back on another day on a short-term basis. In fact, most of the time, their portfolios do not change at all. In the way, they are practicing buy-and hold strategies. These fund managers have to think long-term in order to pay the clients and retirees, who are long-term stake-holders. The key here is to think long-term. (Sometimes, I am quite bemused by people who mentioned “Aiyo, must think long-term ah!”. Thinking long term does not mean that we do not sell a stock at all!)

 

Given the relevance of buy and hold strategies for large funds, can small retails players like us mimic the actions of these fund managers to make money? Certainly yes. The fact that we do not hold too many lots per stock, it is sometime easier for us to manoeuvre better than the fund managers.

 

Allow me to go back into my history. After falling and recovering from the bad experience in the Asian Financial Crisis (AFC). (Click here for the detailed history), my aim was to hold this great stock called DBS. On my record, I purchased 1000 shares at $14.80 in February 2004. (In fact, it was less than 10% below yesterday’s closing at $15.39 considering that they are more than 12 years apart.) My long term plan was to have at least 10,000 shares in 10 years. Based on this objective, my shortfall was 14,000 shares. The period between 2004 and 2007 was a fantastic time for stocks because the ST Index advanced all the way from below 2000 to its all-time high of 3,875.55 in October 2007. The global economy was doing so well that one very significant local political personnel was said to be saying “All the pistons are working at full force”, pointing to the perfect functioning of US, Europe and China. (Of course, we know in hindsight that Global Financial Crisis (GFC) came one year later and everything got imploded.) Needless to say, in between 2004 and 2007, if one were on the buy side and sold 1-2 months down the road, or simply buy and hold all the way, he should be able to make money. This is especially true for DBS, which is a good proxy to the stock market. Even though I have a long-term plan to continue to accumulate DBS in the long run, the speed of price advancement was so rapid that each time when I bought it, it became attractive to sell it off some months down the road. In fact, it was prudent to take money off the table because rapid advancements are very often met by rapid pull-backs. In such a situation, I could even say that I was trading, though not exactly short-term trading because each time my holding period was a few months. The share price of DBS in the period between 2004 and 2007 advanced from $14.80 when I bought it to a peak of $25.00. By the end of 2007, however, my shareholding in DBS did not increase at all because I had sold just as much as I had bought it. It was probably with some luck that the Global Financial Crisis (GFC) came along that I was able to pick up a lot more shares and subscribe more rights at $5.42. While I did lost some money on paper on the 1000 shares that I kept, it had been more than offset by the capital gains in the ‘trading’ that I made off from the DBS shares that I had bought and sold along the way. Furthermore, the GFC was probably a once in a lifetime chance to accumulate DBS. It came glistening right in front of my eyes. Such opportunities should not be missed at all cost. This was even truer for someone who had been bashed badly during the Asian Financial Crisis (AFC), and only to see opportunities slipped through the fingers from a low of 805 on the ST Index to more than 2000 within a matter of 15 months or so. (Click here to view my background).

 

Of course, one may argue why I did not even sell off my 1000 shares that I had been holding. The reason is simply that I am not GOD. (There is a Cantonese saying – 早知就没黑衣) I can’t predict the future. If I could predict the future, I would have even sold my 1000 shares and bought it back at the peak of the crisis. My long term plan, however, was clear that I needed to accumulate DBS shares in the long run, and the GFC provided me an opportunity to do so.

 

Then another opportunity came knocking again. After the GFC, DBS advanced again past $20 by late December 2014. Having come up from a relatively low base during the GFC, I managed to sell some shares at $18.50 in October 2014. At this share price, it would have translated to more than the market capitalisation of DBS before the GFC when it was at $25.00. (The reason was that DBS raised rights of 1-for-2 shares during the GFC.) I would have thought that the share price would not go beyond that point, but the general optimism pushed the share price further up to past $20. I sold again at $20.20 in December 2014. It finally reached $20.60 in early 2015. Of course, the crash in the oil price and a series of ‘scares’ in the last 18 months or so, made the share price of DBS came tumbling down again to less than $16, which now becomes a super strong resistance level. When it reached a level of around $13/$14, it allowed me to buy back those quantities and even more than I had sold.    

 

In a similar way, I have been reducing my SPH shares for the past 1-2 years because I felt that the fundamentals of SPH are weakening. It is not because of bad management or SPH was making wrong investments. In fact, I believe that the management has been quite good, peppering shareholders with good dividends. That was why the share price has been quite well-cushioned enabling me to sell a bulk of my stocks off at above $4.00, except for the last 2,000 shares which I sold recently.  The fact is that media and publishing business is under a huge threat from the internet, which is highly accessible locally. The threat is beyond their control and that is why the profit from the print business is dwindling. The only thing that probably helped them along is the SPH REIT, which probably had already hit a plateau. Of course, SPH is not sleeping and is on a look out for fantastic investments that may pop out along the way, but until today, it is still not there yet. Of course, when the price becomes attractive again, Perhaps, I may be back in again.  

So in summary, buy-and-hold does not mean buy and don’t sell. Sometime, it is prudent to sell and take money off the table even if the stock has not reached its full potential. Very often, there is a need for stocks to digest a bit before they can climb further. In fact, as it is DBS is now hovering for the past six months or so below $16. If I had not sold anything and stood only on the buy side from 2004 till now, I probably would have made only from my dividends and not too much from the capital gains. It is the long-term strategy and, of course, some luck that counts. It does not mean buy and don’t sell.

Good Luck!

 

Disclaimer – This post is not a recommendation or an advice to buy or sell the stocks mentioned here-in. These are past performances. They do not reflect future performances. 

 

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.