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.
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.