Tag Archives: STI

DBS – shocks and stress in holding stocks

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Today marks the 10th anniversary when Lehman Brothers fell into bankruptcy on 15 September 2008. Despite the on-going tariff war between the US and China, there is a general sea of calmness in the major stock exchanges all over the world.  Back then, scene was very different. For several weeks before 15 September and several months after that, the front few pages of our daily newspapers were full of bad news.

Lehman Brother’s downfall also pulled along with it several big banks and financial institutions. AIG, Citigroup, JPMorgan Chase, Bank of America, Fannie Mae & Freddie Mac were all at risks, and were awaiting government bailout. With the crisis hitting the big financial institutions in the world’s largest economy at that time, it is almost certain that small and open economies, like Singapore, was going to feel the onslaught as well. The STI fell from the high at close of 3,875.77 made on 11 October 2007 to 2,486.55 on 15 September 2008, retreating 35.8%. It did not stop there. As bad news, continued to flush all over the news media, the STI fell further. DBS, a good proxy of the Singapore economy, and a heavy weight on the STI certainly cannot escape from this avalanche. Its share price fell from more than $20 to less than $10 by the end December 2008, retreating more than 50%. Everywhere is fear, and we did not know which blue-chip stock, in particular which financial stock, was going to go under. Fund managers were all selling as redemptions picked up speed.

Perhaps, the stubborn side of me helped. I decided to swim against this tide, buy a few shares, close my eyes, close my ears, go for a long haul, do not sell irrespective of whatever happened, and see how it would turn out after 10 years. In the worst-case situation, I would lose some savings. If I have been wanting to own DBS, this would have been a good opportunity. In a financial crisis of such a scale, huge wealth is transferred one person’s pocket to another’s pocket. Debtors will be punished, creditors will be rewarded. Spenders will become poor, and savers will feel rich. Cash is king. However, cash is still only cash if it remains in the bank. So, this should be the time to put our cash into good use. Splurge and buy up assets that had never been put on such discounts, was the key.

A few weeks after purchasing the stock, came the next bombshell. DBS decided to raise rights, 1 for 2 shares, with a whopping 45% discount at $5.42 based on the last day trading price at $9.85. It literally forced existing shareholders to take up the rights. So, no choice, I dipped further into my pocket to pick up the rights. (I remember, I tried to buy extra rights, but I believe I only managed to get a few shares to round off the lots due to over subscription of the rights.)

In the midst of such a crisis and with a much bigger market float after the rights issue, the share price continued to fall. In fact, the share price went even below $7. It certainly, took some grits and guts to continue to hold the shares. Even at $7, it was still a long way to fall if it was really going to be very bad. My intuition impressed upon me that if DBS were to fail at that time, we would all be in real serious trouble. Our property price would plunge, our car value would be decimated and our Singapore dollars would be very unstable in the forex market. So, whether we are on shares, on property or on cash, it was not going to matter. And, with the US dollars also plunging at that time, the only shelter is probably gold. After all, it was only 10 years ago then that DBS gobbled up POSB. In the minds of those people on the street, POSB was still the people’s bank. It is unlikely that it would be allowed to fail. The epicenter of this financial crisis was in the US. We are only feeling the effects of this financial tsunami. The question was how low could DBS touch, and not whether it would fail. It turned up well, and the fear was quite short-lived. The stock came up back again after March 2009, when STI temporarily went below 1,500.

Was it plain sailing after that? Not quite. I should ask, were there anything along the way to de-rail holding the stock? Certainly yes. When I purchased the stocks, my objective was to go long, and very long and to disregard the share price. So, the only ‘financial benefit’ was the dividend from the stock. At that time, this ‘giam-siap’ (stingy) bank, gave only $0.60 per share as dividend.  When a reliable source, told me that the bond coupon rate of Swiber was at 7%, I felt stupid again. If we invest in the bond at the cost of $250k, the yearly coupon would have been $17,500. A back-of-envelope calculations of the equivalent amount, would have been about 15,000 DBS shares at the prevailing price of between $16.50 and $17.00.  For 15,000 DBS shares, the dividend would only be $9,000. And this stark difference would carry on yearly, for probably 4-5 years, until the bond matured. If one were to chase for the last dollar, it would make sense to sell DBS shares and buy Swiber. So, would it make sense to sell off the shares and buy bond instead? Nobody knows what was going to happen. But, I do believe when the bond yields were high at that time, many people actually switched out of equities and buy bonds as well as other high yield instruments. It was lucky. I chose to remain in equities. The reason was that there was literally no secondary market. If we really wanted to sell, nobody was going to buy from our hands, unless we depress our price significantly. Precisely, at that time, due to liquidity, the corporate bond of Genting was trading at a discount, while the perpetual bonds were trading at a premium. So, if we want to get into it, the only choice was to hold corporate bonds to maturity. It turned out that the decision was right. Swiber defaulted and remain suspended today.  And, DBS was no longer a ‘giap-siap’ bank as it used to be. It doubled its dividend.  And, right now the yield based on the average purchased price would have enjoyed an even higher yield compared to Swiber or the any REITs. In fact, this stock would have become an equity-bond situation mentioned in the book “Warren Buffet and the Interpretation of Financial Statements”, by Mary Buffet and David Clark, 2008. It left me scratching my head what was the term ‘equity-bond’ really mean at that time when I was reading that book. Now, I understand. In a few words, it means to buy an equity, let the share price move up to its intrinsic value. As the dividend starts to move up back-on-the-heels of the equity price, we would have, in effect, enjoyed the yields of bonds.

Then again, were there any more scares along the way? Certainly yes. When China suddenly devalued the RMB in 2016, it was envisaged that China was not doing well on the economic front. That again pushed down the STI. In particular, the bank stocks were hit. All the three banks stocks were trading about 10% below book value. DBS, once again, fell below $14 for the first time in the few years. It had been languishing around $16-$17 per share almost throughout the year 2016. Only in 2017 did DBS share price climb up slowly and steadily, following of several quarters of good financial results. With the announcement of its new dividend benchmark, it has arbitrarily created a floor for the share price. If the bank continues maintain its dividend payout of $1.20 per share, it should help maintain the share price north of $24 per share, giving a yield of about close to 5% per share.

It has come a long way, and will there be more volatility going forward. Certainly yes, the tariff issues between the US and China is still yet to be resolved. Also, for so many years, the interest rates all over the world have been held extremely low. Debts were now at their historical highs once again. If FED were to increase interest rates aggressively, I would not be surprise that another crisis could erupt, maybe, this time, the epicenter is nearer to us. Then again, DBS share price can get hit again.

Disclaimer – The above arguments are the personal opinions of the writer. They do not serve as recommendations to buy or sell the mentioned securities or the indices or ETFs or unit trusts related to it.

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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.

Reading too much into news & Wall Street movement can derail our financial plan

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Very often we try to check the Wall Street movement and the futures to have an idea of what is likely to happen in the local stock market at the start of the trading day. After all, the Wall Street houses a few largest exchanges in the world. Most of us see this totally out-of-phase time difference as an important leading indicator to position our trades. Big falls are often discussed extensively with a lot of anxiety and anticipation of how low the STI can retreat in response to those falls. Some of us may even be tempted to ‘sell into strength’ at the start of the trading session.

Actually, there were times the STI did not fall in tandem with the Dow Jones or NASDAQ. Just over the last weekend, many were anticipating that the STI would be in for a big fall when the Dow Jones sank 572.46 points from the close of 24,505.22 on their Thursday to 23,932.76 at close on their Friday. But, the STI actually moved up by 7.48 points from the close of 3,442.5 on Friday, 6 April 2018 to 3,449.8.98 at close on Monday, 9 April 2018.

Then on Tuesday, 10 April when President Donald Trump brought out the possibility of aerial strike in Syria, the Dow Jones sank 218.55 points, but the following day, STI advanced 13.38 points. Despite those devastating news, the STI actually advanced close to 100 points (or close to 3%) for the week. For the same period, the Dow Jones also advanced 427.38 points from 23,932.76 to 24,360.14 and the NASDAQ advanced 191.54 points from 6,915.1099 to 7,106.6499. Perhaps, there may be some kind of co-relationship between Wall Street and STI over time, but it does not mean that the STI move in exact lock-step with the Wall Street movement.

Perhaps, those who try to time the sell are not really selling off their stocks for good. It is likely that they wanted to take advantage of the steep fall in the Wall Street to sell and hope to buy them all back when the share prices tank significantly. This could be a wise thing to do if the Wall Street and the STI have perfect correlation on day-to-day basis, but we often find ourselves caught in the situation if our timing is incorrect.

Let us look at transaction cost to assess if the risk is worth taking. Take OCBC for example. Assuming if we were to sell off 1000 shares at the opening bell at $12.77 on Monday, 9 April, and let’s say we were lucky enough to buy back the same stock at the lowest share price of the day at $12.93 on Friday, 13 April, it would still be a loss of about $248 dollars. Even using a priority banking nominee account on Standard Chartered trading platform which is supposedly the lowest brokerage, it still set us back by $220.50. Apart from the trading loss, there is also an end-of-FY dividend distribution of $190 that sellers are likely to miss out given that the ex-dividend date is around the corner. Without considering the loss of dividend, we have to wait till the stock price drop to $12.65 and $12.71 respectively (or a drop of 12 cents and 9 cents respectively) to buy back in order to just break even. With the dividend loss thrown in, the purchase price would have to go lower by a further 19 cents before we can break even. Given that that ex-dividend is drawing near, it is unlikely that the share price retreats significantly for us to cover the transaction cost, trading losses and the loss of dividend. So, the dividend is likely be lost just because of the little folly unless something significantly bad happens from now till the ex-dividend date. Perhaps if investors lost their patience, they may even go ahead to buy back the shares at a higher price. So instead of benefiting in stock investments by simply holding them, we may lose out in terms of the brokerage and all the additional costs in selling and buying them back. Of course, one may argue that the stock price is likely to drop when it goes ex-dividend, but it is still possible that the drop is less than the dividend amount or even creeps up after the ex-dividend. So why leave our fate to chance?

With so many news from many major economies happening every day, it would certainly ruin our financial plans in the long run if we keep reacting to the stock market movements. Sometimes just simply doing nothing is the best strategy of all.

Afternote – Just hours ago, US together with its allies, France and UK, attacked Syria over the alleged use of chemical weapons. Care to make a guess of the STI movement for this coming Monday?

Disclaimer – The above arguments are the personal opinions of the writer. It is not a recommendation to buy or sell the mentioned securities, the indices or any ETFs or unit trusts related to the mentioned indices. 

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.

The need for mindset change in investing (2)

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In any stock seminar, we often hear of the same question over and over again. What are the stocks to buy and what to sell? In fact, it is probably the only question in the mind of investors when they attend stock seminars and investment talks. We all like to hear out what is the next popular stocks in town, and hopefully to make some financial gains out of it.

Of course, we all know that good stocks generally move upwards over time in line with their earnings. But within a very short period time in terms of days, weeks or even months, share prices move in random walk fashion. So, there could be some ‘bad luck’ times when no matter how well we did our due diligence, there could be one or two stocks that fall underwater. Buying stocks is a calculated risk. And often, we cannot wait for all the uncertainties pertaining a particular stock to go away to buy it. By the time, when we are certain that the most of the uncertainties have been removed or considerably reduced, the share price would have already moved up significantly. How fast a stock price moves to reflect the fresh information depends on how efficient the stock market is. Then, there are also times, in the spur of the moment, we bought the wrong stocks or even the right stocks at a wrong price. There are also situations whereby government or the relevant authorities suddenly made changes in their policies or there could be some shocking news that hit a company and we were caught in such situations. Worst of all, we buy on hearsays, market rumours and friends’ recommendations even though they might not necessary come with bad intentions. So, there is a high chance that at any one time when we open up our stocks portfolio, there may be 1 or 2 or even more stocks that are eye-sores in an otherwise, a ‘perfect’ portfolio. Hopefully, these bad stocks form a very small percentage in the portfolio and they are overwhelmed by the bigger gains in other stocks in the portfolio.

At least for the start of our investing journey, the problem often is not because of the one or two bad stocks in the portfolio because, over time, we will get to know which stocks are good and which are bad. The whole problem is that we try to save the bad stocks in hope to make them good. This type of investing philosophy is likely to have been inherited from our young days. Right from the very early stages of our formation years, we have been conditioned by the school system to focus on subjects that we are weak in. For example, when we get 90% for Mathematics and 60% for our English, we are very often asked to focus more on our English, sometimes even at the expense of our Mathematics, in hope to bring up the grade for our English. Very often, we bring such philosophies into our investments. While some stocks advanced, there are also others that fall. As in investing psychology, we tend to be more concerned about those that fell than those that have gained. Consequently, we keep on put new monies, and worse still, sell off the good stocks and buy into those stocks that are declining in hope to make it a ‘perfect’ portfolio with all stocks in the positive territory.  But very often, things get more complicated. The declining stocks got worse and the rising stocks got better. This is where the disaster starts. Imagine we try to sell off some good stocks to average down the stock price of Noble even until today. The stock just simply sinks and sinks. As we have more and more stocks into the portfolio, it also becomes much harder to average down each time. Even blue-chip counters like SPH and Comfort-Delgro are not likely to see turns-arounds anytime soon. So, for those trying to average them may eventually give up after a few years of trying. In short, the whole portfolio ends up with a lot of stocks in negative territory and only a small quantity of good stocks on the positive side. As such, the whole stock portfolio underperformed badly.

In essence, sometimes, we have to accept some imperfection in our stock portfolio. Many investors who have been in the market for some time would probably agree with me that if we simply focus on those stocks that have gained and let go of those stocks that have incurred losses, they could have been very much better off than trying to average down the under-performing stocks. There is imperfection, but this is really the play-to-win strategy when dealing with stocks. It is just like playing a game of chess. We never hear of anyone, even world class players, winning a game of chess without losing a single chess piece. In fact, very often, they are willing to trade off high-value pieces to win the game. Even a king with just a pawn may win in the whole chess game. Very often, many investors out there try to save all the counters to bring them into the positive territory by simply averaging down but, eventually, find themselves struggling to outperform. This is because there are too many drags on the portfolio. Then, there are others who do not invest because they cannot accept even some loss counters. On the whole, it is a bigger loss because good stocks do gain in the long run. In summary, it is generally acceptable to have a few minor losses just like not every business endeavour turn into a success story. It is alright to be imperfect. We play-to-win and not to play not-to-lose in stock investing. That should be the mindset.

Note – A video clip on this investing psychology is available free in bpwlc.usefedora.com.  The video clips are part of the more than 60 video clips on the online course in InvestingNote.com, namely: Value Investing – The Essential Guide and Value Investing – The Ultimate Guide.

Disclaimer – The above arguments are the personal opinions of the writer. It is not a recommendation to buy or sell the mentioned securities, the indices or any ETFs or unit trusts related to the mentioned indices. 

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.

Stock investing – The need for mindset change (1)

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In the discussion during a webinar that spanned over 2 hours yesterday evening, it was a natural progression that participants touched on the subject related to Straits Times Index (STI) movement. Almost all the participants lamented that the STI has been at its high now and that some stocks are also trading at their historical high. Many were concerned they might be holding the last baton if they buy stocks at this time.

It is a fact. At this level above 3500, the STI is within 10% of its all-time high of 3,822.62 made on 30 September 2007. Yesterday, it closed at 3,512.14 even though it had retreated for the past three days in succession. The general view was that the STI was high, and it was better to wait for it to retreat to a comfortable level before one should invest again. This is the general sentiment of the small sample of participants and I believe many investors out there think like-wise too. This is particularly true in a relatively well-protected Singapore, whereby entrepreneur spirit ranks low and the willingness to take risk is almost non-existent. Many investors get into the stock market with a mindset of maximum return together with low risk, or better still, zero risk. Perhaps, they would only lay their hands to buy stocks when it retreats to below 3,000 level. So, the whole situation becomes a waiting game. In fact, some time ago, there was someone in a social media mentioning that he would only buy when the STI falls to 1,800, when at that time, the STI was probably at around 2,700 level. I am not sure if he is still waiting till today. If he does, then he has missed out one of the best run-ups in STI in the recent years. From a level of 2,700, many good stocks like DBS, Venture and OCBC have advanced at least 35% by now. (In fact, 35% could be an under-statement if we include the dividends that were paid out in all these years.) My point here is that this. Sometimes, our mind gets too microscopic zooming too much on the highs of the index that we have forgotten the fact that behind the rise in the index are component stocks whose earnings have been breaking new highs for several years. The growth in their earnings are not just 1-2%, but at phenomenal growth in double-digits. Even some non-index components stocks also did well over the past few years.

To illustrate my point further, let us look at the Dow Jones Industrial Index (DJII). During Mr Bill Clinton’s presidency term between 1993 and 2001, US enjoyed one the best stock market run. The DJII advanced from less than 3,500 to more than 10,000 by 2001. In percentage terms, the index advanced 200%, so worrying a trend that the FED chair at that time, Mr Alan Greenspan, coined the term “irrational exuberance “, to reflect the extreme market optimism at that time. He was extremely concerned that the market optimism could have run well ahead of the real economy. But then, how is it today? The Dow Jones at this level has been another 15,000 (150%) higher than the 10,000 made in 2001, despite several disruptions like US, DOT-COM burst in 2000, recession in 2001, terrorists attack on the New York World Trade Centre and the global financial crisis in 2008/2009. By the same argument the high of STI at 2,500 some 20 years ago would have been considered extremely low based on today’s STI level. So, in essence, stock market high today does not mean that it cannot set a new high somewhere in future. In fact, if the stock market does not break new high from time to time, then we have a bigger cause to worry. It may mean that the economy has stalled and all our assets, apart from the stocks that we hold, are at risk. Even if we were to divest all our assets and hold them in cash would not help either. The Singapore dollar by then would have depreciated significantly in the foreign exchange market.

So, in essence, we should not let the high of STI intimidate us to think that it should fall in the near future. It is possible, but it is not necessary. Certainly, when the index approaches its all-time high, there will be some resistance as some investors would definitely held back their purchases. But over time, so long as the economy is chugging along and companies are reporting profits, it is possible that new highs be attained. After all, since the global financial crisis, wall street has made new highs at least 40 times, shared between Obama and Trump presidency terms.

Disclaimer – The above arguments are the personal opinions of the writer. It is not a recommendation to buy or sell the mentioned securities, the indices or any ETFs or unit trusts related to the mentioned indices. 

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.

The shock that finally comes

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Investors had a rude shock on Tuesday morning when they found out that Dow Jones fell a whopping 1075.21 points the night before.  That followed by an after-shock tremor of another 1032.89 on Thursday, 8 Feb 2018. In total, the Dow Jones fell 1330.06 points for the week. This was the second week of fall since the peak at close of 26616.71 made on the 26 January 2018. To date, Dow Jones fell about 10% from its peak. As the saying goes when the Dow Jones sneezes, we catch a chill. For the week that passed, the STI fell about 6.5% to end at 3377.24. Although the STI volatility is much smaller, it is good enough to drive people crazy rushing in and out of the exit door. By now, we know that the recent peak of 3,600 has already passed us and we may not reach it back again so soon. As shown in reality, we do not know when the peak really is until it passed us in real time.

Out of my normal self, I was forced to react making buy and sell decisions in double quick-time to avoid being swept down by the avalanche and failing to pick up good stocks at discounts. This was happening as I was in the midst of scaling down some property stocks holdings after all the euphoria about en-bloc sales in the past few months. This will help get rid of some lousy stocks and enhance my liquidity in preparation for the next interest rate cycle. During times of distress, all stocks, whether good or bad, are all in a mixed bag, moving up and down with the market swings. Actually, such times are the real tests that separate excellent fund managers from the good ones, and the good ones from the lousy ones. As we all know, in an upmarket, everyone is an expert, but we only know who is really swimming naked when the tide recedes.

Extreme volatilities are also trying times when no classroom analyses are able to capture. It is just the human nature of greed and fear that swing stock prices up and down in real time. Even though I am a great believer of stocks’ underlying fundamentals, there are really more to just doing analyses to find out stock PE, BV or intrinsic value. To me, knowing some classroom fundamental analyses probably help us in the first 50% of winning the battle, we really need to understand how the market works as well as some understanding human & market behaviour. (That was why I decided to launch two courses instead of only one in the investing.com platform – Value Investing: The Essential Guide and Value Investing: The Ultimate Guide. The former being more a classroom analyses and the latter one being practical aspects of investing.   To me, these two parts have to come hand-in-hand to be more complete as a successful investor.) But again that does not mean that fundamentals or any analyses are of no value and can be thrown out of the window. On the contrary, I think understanding FA is extremely important. It helps capture the first 50% of the battle. It is usually during these trying times that we get to experience their importance. Stocks with good fundamentals usually fall together with the rest of the stocks during a market collapse but will get to be picked up first when we sense that the market is returning to calmness. And once the market is in the state of steadiness, these stocks leap further up ahead of the others. To me, value investing is still the most important subject to take away the stress off the crazy market place.

Happy investing!

 

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.

Being rational in the crowd of madness

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Today, the STI ended up at 3567.14 or about 240 points (or about 6-7%) short of the all-time high made by the STI in 2007. By now, it appeared more and more people are thinking that a crash is around the corner. Isn’t this the same old story that started as early as 2011 in the midst of the Euro crisis when it was widely expected that Greece would likely be the 1st country in the Eurozone to default? That was already about 5-6 years ago. Every year pockets of people would shout of an imminent crash. More recently, when the STI passed 3600, it appeared that many more are clamouring that a crash is around the corner. But then, what happened to the real stock market in all these years? Dow Jones Industrial Index (DJII) broke its all-time at least 40 times since the global financial crisis. The NASDAQ punched through the 7,000 mark. Hang Sheng pierced through its all-time high several times, Nikkei 225 perhaps at 20-year high. And our STI, though miserable, still managed to climb pass 3600, second only to the peak made in year 2007. Naturally, when the market is on an uptrend, it must peak sometime in the future, but it may not necessarily end up in a deadly crash immediately thereafter. It can a be long-drawn side-way movement or, perhaps, a gradual decline. The question is when would be the peak and how it is going to happen beyond that? It may happen in 6 months’ time or 2 years down the road and the side-way movement can last for another 2-3 years. After that it can continue to climb or maybe decline. There are just infinitesimal ways that it can happen. So, why anticipate a crash when it may or may not happen somewhere in the near future? In fact, by haunting ourselves that a crash is near, we may risk ourselves into holding too much cash making us look stupid when the market is in a bull run. It may be alright to hold cash for one, two or even three years, but beyond that would be a big drag on our overall portfolio performance. Investing is like doing a business. We do not get into a business when the time is good and then get out of it when it is bad. If there is really a crash, we just have to face it, and steer through it and learn from it. We always read on the news that billionaires whose wealth got decimated 30%-40% during a market crash. But that was only a point in the time-line. With their steady hands, their business actually improved to a next level when the crisis was over. Only businesses that did not sit on strong fundamentals and poorly managed would end up collapsing like a pack of cards during a crisis.

Suppose we have $100k and we engage a fund manager to help us invest. After a few months, when we found out that the fund manager had put 50% in stocks and another 50% in cash. When asked, the fund manager replied that he stayed 50% cash was because he anticipated a crash somewhere in the near future. What is likely our next course of action? We probably pull out the fund, isn’t it? Why would we want to engage the service of a fund manager when he is only 50% engaged?   Isn’t it the same question that we need to ask ourselves if we are managing our own funds when we are only 50% engaged. Think about it. Even if our stocks were to advance 30% for that year, the other 50% that stayed as cash would yield at most 1% return from bank interest.  That puts us a weighted average of 15.5%, which was below the STI ‘s advance of 18% last year, which was considered as a very good year.

So much has said about holding too much cash. As a matter of fact, I also do not advocate holding only 6 months average monthly expenses as an emergency fund either. Without some cash at our disposal, it would be difficult for us to make opportunistic purchases that may pop up from time to time. So, end of the day, it boils down to a few basic questions of personal finance. What is our risk tolerance level and our comfortable percentage in holding stocks?

Historically, with dividends thrown in, stocks are a good hedge against inflation.  Personally, I would estimate the historical inflation rate to compound around 2% annually, apart from some seismic shocks that happened once in a while. That should be matched by about 2% in dividend growth rate in blue chip stocks, even though it may not necessarily advance in lock-steps with the inflation rate. So, it means that if we purchase a stock and never ever sell it off, we should, in essence, not be worse off.  Of course, this is not the motivation for buying stocks. With a bit of stock price volatility but, generally, with an upward trend in the long run, it is highly probable that we can make some money along the way. In a nutshell, stocks should be considered as an avenue to provide a reasonable rate of return in the long run. Based on this very basic fact, we really do not need to be an A-grader in school to make money from stocks. What is more important are traits like discipline, able to acquire some skills on valuation techniques, perhaps pick up a few basic money management skills and get some understanding of the market mechanism. That’s all it needs to gain from stocks in the long run.

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.

Starting 2018 positively

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Despite closing the year 2017 with an 18% upside in the Straits Times Index (STI), we saw another 90 points increase in the STI to end at 3489.45 in the first week of 2018. For myself, I am happy to have seen many days of advances last year. In the week that just passed us, like many investors out there, I have enjoyed a 5-digit figures climb a day in the three out of the four trading days. In a market like this, it is probably difficult to lose money. Maybe everybody has become an expert in their own rights. But going forward, it is unlikely that things would be repeating at this rate. Complacency may have already started to build in the minds of investors. The advances in the Dow Jones Industrial Index (DJII) has become such a norm that any retreat is seen as an abnormality. Given that DJII has some bearing on the STI, the advance in STI is also becoming more and more of an expectation.

While I am personally enjoying the ride on this wave, I beg to be now more on guard than I had been last year. From the past experience, market crashes came when we were least expected of them. The global financial crisis struck when many Americans were chasing the American Dream. The Nikkei-225 fell when property prices in Tokyo had to be paid by three generations. The Asian financial crisis hit when property prices were around their highest level in the 90s. The DOT-COM bubble burst when there was extensive euphoric belief that any company registered as a DOT-COM was a pot of gold in the making. The list goes on.

In line with the rapid advancement of the STI, many would have agreed that it is getting more and more difficult to find gems that would potentially bring 30%-40% upside to their stock portfolio. On the whole, Mr Market has been quite generous in rewarding the true blue investors due to the extremely low interest rates after the global financial crisis. Going forward, the low-lying apples are no longer there for cherry-picking. In fact, the climb in the recent months has been quite confined to the banks, perhaps manufacturing and possibly some REIT counters that generally offer higher yield. Many of the STI constituents in transports, properties and conglomerates did not really move the STI very much, further weighed down by their lower weightage compare to the banks.

 

As a matter of opinion, the STI should still remain buoyant due to the spill-over effect of last year and playing catch-up with other financial markets, and very importantly, the economic performance of the local economy. But, whether this year is going to be as good as that of last year remains to be seen, particularly in the second half.

Happy investing!

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.

 

Final post for the year 2017

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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.

Any time is a good time to invest

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We often heard colleagues or friends mentioning that they were right now on the sideline waiting to pounce aggressively into the stock market when the stock market crashed. It was as though they were seeking a revenge that the stock market owed to them for the past 18 years. There were also individuals trying to study the leading signs of past crashes as they were trying to draw parallels from the past crashes in hope to find a coming one for them to punt on. Then there was also another group trying to discourage the others from investing, quoting the reason that most of the major markets are trading at around their all-time high. Over the past few years, it was also quite common to come across people who mentioned in social media that they would get into the stock market only when the STI hit a low of 1,800 points. If all these people have been staying out of the market due to their respective reasons, they probably have missed out big time.

An article featured on the Sunday Time last week entitled “The time to invest is now.” As I read through article, I must say I agree with the writer 110%. The article revealed that a famous investor said the market was going to crash within a year in the midst of European crisis in 2011. Should we have followed that call and stay in cash, we would have lost plenty of opportunities hiccupped by stock markets from time to time in this relatively long rally from then till now.

One noteworthy point in the article is the following

a.       If $100k were to stay in cash since 2011 till now, the return would have earned $300.38.

b.      If the $100k were to invest in ST index, the return would have been $46,243.36.

c.       If the same $100k were to invest in MSCI All-Country World Index, it would have made a return of $111,869.96 or a return of more than 110%.

 

Speaking from my own experience, we often thought that the timing was not right to invest, but after a few months, we regretted for not investing because stocks that we were interested in simply got higher. I cannot agree more with the writer that stock investing is not a binary decision, that is, to be totally in the market or to be totally out of the market, and not somewhere in between.  But essentially, in stock investing, it should be somewhere in between. Periodically, we should put some percentage into stocks while another portion to remain as cash depending on our comfort level. It is this periodic allocation that probably wins the race even if one is just a medium performer in stock picks. The cash portion, by itself, is a good cushion against any crashes or significant meltdown that can occur from time to time.

 

People who are serious about in stock investing would agree with me that it is like managing a business. And like in a business, we simply do not get into it because the time is good and out of it when time is bad. Most of the time, we have to steer the business as it moves through the good and bad times. In the past twenty years, we witnessed at least two major stock crises that saw the STI tanked 60%. Apart from these major crises were numerous smaller ones that had depressed the STI of somewhat between 15% and 30%. If we look back in history, the time period between all these crises was not that long, at most 3-4 years in between. Each time when it occurred, we do not know the real bottom until it had passed us convincingly. Only then, we start to regret in hindsight. 

A very good example was the marine and offshore industry. Just 18 months ago, we saw everywhere is bad news and the two major oil rig producer SembCorp Marine and Keppel Corp were hitting their lows. But by today, the share price of the two stocks has already past their lows. For those companies whose stocks have been either suspended or still struggling to get out of the problem that plaque the industry, it is because they had over-stretched themselves during the good times.

 

To date, the Dow hit its all-time high in 30 of the 54 months since the global financial crisis. Within a year since Donald Trump was inaugurated as the president of US on 8 November 2016, the Dow advanced more than 5,000 points to 23,400.86 as of market close on 26 October 2017. Whether we are trading via HKSE, Nikkei 225, any European markets or the STI, we are either at the respective all-time high or near to it. Perhaps, I may have selected a wrong time to write about this because all these markets are at their all time high, and may be in for a huge fall in the near term. However my personal experience in my investing journey showed that cashing out can sometimes be worse than simply stay on course. My ill-timed sell-out and inability to carry out a re-purchase program during the Asian financial crisis was a costly mistake that I wish to forget. In the other 4-5 crises into the new millennium, it seemed that I had done better. True, when a crisis was in the midst of gyration there was a lot of fear, but it seemed that things got better than it originally started when things were over. So, actually anytime is a good time to start our stock investing journey.

   

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 also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.

SPH – At its lowest for now?

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When a spring is hammered very hard, the spring back tends to be very sharp. This is probably the best description for SPH this week.

In the last few days, most of the news or discussions related to this stock appeared to be bad, or at best, neutral. Being a by-stander watching from the sideline, it appeared to me that nobody seemed to have anything good to say about this stock. Indeed, it was hammered very hard for the first 3 days of the week hitting a low of $2.54 per share on Tuesday and Wednesday. In the last two days, however, it seemed to have rebounded quite strongly to close at $2.68 by Friday, though it is still lower than the last week’s close at $2.74. Perhaps, these were some opportunistic purchases made by contrarians. After all, it SPH has never experienced this low except during the global financial crisis in 2008/2009.

 

For the last 5 quarters or so, most of the news related to the stock were generally not positive. Pessimism over this stock grew in every release of quarterly results. Perhaps, the sell down this week was in anticipation of the poor results for the coming quarter as well. So if the quarterly result is not as bad as expected, then maybe we can expect a small price re-bound. (I say small because SPH’s economic moat is not strong at this moment for a significant turnaround) Of course, the other way also holds true. If the result is worse than expected, then perhaps we should expect a further sell down.

    

(This was the abstract taken from a Facebook post in April 2016 for past students. At the time of writing the Facebook post, things were still not as bad. So the expectation was that it probably should stabilize at around $3.70. News turned out to be very bad for the next 5 quarters. Yesterday, the share price closed at $2.68.)

Here is the dilemma. It has been a happy situation to have unloaded all my SPH stocks in anticipation that SPH would face hard times ahead. It has been too heavily dependent on the print business. Since then, I was on a stand-by mode, waiting to buy them back at a lower price. It should not just centres itself around the print business. It has to lay out a sustaining business proposal on the table before the share price can turn up convincingly. Now, with the bad news already significantly discounted in the share price, it may be the time to re-consider buying some back as ‘insurance’ in case it really made a turnaround or at least stabilized after more than a year of battering. Hopefully, it is at least a breather for now. It had lost one-third its value from an average price of about $4. For all we know, the share price always lead the actual company performance. So buying back may be a good idea if we believe that something magical can happen in the future. Let us see what happens in the next few weeks.

 

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.