Tag Archives: stock index

The importance of financial goals

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Until a few days ago, stock investment has been extremely daunting. For several months, the stock market has been relatively unidirectional – downwards! Even with the run-up in the last few days, the stock market still lost more than 10% since the beginning of the year, and more than 13% from the high made around April/May 2018. So, if we have been a net buyer of stocks in the last 6 months, it would be a big miracle if these stocks are unscathed by the end of last week.

But then, the question is should we stop the whole buying program and leave the stock market until the bull returns. If we did so, we would have probably missed sharp u-turn of about 5% this week.  Actually, in this complexity of the daily ups and downs belies only two uncertainties – we do not know how exactly how low is the low and how high is the high. If we have known that 2 critical points, then things would be very clear, and our decision-making process is just as easy as snapping our fingers. We are, after all human beings, and we do not know what lies ahead.

Given this backdrop of the uncertain future, we need go back to the basics of why we are buying stocks for? It is not known of the financial objectives of the readers out there, but for me it is extremely simple – I want to build a formidable portfolio in this life journey (Sorry, I am not able to provide specifics). So, whether the market is going up or down, I will have to ride through somehow. I am certainly not clever enough to sell everything when the market is at the highest point and buy everything back when the market is at its lowest. Even if I can do it for one or two cycles, I am definitely not able to so repeatedly for many cycles in my whole life journey. But that said, there is still a need for some buying or selling criteria so that we are not caught buying at the highest point and selling at the lowest point.

If we look at the whole investing journey, we are in effect, a net buyer. Everyone of us starts off from zero, and our objective is to have some stocks at certain point in our life-time no matter how dicey our objectives can be. With such a down period like in the last 6 months, are we going to give up our journey towards our objective? Think of this investing journey like a car ride. From the starting point to the destination, the journey is infested with many disruptions such as traffic lights, pedestrian crossings, floods, road accidents and even animals dashing across roads. With these disruptions, do we give up the car journey? Certainly not, right? In fact, during such trying time, when everyone is not ready to buy stocks, it may be a good time for us to accumulate stocks at discounts. Just 6 months ago, many were complaining that stock prices had become extremely high. Over the past 6 months, the market and stock price have become a lot cheaper. There were  a number of stocks offering discounts for those who had missed the cheap sales years ago. In fact, very often, we regretted in hind-sight that we did not buy ‘such-and such’ stock when it was at ‘such-and-such’ price some time ago, right?

With proper financial objectives, then the picture ahead would become much clearer even if that destination is still far, far away. No matter how difficult the market is going to be, we still continue to invest and head towards the final objective. Every step that we make is one step nearer to the objective. Just like in a car journey, we need to have clear objectives to define our route of advance in our investing journey. (I cannot imagine what it would be if we do not know even the final destination in our car journey.) From so many observations in my decades of investing, the best way is to detach ourselves from the ever-changing economic environment. In fact, the stock market tends to move ahead of the real economy. So, if we try to use the economic outlook as a guide to make our buy or sell decisions and to wait for uncertainties to become certain, we often end up missing the best purchase of those stocks. If we are convicted to reach our financial goals, and stocks values have emerged themselves, then we should go ahead to buy them. Procrastination and trying to time the purchase at the best price often lead to missing the boat because the u-turns, as seen in the last few days, can be extremely sharp.  After all, stock prices tend to move upwards in the long run. Even we did not buy at the best price, we are often rewarded if we keep the stocks for sufficiently long time. That said, make sure we are holding fundamentally good stocks.

Join me in the youtube video for more.

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.

Join us in the facebook – BP Wealth Learning Centre LLP.

Brennen has been investing in the stock market for 30 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.

Ten years after the fall of Lehman Brother

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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.

Join us in the facebook – BP Wealth Learning Centre LLP.

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.

Isn’t this similar to the 90s?

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The spate of events that happened in the last six months reminded me of what we had experienced in the 90s. More than 20 years have zoomed passed us and how many of us remember those events that had taken place. In fact, many of us would have, either forgotten what happened or too young to know what had happened then. Based the historical time-line, it is likely that those in the Generation Z or Generation Y may not have really experienced the times of high interest rate environment, let alone making comparison between now and then.

By today, that business environment of the 1990s seems to be re-surfacing itself each passing day. There are just too many similarities. Let me quickly bring out a few examples. First of all, in the past few years, we had enjoyed a phenomenal economic growth, and as such, the stock market index was pushed to its high (second only to the all-time high of 3,875 in made on 11 October 2007). Whether regionally, or Asia as a whole, we were all doing well. This was a complete copy of what happened in the early 90s. The regional growth was so phenomenal that many economies were given names, namely, five tigers and four dragons. At that time, the local stock market index or STI raced from about 1000 in 1990 to about 2500 in 1994. Back then, there was a Dr M, who was holding the post of the prime minister of Malaysia, and by today, he returned as a prime minister after having left the office for many years. In between his two terms of office were two prime ministers, Abdullah Bidawi and Najib Razak. Then, in the year around 1994, the FED hiked up the interest rate several times. Is it not that what we are seeing now – in the midst of an increasing interest rate environment? The US economy at that time under the Clinton administration was so strong that the US stock market powered from 4,000 at the beginning of the administration to about 10,000 when Bill Clinton handed over the US presidency. That was also the period when the FED chair, Mr Alan Greenspan, coined the term “irrational exuberance” to describe the crowd madness of the stock market. The economic environment was so brisk that even the Lewinsky scandal could not derail Bill Clinton’s presidency term. Towards the 2nd half of the 90s, many people were expecting the Dow Jones to crash as it continued breaking new highs. On the contrary, it was the Asian stock markets that crashed leading to the Asian Financial Crisis (AFC) while the Dow Jones was pretty unscathed. Isn’t it that similar to what is happening in US now. For many years, many people were expecting the Dow Jones to fall, but at the moment, we are seeing the Asian stocks markets spiraling downwards more than the Dow Jones. Look at COE prices. In 1994, the COE price hit all-time high of $100k and then started to decline to hit a low of $50 in January 1998 (though in different category). In a similar way, COE prices are likely to continue to decline as business prospects gloom. Then, there was also a sudden property curb on May 1996 to stem property prices. Isn’t it similar to what the government announced three days ago regarding property prices? Since the property curb in 1996, property prices never really recovered until the recent years.

Frankly, all these are not for the sake of digging up the old history. By drawing out the similarities, it helps us get a glimpse of what we could expect going forward. If history can be the guide, what we had seen in the past 6 months or so, could even be only the prelude to a series of events that lead to more difficult times some time later. As earlier mentioned the 1st half of the 90s were the good years of phenomenal growth, and everybody became complacent. Many governments were taking on mega-projects that worth millions of dollars (millions of dollars is like billions of dollars in today’s terms). Just like today, many Asian economies, apart from Japan, were comparatively small back then. (China, itself, was focusing on its internal development and was less exposed to the outside world at that time.) To keep economies stable, both for internal control and export, many Asian countries pegged their currencies to the USD.   In response to the increasing interest rates, funds were moving out of Asia causing Asian currencies to fall. Isn’t it what is happening to the Philippines peso and Indonesian rupiah reported recently? At that time, the Indonesian rupiah was about 2,900 against one USD before the AFC and then spiraled to 16,000 rupiah against one USD at the peak of the crisis, shrinking 5,500%. Imagine, an Indonesian company originally owed a debt of US$10m before the AFC, the debt would have ballooned to a USD debt of 55 million without any wrong-doing on the part of the company. Really, how many companies can withstand such onslaught? To stem fund outflow, Asian economies were correspondingly forced to increase their interest rates. This, ironically, further stifled the lifeline of many Asian economies, which is to export their way out of recession. Increasing interest rates makes it more expensive to export and cheaper to import. The trickiness in such a falling currency avalanche often leads to more falls because of concerted speculations, causing many governments to dip into the reserves in an effort to maintain their currency peg to the USD. Before long, many government found their coffers depleted and had to let their currencies into free-falls by unpegging against the USD. One-by-one, the economies succumbed to the AFC, and had to be rescued by the IMF. Apart from the currency turmoil, there is another knock-on effect as well – a political instability in the region. Within a period of 2 to 3 years, Thailand and Indonesian respectively changed their prime minister and president several times.

By today, the Asian economies are generally stronger and have stronger financial muscles to ward off a similar financial tsunami that had wiped out the Asian economies back in the late 90s. The unpegging of their respective currencies to the USD acts as a counterbalance to the trade mechanism, which is vital for many small Asian economies. Unfortunately, based on past historically, increasing interest rates has never been beneficial to small open economies including Singapore. Added to this gloom is the increasing stakes in the trade war between the world’s two largest economies. The trade war and the retaliation actions put up by the trading partners are likely to push small open economies into difficult times. Personally, I think the 2nd quarter results will not reflect the full impact yet, but it could surface by year-end. Unless there is some kind of breakthrough in the negotiations, the worst is yet to come. The end results could be recessions and job losses. It’s time to put on our seat belts!

A video clip on the expectations in the coming months has been posted in the private group discussion for the students of “Value Investing – The Ultimate Guide.”

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.

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.

Two important life lessons when investing in stocks

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It must have been 20 years since I attended a remisier course leading to an examination that would enable me to become a full-fledge remisier. After all, I had just completed an MBA course and, this would enable me to skip one of the two remisier modules, thus short-cutting my way to become a remisier should I chose to be one. Just like any other school-leavers after a few years of work on the same job, I was contemplating and exploring a career change. I was no rookie in stock trading (I say trading because I was really trading) at that time. By that time, I probably had already had 6-7 years of stock investing experience as a client. My personal objective to attend the course was very simple. Even if I decided not to take the examination (in the end, I did not), I might still be able to learn a one or two things about the stock-broking industry. I believe the course fees must have been about $200-$300 and the whole course was taught over a period of about 2 or 3 days (can’t exactly remember). As I have already been working for several years, it was a small sum to pay to learn something, perhaps to help me develop another career path, just in case.  After all, I had already paid or have been paying for several high-ticket items, such as my MBA course, marriage plans, housing renovations, car loans, insurances,  etc.,  and many of those things that crossed into our path after we left school. So, in comparison, it is not going to break an arm or leg to pay for the fee to attend the course.

 

That was a long time ago, and frankly, I had forgotten most of the things that the practice remesier taught. If you ask me today, I think the lessons were pretty boring. They were just brute facts that were to be dumped into our minds and for us to re-produce them during examinations. The hand-out notes were no better. They came in the form of a ring-bind and were about one-inch thick in black/white photocopies in fading print on half-yellowish papers and were not exactly organized. These two factors would have been an ideal condition to put one into a good sleep within the first 10 minutes after sitting down especially given the nice air-conditioning environment and after a long day’s work. But still, there were at least 30-40 eager attendees listening attentively to the lessons.  Perhaps, there were one or two key reasons for this. Firstly, at that time, all the trades have to go through a broker. Whenever we buy or sell stocks, whether they are many board lots or just one board lot, they still have to be handed by a broker or remisier, who have to physically key in our trades. So, a remisier or a broker had a very important role to play in the whole transaction process if we bought or sold securities at that time. Thus, becoming a remisier was an ideal dream that many people were trying to get their hands on. The other reason, a very important one, was that stock market at that time had been enjoying about 7-8 years of boom, except for a temporary disruption due to the 1st Gulf war in 1990. (I actually have an important lesson to share for this episode as well, but I will leave it to another session in order not to digress too much from the subject matter.) It was a lucrative career if one was able to get into it. Can you imagine each transaction of about 1% commission in just 2 minutes of telephone conversation for just one counter! After all, the memories of the great boom of the 90s around 1992 to 1994 had not faded in people’s mind yet.

 

The point that I wanted to make was not because of the teacher or the notes. It could even be that I had been day-dreaming in most parts of the course. But there were two points that the teacher pointed out that still had a bearing on me in all the investing years that followed. They were actually off-the-calf sharing and were not part of the lesson proper. He shared with us some stories of people (without quoting names or mention anybody specifically, of course) who became bankrupts after losing big in the stock markets.  It was demoralizing. Here, we are trying to learn something to become a remisier, and there the teacher was telling us about bankrupt stories. Perhaps, he just wanted us to be mentally prepared when we entered this industry. But still, he ended up with a positive note. Based on his personal experience, he shared with the class that there were generally two types of people that do not do too badly in stock investing. They are:

(a)    People who do not trade on contra.

(b)   Those that are “one-lotters”.  (Yes, he really said “one-lotters”.)     

At that time, I did not think much about what he said as they were just passing mentions to inject some life into the lesson.  No offence to those who play contra or on margin, I never play contra. I pay for my trades faithfully and on time. So I cannot share very much on the experience of contra. Perhaps, he was coming from a point of view as a remisier, and that he had to take on the financial risk when clients did not pay on time. However, later checks with another one or two broker seemed to confirm this point. Frankly, the purpose of checking was not to talk down or expose those who like to play on contra. I have no authority to do that. I just wanted to know how I could develop my investing character not to be along those lines that exhibited high chance of losing money. The 2nd point was more impactful for me. Apparently, he had coined the term “one-lotter”. I could not find it in an English dictionary.  He meant to class those people who only buy or sell one lot of a counter whenever they make a transaction. Previously, one board lot refers to 1,000 shares and not 100 shares as it is now.  Basically, he was referring to the fact that some people buy or sell only 1,000 shares no matter how good or how bad the market was. It suited me right from the start. Think about it, when we first graduated from school, our salary was close to $2,000 per month for a fresh graduate. Even after some years of working, it was probably $3k to $4k per month. After deducting for our CPF, provide some pocket money to parents, monthly payments for some high-ticket items, I am not sure if I could even save $500 per month in the first year or $1,000 after some years after I graduated from school. How many board lots of a counter can we really pay per trade? At most one. Even for some high-priced stocks, we still needed to save for several months before we could even buy the first board lot. At that time, for example, Cycle and Carriage (C&C) (not yet known as Jardine C&C) was trading at slightly above $10, and OUB (a bank subsumed by UOB) was trading around $8.50. But as I look back in history, taking on one board lot at a time may not be a bad idea. Many of the stocks that I have accumulated today in many thousands of shares were the results of buying one board lot at a time. It may not be the fastest way to riches, but it certainly is a safe and conservative way. Do not underestimate its cumulative power. It enables us buy on dips and picking up opportunities that might have slipped through the fingers of many.

 

Stock investing is a journey. It is not an end by itself. The stock market will outlive any of us. The investing journey may be long and arduous, but each small step that we take, we are one step nearer to where we want to be.  I am thankful to the teacher for the off-the-calf sharing.  They turned out to be more useful than the lesson proper as I looked back in history. They helped shaped my investing style in the later years. To be continued…. 

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.

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

Swiber, Z-FINANCIAL EDUCATION, Z-INVESTMENTS, Z-Personal Finance, , ,

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.

What can we expect from the American election?

DBS, Jardine C&C, OCBC, UOB, ,

Now that the American election is over, and Donald Trump has been announced to be the president-elect. The inauguration is scheduled to be on 20 January 2017. As a biggest economy in the world, we can expect big event changes to have a bearing on the many smaller economies. Certainly, the promises made by Donald Trump during his campaigns would be closely followed, as they may become the new government policies during the term of the new president. Of course, one may argue that these may be promises, and they may not be fulfilled or at most partially fulfilled after looking at the cost-benefits of all these promises. After all, until the fate was sealed on last Thursday, Donald Trump had been an underdog in this neck-to-neck race with Hillary Clinton. To change the odds of winning this election, he might have to resort to populist promises to win votes.

 

However, as investors, we tend to make anticipations of the future to guide us in our buy or sell decisions. So the closest or best clues would be to go along the lines of his background as well as to rely on his promises during the campaigns. As it is, he has been a real estate magnate businessman with zero political back-ground, many would have expected that he would be especially focused on infrastructure developments. These constructions would likely to bring about inflation resulting in FED hiking up interest rates more aggressively. So in all likelihood, our bank interest rates would also perk up in time to come. As it is in the last few days, the local bank stocks such as DBS, OCBC and UOB were holding up relatively well while many local stocks were on a down-trend. In particular, DBS advanced $1.20 or about 8% in the last two days on Thursday and Friday. Conversely, the interest rates sensitive stocks such as bonds, REITs, property counters as well as many debt-laden companies were hit quite badly. Many emerging market currencies are also affected as funds are expected to repatriate back to US in search of higher interest rates. Thus many Asian currencies have also been on the downward trend. In fact, companies, especially the debt-laden ones that borrowed or purchased goods in US dollar are likely to be hardest hit. Consequently, many Indonesian company stock prices fell very hard. They purchased goods in US dollars and sold locally in rupiahs. Stocks like Jardine C&C, which held 50% of Astra shares, had already retreated about 10%. This situation is likely to continue as long as the spectre of interest rate hikes remains in the mind of investors.

 

The other significant factor mentioned in his presidential campaign was pro-American, pro-white policies that point toward protectionism. This means that many economies depending on US for trade will be also affected. These countries include Indonesia, China, Taiwan, Malaysia, South Korea, Philippines, Vietnam and even Singapore. Furthermore, with their respective currencies retreating against the US dollars, it is likely to make things very expensive for these countries. Certainly the respective stock markets are not going to be spared as well. The fear factor should likely continue to weigh on the Asian stock markets in the short term.

 

While the situation looks grim, it is only based on anticipation. The reality may not turn out to be this way after more detailed review of those promises. It could even be that the President may decide to soften his stance on free trades after his inauguration.

 

So, end of the day, it is still important to continue to stick to our long term-plan in building our stock portfolio. The fear factor may even present interesting opportunities for us to buy stocks that are beyond our reach during euphoria.      

Good luck!

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

Hyflux, , ,

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.

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

DBS, IPC, Jardine C&C, OCBC, OSIM, YZ-BANKS, Z-FINANCIAL EDUCATION, Z-INVESTMENTS, Z-STOCK INDICES, , , ,

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

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

Slide28

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

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

Happy investing!

Disclaimer:

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

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

5 reasons why stock investing is so difficult to start

Z-FINANCIAL EDUCATION, Z-INVESTMENTS, Z-Personal Finance,

 

Ethan Ho is a guest writer for our blog. He is part of the investing & financial literacy team that helps build the investingnote community. We thank you for his invaluable contribution. 

Slide1

You have probably heard stories of people who’ve made investments. These people range from veteran institutional investors like Warren Buffet, Carl Icahn to associates, friends and little known hearsays. The similarity is, all of them have made some sort of money. But what stops everyone from doing so?

You’re probably reasoning that the big boys can make money because they already have the capital, skills and maybe some insider info.

Isn’t it obvious enough? True only to a certain extent.

Let’s break down the 5 actual reasons why investing seems difficult for most:

Steep learning curve

If you’ve never taken a finance course back in school or know absolutely nothing about finance, the thought of investing might scare you. Assessing the valuation of a stock through the company’s profile, financial reports and even research firms’ projections is terribly time consuming. There’s fundamental analysis and then there’s technical analysis. Each is a separate school of thought in investing. Learning both to hone your trading skills on your own is just way too time consuming.

Barriers to entry (a) Knowledge

Let’s face it: to be able to learn finance in school is a privilege. A privilege that is often invisible to those who study it as part of their majors. For the same amount of time taken to take a bachelor’s degree, business finance majors spend all their time honing their skills that aids them in making informed investment decisions as compared to their non-finance peers. Many of us who’re not specialized in finance can definitely relate to this. Of course you can learn it by yourself, but what we’re really saying is that the high barriers of entry due to the inherent complex nature of finance makes it harder to do so. Furthermore, finance courses by stock educators and professionals can cost thousands of dollars just for a few lessons. All these are barriers to entry. Sometimes to the extent to which people give up on learning and being interested midway.

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Barriers to entry (b) Capital

Another barrier to entry is capital. Let’s just talk about the local stock market. Before shares trading were reduced from 1,000 shares to 100 shares per lot, it implied that only people with a decent amount of money could invest. Let’s take for example, Singtel’s stock. It trades within range of $3 to $4. So the minimum capital required to buy just one lot of shares would be $3000 to $4000. To some, it might seem reasonable. But remember that a stock bought is an opportunity cost to diversification.

Lack of role models

We all know that when it comes to learning about investing, it can get really lonely. Like with every skill, role models are an important contribution to the learning process. A role model can either be a professional or someone with experience. In the world of investing, nobody can be held responsible for your gains or losses. However, it would help if there was a role model or mentor to guide your learning process with a certain direction and investing styles. It makes the entire learning and investing process much pleasurable and easier to follow. Most the ‘mentors’ and ‘role models’ out there usually charge a fee for students to take up their classes and workshops. Hence, role models seem to be an optional and expensive choice, rather than serving as modest mentors.

Slide3

Fear & Risk

You’ve probably heard stories of how people got ‘burnt’ by trading stocks. It can range from big losses to bankruptcy. Such stories aren’t exactly encouraging with the steep learning curve in the complex world of stocks. Studies have shown that people are also more contented with not losing, rather than not winning. As a result, fear ensues and stops many people in their tracks to invest.

Another key deterrent is risk and uncertainty. As you already know, every reward begets a certain amount of risk. If it doesn’t, it probably harbors a scam. In the stock market, risks are aplenty. Other than just stock-specific risk that stems from the company of a particular stock, there is systematic risk. Systematic risk unlike stock-specific risk, cannot be diversified. For example, the recent oil glut has impacted many companies in the oil and services sector. Most of these are fundamentally strong companies, but were still heavily affected by adverse market conditions.

Market volatility and uncertainty caused by geo-political risks are also part of the equation. Terrorism, global warming, law and the increasing interconnectedness of the global economy- makes it very much harder to divert risk, especially when you’re new to the game.

These are the 5 reasons that I’ve personally struggled with before I started and some of these reasons are still relevant.

Slide4

What are some of the reasons that didn’t get you started?

Written by Ethan Ho – from Investingnote [www.investingnote.com]

Investingnote is a free-membership social network platform designed specifically for stock investing. It is the only platform that empowers the stock investing community, through free access of stock data, research reports and technical charts, combined with sharing of  investment ideas and up-to-date news. Members can even pitch their stock investing skills by setting stock price targets against real time stock prices. Each member is accorded with reputation points based on the number of followers, likes and posts.