Trigger Limit Method: Long term outperformance

Markets have been in gyration since Syria used chemical weapons a few weeks back. After US & British citizens, alongside most of the G20 nations expressed their disinclination over a direct attack, the US has since revised its approach to a diplomatic one (this of course, after being strong armed Russian style by Vladimir Putin).

What this basically means is that going forward, news from the Syrian issue will be less likely to affect markets and that the next big issue being anticipated is the Fed meeting on Thursday (Singapore time).

At any rate, I had earlier posted that a solid investment plan would involve waiting patiently for Blackswans and then buying into the decline (you can see the post here). This Syrian issue would certainly classify as one.

On hindsight however, how many of us were able to pick up the stock at the recent bottom (STI: 3,120)? I was aware of the opportunity but personally did not pick up any stock as i had mistakenly speculated that the US would go ahead with their missile strike causing markets to fall further. 

How will we then capitalise on a blackswan, after spotting it? Even with a Blackswan, when exactly is the right time to buy into it? I went on to identify peaks and the subsequently troughs over the period FY10 to YTD 13. 

I've always had this idea that if we bought into the market every day that it was red, we would outperform the market in the long run. But what if, each of us had a trigger limit, where we buy into the market after it has fallen a certain percentage from the previous peak?

The above table shows the average purchase price and the degree of market outperformance at various trigger limits. 

It suggests the following:

Greater Trigger Limit (vis-a-vis Smaller Trigger Limit) 

• Fewer opportunities to buy into the market
• Greater market outperformance

Implication:

• Greater Buying Concentration - To compensate for the smaller number of opportunities we will have to buy more at each occasion.
• Lower Transaction Costs - From buying at a smaller frequencies.
• Opportunity Cost - During periods between buying opportunities, you will have to stock pile cash with possibly negligible returns.
• Capital Gains Over Dividend - Dividend will be foregone for greater capital gain. 

Conclusion:
I arbitrarily chose my trigger limit to be 9%, which translates on an averaged basis, to purchase stocks once every 5 months.

For everyone else, pick a trigger limit that suits your style and preference, stick to it and make money in the long run.

Can you put you trust in the 'long run'?

Let's examine the LT graph of the S&P500, one of the world's leading market indices.

Segment 1 - The Traditional Market

The period from 1950 - 1995 was a period of consistent upward growth, with little and smallish corrections. The largest correction was in 1987 with a 23% correction, not very big by today's standards. Internationalization had yet to set in and markets were probably quite insular. Consistent growth in the market was probably due to technological advance, improvement in efficiency, basically real growth.

This was a period where you could truly say 'In the long term, markets are on an uptrend'.

Segment 2 - Today's Market

Are today's markets truly the same? 

Add in usage of computers, financial derivatives, market interdependence and the following occurs:

• Trading volume has increased
• Volatility has increased
• Magnitude of movement has increased
• Market cycles have shortened (Avg 8 years)
• Largest correction 47%

Implication

Can we really afford to blindly trust in the long run?

If an investor had bought into the market at point B1/2 or towards it, he would have waited 5 years to merely break even. 

Have you ever bought at the upper end of the market (towards point B) only to see the value of your stocks fall, then find yourself saying 'It's okay to have paper losses, because I'm a long term investor'? 

Well in theory you aren't wrong, markets still have their up cycles and you could probably make your money back if you have a long enough investment horizon. But we're not putting money into the stock markets just to break even right?

Action Plan

While we can still maintain a long term approach, we need to adjust our investment strategy to today's market. Look at where the market is today (Point B3) and decide for yourself if this is a secular bull run like what some people think, or whether the market will correct.

For me, i'm just building my investment fund and waiting for the right time to apply the Big Bucks Method.

Markets are like a see-saw (Predicting bottoms and the Big Bucks method)

Just to start off with a little reflection..

I admit my last market bet went wrong. For the full disastrous speculation you can read it here.  But to surmise, I was overly optimistic thinking that the market will in the short run, shrug off the news about the interest rates hike and run up somemore. I also did not do enough research and was presumptuous about there being no major news being released for the quarter, specifically, i did not foresee Bernake making that horrendous speech.

Anyway, economic results released lately have fallen short of expectation and markets have ironically gone up with expectation that the QE will continue for a longer period. However, i'll wait and see if the recent rise is sustainable. I have my suspicious it won't unless there is a clear move above the strong resistance at 3235.

A few days back i started a conversation with a friend about the market which soon became us discussing what a long time investor is. The conversation quickly revealed that we had a different idea of 'long term', when it came down to:

(1) The investment style - how to exploit the long term

(2) The duration - How long really is long term

My friend basically likes the combination of high dividend, fundamentally sound stocks and averaging down. While i can't disagree that that's a solid plan, this is where our action planned differed.

Friend's long term plan

Believes in buying regularly to smoothen out the market and when it crashes buy slightly more than usual.

My long term plan

Wait for the bottom and buy aggressively with accumulated cash.

My opinion is that while it's true that we can't predict the bottom, we can definitely wait for a period near the bottom.

What then is this bottom? 

The bottom well.. in this context means The bottom. When the corrections are really major. And while you might wonder when this so called 'bottom' might come,  well, you can take a look at this chart i prepared:

7 Major corrections occurred over the last 27 years which translate to an average of 3.85 years. A little long yes, but each upside from the bottom ranges from 30% - 200% +.

Moreover, even if you entered at a false bottom, if you had exercised some wisdom and caution, there's a good chance the false bottom will be below the market average anyway which will deliver you returns greater than the market average. 

Isn't the chart just based on historic figures?

Yes, but you must admit that black swans do happen all the time and will happen in future. No one predicted 911, the extent of the SARS epidemic or the severity of easy credit which led to the housing bubble and subsequently the GFC. It's these black swans that give us the opportunity to make a killing. There are some investors, just a handful, that actually carry it out and make big bucks from opportunities like these.

What is the next black swan that could happen?
Well i don't know. It's precisely why it's a black swan, it could come from anywhere. But in terms of economic play, i guess the main theme right now and for a while more to go would be the playoff between QE and economic growth and perhaps for asian markets, the tightening of the money lending in the chinese economy. You can read more about that here.

If we can't predict the black swan how can we execute a plan?

Well, we can certainly be patient and try to keep a look out for the bottom by staying in tune with the market and at the same time accumulate cash to get ready for it.

If we look at the charts, entering the market at the bottom period, I'd say a month before and after the absolute bottom will put you in a position to reap healthy gains.

Which investment style is actually superior?

Well, it really depends on person to person. While i make smaller bets from time to time my larger investment strategy is tentatively the aforementioned one. (Buying at bottoms). Personally i feel my friend's strategy isn't wrong. His idea of buying now and then to average the lows and the highs will ultimately reap well.. a decent gain. The risk there is that what if for a multitude of reasons he ends up averaging up or averaging at the higher end of the market? This is very possible if you consider that markets can be on a general uptrend of a year what more years. Moreover, the more we 'average', the more we are likely to end up buying and selling which in effect becomes trading.

I also understand that my strategy of making that single huge buy on a 'low' might also go wrong. But understand that from that one big buy we can possibly make bigger bucks than constantly trying to outperform the market (averaging down).

So in the end, decide for yourself if you like to get small returns from small money or big bucks from big money.

Wealth from within

Today won't be my usual post with an investment centric theme. Rather I'd like to talk about wealth.

As i got off the bus and was walking home today, a cat meowed at me and followed me. I soon realised it was because of the pepperoni pizza in a plastic bag that i held. The cat tailed me uncomfortably close for a distance of about 15m, it made long purrs and i could sense its desire. It was almost saying 'I'm really hungry and desperate'. Desperate was really the word. Upon, closer scrutiny it was aged somewhere between a kitten and an adult cat, but the most noticeable thing was that it was visibly really skinny, so much so that it's body was long and thin, almost like a daschund dog. I was tired, hungry, with my mind still buzzing from work. In my mind i had a fleeting thought that the cat would attack me out of hunger so i quickly walked and at the same time thought this hungry cat was none of my concern. So eventually, the cat stopped and continued its purrs as our distance widened. 

Over dinner, there were some thoughts that came into my mind about the issue and it didn't make me feel that good. So i went back with a bun hoping to give the cat some food but it was gone.

The whole situation reminded me of the poor and destitute. And I just want to remind myself by logging this down that, one day in future, if i do become rich, and no matter if i'm busy, tired, i should never forget about the less fortunate, especially those around me and try to help them. Whether in the form of time, voluntary work, or monetary aid.

That is wealth from within. Not just numbers in the account, but real wealth.

3rd quarter investment strategy (Telco/Reit/Commodities/Market outlook)

Over the last couple of weeks, the market has been in decline wiping out its returns for the year. Frankly a technical correction has been due for about a month or so now, so no surprise that the market fell on talks about cutting back on the quantitative easing. 

I think most long term investors are questioning whether it is good to enter the market again. And here are my personal observations so far:

(1) The index is currently sitting on its 200 day moving average. This, along with the job figures recently released could spur another short term bull run. 

(2) 

While the fed's cutting back is an event fundamental in nature, the market has corrected to an extent which can only be considered technical. The next thing we should notice from the 5 year graph is that fundamental corrections such as those in 2009 to 2011 are large compared to technical corrections.

(3) I often find that markets usually react to news at 2 points in time, one in the expectation of how an event would impact the market, and second at the point of the event. Since the market has already corrected on speculation that the fed would cut down on its bond buying (1st event), we can probably expect more correction upon the actual cutting back (2nd event). At this point in time, economist seem to think that the second event could occur as early as September, to later in the year.

(4) Reits have demonstrated their sensitivity to interest rate change. If the mere expectation of a rise in interest rates could cause the recent 8% fall in average values then what would the actual rise of interest rates and its subsequent effect cause? 

(5) The Telcos sector with its high yields also seem to be like reits, affected by interest rate news and have fallen down greatly.

(5) Most commodity prices whether gold, palm oil, coal, or iron ore have fallen due to a supply glut. Commodity producers are trying to cut down on costs to squeeze out more value per unit of good sold. 

Analysis:

What product?

With the upside of reits limited and downside risks huge, it will be best to limit exposure to the sector. 

Commodities though attractive with a long term horizon (3 - 5 years) will probably trade sideways or slightly downwards further. A more appropriate time to buy it would be when the market is in the next consolidation phase. 

Economic outlook/News will be the basis of my investment strategy going forward and the best product for broad market exposure would be the the ETFs. 

Why?

News from the usual quarterly results will be firm specific while interest rates will remain the main theme over the medium term. ETFs will allow you to stay in the market without any significant exposure to weak/risky sectors.  

When?

Although the market is currently sitting on its support, the release of the recent US job data revealed that unemployment had risen slightly. This had allayed fears that the fed would cut back on its open market operations and boosted the US markets on Friday. STI should take cue from this and rise on Monday.

My take is that with the low likelihood of any major news being released at least till September and the long term market trend intact, the market will continue to trend upwards technically with an upside of about 10%.

As such, entering the market over the next 2 weeks by buying ETFs would be best strategy for 3rd quarter. 

Make 5 year plans for your retirement, S$100k min TNW at age 30 (within 5 years)

A month ago i decided to embark on a mini project with the goal of ultimately having sufficient cash flow when i retire. I threw around some ideas and figures in my head, and this is what i came up with so far.

1. Life expectancy

Just last week the Straits Times had mentioned that life expectancy was 80 for a male and 85 for a female. This meant that an average male at 60 in 2012, could expect to live for another 20 years. I like to have some buffer in my estimations and ended up with a life expectancy of 95. 

I also chose a retirement age of 65 because firstly, it gives more time to build up an adequate retirement fund and secondly, it is currently the upper end of the retirement age. According to the Retirement and Re-employment Act, the statutory minimum retirement age is 62 with employers required to offer re-employment on a contract basis up to age 65.

2. Income yearly at retirement

On top of having to pay the usual food and utilities, a retiree would also have to consider the higher medical costs. While modern medicine prolongs our lives, it fails to cure medical conditions such as diabetes, heart disease etc. Aside from these necessities, the ideal life would include having a car, a maid and the ability to go on holiday several times a year.

I thus arbitrarily picked having a yearly income of S$100k, which meant a target of S$3.0m at age 65.

3. A dollar today isn't the same as a dollar tomorrow

At the age of 25, a person would still have 40 years to go and assuming an inflation of 3% per year, he would need an even bigger sum of S$9.78m at 65! 

We also have to note that at the age of 65 we will still have to put a portion of the sum into investment and FDs to offset inflation and maintain a constant cashflow of equivalent value.

4. 5 Year Plan

Faced with having to build up such a sizeable sum, the next logical thing to do is to see how far your income can take you. As it gets hard to predict your salary many years down the road, i consider a 5 year projection feasible (like the old Soviet 5 year plans).

Let's assume a person called John has a salary of S$3k per month at 25. To be on the conservative side, i discounted the CPF contribution and deducted S$50 for tax purposes to get S$2.35k.

To continue, John works in the same firm from 25 - 30 and gets a 2 month bonus every year. He also gets a 3% annual increment, except at 27 and 29 where he gets promoted and gets an 8% increment instead. 

5. Savings/Expenditure/Investment

Once you project your salary you need set goals on how much you will spend, invest and save and most importantly be realistic about it.

John being in his 20s will most likely spend on food, entertainment, utilities and travelling. He also makes an occasional splurge to reward himself for hardwork. As he only makes S$2.35k after CPF, he spends 60% of his pay and tries his best to invest 30% and save the remaining 10%.

6. Investment return spread
You next need to target an achievable investment return over the next 5 years based on your own abilities and track record. I stress that it needs to be achievable so that in the event you outperform the yearly target, you will be encouraged to do even better the next year and ultimately make returns that exceed expectation over the 5 year period.

Once, you have a number in mind, whether its 5%, 15%, or better than Warren Buffet's 22% return, you next need to do an investment return spread which will clearly define your yearly goals.

While John has a degree in finance along withsome practical experience in investing, he feels that his investment skills can improve further and sets a modest target of 12%, just slightly above the annualised long term market return of about 10%. He also sets the spread range from 4% to 15% with the rationale as follows:

7. The 5 year plan

With the income projected and investment targets set, we will now have to combine them both together and add in 10% yearly savings to obtain Year end TNW figures that will serve as your financial guide over the next 5 years. Of course, we will also have to differentiate the TNW at each level of invest returns. The following shows the 5 year plan at each level of John's spread:

If John's expenditure ratio remains the same over the next 5 years, he will have obtained a minimum S$100k TNW at an annual investment return of 4% (Not including CPF).

While this may seem like a large sum to some, it may be like pocket change to others. However, the point here is not to duplicate John's plan but to create your own based on your own expectations and abilities.

8. The Grand Plan

Is a 5 year plan enough? Of course it's good to have a medium term target. But we do want to focus on the long term retirement target and as such, we will need to incorporate this 5 year plan into a bigger scheme - The Grand Plan.

As you can see John's grand plan to obtain the ultimate goal of S$9.79m at retirement is still not planned out fully yet. This doesn't mean that it should be left uncompleted. As John progresses in his investment journey, he will get new ideas, better estimates that will contribute to the model.

9. What's next?

While retirement may be a good 40 years away for some of us, a long term model, despite its inherent flaws, will force us to think and plan ahead for different periods of our lives. In the process of doing so, we will figure out what we want. It is really essentially a self discovery thing as you go through your dreams, put it down in paper and finally into numbers. This plan will sets a platform for you to achieve those targets and guide you along the way. It doesn't have to have the most precise numbers, but hey, at least you'll have a rough target that you know you put some good thought into and that you can work towards.

Geographic Impact on Peer Comparables

Geographic Impact on Peer Comparables

If we were to compare peers in the same industry across the globe, we would see a range of ratios (i.e. P/E etc). This does not necessarily mean that the a firm with a lower ratio in one country is of better value compared to a firm with a higher ratio in another country. 

One reason could be that most investors, especially retail investors, have a greater preference for investing in markets closer to where they are situated. For example, a middle class salaried man working in Singapore will more likely place his money in the Singapore exchange rather than say the NYSE. 

This is not surprising given the availability bias where the stocks have greater coverage with information easily coming across on a regular basis through the news, papers, or online articles.  Thus, with all the information on hand, the salaried man will naturally be more informed and deem himself more saavy on the local market, thereby making investment decisions from there. 

Illustration:

Genting Singapore P/E: 36.83x 

Wynn Macau Ltd P/E: 20.0x

Galaxy Entertainment Group P/E: 21.99x

If we consider that Genting Singapore (unlike its Macau peers) does not have the junket operation that mitigates casino losses and also that brings in clients, then why is this stock from a P/E point of view this stock so expensive? In my opinion, i guess it could be partially explained by this geographic bias where since Genting is pretty much the only gaming stock on the market, prices are supported by our local investors who want a gaming industry share in their portfolio but doesn't go about considering shares abroad. 

There's just a nagging feeling i get that the current market bull run is being powered by certain select sectors and not across the board. In my opinion, economic fundamentals still hasn't seen much improvement from last year and to name a few points off my head:

(1) The europe crisis is still going on

(2) America's slight recovery isn't worth mentioning

(3) The fed is still printing money

(4) And most importantly the recent fall in commodity prices

I could probably do some investigate work and elaborate more on those points, but for now my gut feeling will suffice.

Also, there's the old adage "Sell in May and go away" which has proven true for the last 2 years. I'm not saying that i put weight in the saying just based on those words, but with a correction technically and fundamentally due, it might be wise to just stick to the adage.

One of the stocks i'm considering an exit from is Singtel:

I had bought this stock at S$3.21 in September 2012 after Temasek had sold away their share. It's had a good run up since December. Last week, the stock had broke its resistance at S$3.66 and currently stands at S$3.76. I'll keep a look out for an opportunity to sell it and watch for a fall towards the resistance turned support.

Just a couple of other stocks i was looking at, with possible short-term rebound:

NOL

NOL is a stock that sees itself trading within a range of S$1.0 - S$1.23. I say S$1.23 because i do not think in the near future it will hit the recent high of  S$1.34. The downside is supported by Temasek and it's good long term prospects, while the upside is capped by losses experienced since 2010.

At any rate, the current price of S$1.11 might see some technical upside to S$1.16. While the transaction cost and risk doesn't seem to justify entering this stock just for this short term upside, long term investors can perhaps consider entering at this price and averaging down in the medium term.

Swiber

Swiber has seen decent growth since Aug 2011. The recent offshore play and increased revenue has also supported its gradual upward momentum. At face value, current price of S$0.60 seem like a good technical entry point.

Long term buyers should look into whether the growth can be sustained. 2 years of growth is a short time to make a call that it is a growth stock. The nature of the firm's earnings is lumpy after all, with revenue coming in inconsistently from different regions. This is just a downside risk to keep in mind. More research needs to be done for long term holding.

Raffles Education Corp Ltd

I had written a financial analysis on this company not too long ago in February 2013. It can be found here: Raffles Education FA. Was just re-looking at the chart today to update myself.

The stock broke support of S$0.36 earlier this month and currently stands at S$0.325.

Upon further scrutiny of the chart, i realised something and calculated that the last 3 major acquisitions of the stock (12-13/09/2013 & 26/12/2012) which had caused the stock to substantially rise, had a share-weighted average price of  S$0.332. 

Assuming that the major acquirers are still supporting the price, then the current price of S$0.325 might be a bargain given that we may expect support from them. Of course, this is just my speculation. Personally if i were to buy this stock, it would be a small portion of my portfolio, not exceeding 10%.

Property is on a high

I have been reading alot of smart articles lately about how the stock market is being overpriced and how REITs have run up so much lately they're not worth investing anymore. These are exceptions among the multitude of bullish articles we are reading and I call them 'smart' articles because they dare to hold the differential insight, the reality or fundamentals of the matter that everyone else is ignoring.

Property/Reits

Property and Reits have generally made quite a good run up over the past few years. If you're one of those that entered the market early, whether in the form of stocks or real property, I'd like to congratulate you as you're probably sitting on a healthy sum of profits or paper gains. However, I'd also like to earnestly advise you to keep in mind selling them or better yet, to err on the conservative side and sell them within the year. 

Some points to note:

• Over the last 2 years people have been flipping properties and making their money from it. Such activities have since cooled down. Their mindset may be that they have already made the money and don't want to re-invest into property which have already seen an increase in prices and have uncertain prospects.
• The government has introduced several rounds of cooling measures. These cooling  measures dampen prices but do not level the property cycle. They merely flatten it preventing a less drastic fall in prices when the down cycle occurs.
• Any Reits or Development stock chart will show an amazing run up.
• Every tom, dick and harry is talking about property. Suddenly everyone seem to think they are experts and are super bullish on property, saying just how it is good. There could be some irrational exuberance affecting the pricing of today's property.
• REITs themselves are aware of the bullish sentiment and are using this opportunity to raise huge sums of capital by timely listing on the exchange on by one. They are aware that they will miss out on obtaining such capital on less bullish times.
• Small developers are no longer as active as say 2 years ago. Small developers are firms that buy over small pockets of land and then redevelop them to sell them at a profit.  They largely depend on debt funding from the bank and make their margins from selling the properties subsequently repaying their debts. They are usually family run businesses who are into wealth preservation and are thus acutely sensitive to any price movements or events that may negatively impact their finances.  A slow down in their activities is a sign that they are holding a conservative view, in light of a possible slow down. As small developers do not have large sums of capital to tide them over bearish property cycles they will stop developing before the crash comes. As their projects typically take 1-3 years to complete this might indicate that they believe a property turn around is due over the next 3 years.

Conclusion: Property prices are on a higher end of the cycle now with potential downside possibly vastly outweighing potential upside.

  

From my point of view, the property market now is on a high end and it might be wiser for those who are invested to withdraw their profits. Just remember that if the market falls the value of these stocks or physical property can fall greatly, say by half in a very short time . Assuming that if the fall happens over 3 days, many retailer investors will not be able to react quickly and have the value of their holdings fall by 50%. This would mean for them to just break even, their accumulated gain over the run up would have to be 100%.

If you are already sitting on sizeable gains and potential upside isn't as high as it used to be, why not consider the danger that you might lose all your gains and  just sell it now for a healthy amount?

Weekly update

Recovery factors the market is looking at (By Mohamed El-Erian, Pimco)

• A fundamental recovery in terms of data i.e. housing, unemployment
• The US central bank's continued fiscal and monetary policy
• The support of other central banks in stimulating economic 
• Political resolve, despite noise, to kick the can down the road

Keep In View:

Swissco - Fundamentally sound, low leverage compared to peers. Volume however is low. Market traditionally underprices this stock. Oil & gas cyclical play and recent bull market has lifted it up. Penny typically crash when the market goes bad. 

Conservative entry = S$0.20

Lian Beng - 

From a technical perspective, Conservative entry = S$0.40 to ride on the rebound.

Long Term Investing

So maybe the question for real long term investing is, can i still be holding this company 30 years later??

Indo Agri

Palm oil stocks seem to be a laggard in the bull run of late, they fell on Italian election news and did not make a quick recovery. 

Indofood Agri:

Indo agri continued on its downtrend and at current price of S$1.19, it is approaching its support at S$1.14. At the start of the year they had expanded into the Brazil sugar business which isn't exactly a hot industry right now.

Some sugar facts:

• Prices are on a lower end which means revenue will be lower. 
• Since prices are low, acquiring sugar related assets are at a lower premium.
• A foray into sugar generally takes a few years to mature and contribute to the margins.
• Sugar prices are volatile, largely affected by the weather.

From my point of view, for a stock that is largely family controlled, it is rather active in its business expansion. This means that the family is interested in growing their wealth and not just sit on it which gives it room for further long term upside. 

On Palm oil, it is currently having an oversupply with lower margins. Some analyst seem to think the lower margins have been priced in. Well, my take is that it is partially priced in. Perhaps the larger institutional investors have trimmed their holdings in palm oil, but a fair number of retail investors might still be holding on with the high prices on 2011 in their minds and hoping for a recovery. The point here is that, while i believe it will recover in the long run, margins will continue to be low throughout this year and these retail investors might not have an investment horizon long enough to wait out the fall in margins, such that upon release of results for each quarter this year, they sell the stocks. 

In my opinion, palm oil and sugar are good fundamentals, and prices are at relative low now. Entering these stocks now with long investment horizons of say greater than 3 years will probably yield profits. In the short term however, prices will continue to erode with the gradual fall in margins. 

Next support seems to be at S$1.14, but those looking for long term buys should consider the approaching 3 year low of S$1.14. To end off, on a cautionary note, this stock registered a low around of S$0.45 in Jan 08. 

Market Timing

Commodity stocks Wilmar and NOL seem to be getting battered over the last 2 days.

Bloomberg came up with an article about palm oil prices which may give some insight into the palm oil profitability this year:

Bloomberg Palm oil

I'm glad i thought twice about buying more stocks a couple of weeks ago.

Wilmar

A mini head and shower has developed with Wilmar closing at S$3.5 today. A break below this level might see price fall to the next critical support at S$3.36. If it breaks this level then Wilmar is going downtrend again.

I will monitor over the next few days to see how it goes.

NOL

OCBC had given a hold call despite disappointing results, but mentioned that they are confident about the long term prospects, well me too. For now, there seems to be some support at the 100 day MA, support is at S$1.15.

I will monitor over the next few days to see how it goes.

I guess what i learn from this is market timing. While i may have had the fortune to spot the bottom in November, i need to be able to better identify exits. One key indicator is when analyst start to write really bullish reports and i start to question the sustainability. 

Note to myself- as i'm mostly invested in commodity stocks, these stocks move really quickly and with more impact than the general market. A proper exit strategy must be in placed with the discipline to follow through.

After we missed the peak it always feels like we just wanna hang on a little longer for more upside only to realise later, we missed it.

Bullish Trap

I have been very tempted by market news lately. It seems almost all news these days are of analyst making bullish calls, expecting a great year ahead and reporting money moving into the stock market. On the other hand, the market is due for a technical correction.

The question here is that will investor irrationality keep pushing up the stock market? I believe that most investors have already entered the market over the last 3 months and anyone entering the market now is just the few that has missed the boat and want to catch onto the last part. 

Caught up in the greed and exuberance of the market, i made some target prices for several stocks on Monday, on hindsight, i think i will put them on hold and wait over the next couple of weeks for more earning news. I have this feeling that the market will correct in 2 months and bottom out again in the May - June period. If i turn out wrong, at least i know i am just being rational. 

Just looking at the STI chart over the past 10 years has revealed that the index takes a longer time to accumulate (sometimes even years) than the time taken for a reversal. Better not to get sucked into the idea of potential gains at the expense of good value, after all, what really affects your bottom line is not small expenses like our day to day food, but poor investment decisions that wipe out up to 10 - 20% of your net worth in a matter of days. 

Portfolio restructure

Seems like the market is undergoing short term consolidation. Immediate support is at 20day MA with next support at 50 day MA. With all the optimism going on, i feel this short downtrend is only technical and will not fall below the 50 day. 

Everyone thinks the market bull is here to stay for 2013 and even continue to 2014, but i feel we should be cautiously and buying only into value.

Alot of optimism have been priced in lately. So i suspect that even with all the liquidity going around, the market uptrend for this year will not be stellar.

 Some target stocks i have in mind:

IndoAgri:

Technically seems to be converging, temporary support at S$1.28. Value buy at S$1.25.

Q3 financials revealed that balance sheet and income statement is okay. Don't think there will be much changes when results are released on 27th feb. Majority owner increased stake by 2% to 71%. Firm is owned largely by Salim family. Price should not drastically fall without any action from the family. Dividend is negligible though.

Noble:

I have been watching this stock over the past few months and noticed it finally went down. My inital target a few weeks back put target entry price at S$1.18. Support and current price seems to be established at 50 day MA (S$1.175). FY12 saw noble trading between the range of S$1.05 to S$1.355. 3 resistance levels to FY12 upside of S$1.355 with next support at S$1.1 and strong support at S$1.05. Putting this in % terms, from current price, potential max upside =  15.3%, potential downside = 11.9%. Entering now seems okay to me. Lowest analyst forecast stands at S$0.99.

Financials are out 28th Feb, 14 May, 8 Aug, 12 Nov. Overall FY12 Net income will probably be slightly better than FY11. High debt utilisation of approx USD4.5bn against market cap of 7.72bn (69.9%). Firm seems to be gearing up over the years. High intangible assets of USD820m. FY11 financials revealed that 22.6% of revenue was from agriculture (cotton, coffee, cocoa, soybean, oilseed, grain, sugar) and wheat, 63.8% from energy (coal) and 13.5% from metals, minerals and ores (iron ore). Firm does not produce the commodities, it is a supply chain manager. Let's do a little research given that 63.8% of its revenue is from Coal. Noble exports coal to China and the risks involve in this is that the Government is going in the renewable energy direction. It has also increased its coal production capacity (despite some accidents reported that shut down mines). I feel in the next 2-3 years demand should still be there, so that's okay. Smallish dividend yield of 1.74%.

NOL

Entered at 1.12. Current price seems to have consolidated at S$1.24. I remain bullish on its long term outlook. Many think that shipping is still facing an oversupply, however, i believed it has already been priced (NOL lowest point S$1.0). Firm is still not making profits but may just squeeze out a small turn around in FY13. Has exposure to China's recovery as it ploughs on the trans pacific route between USA and China. USA economy seems to be picking up lately too. Might pick up more of the stock at this price.

Wilmar
Entered at S$3.16, guess i missed the high of S$3.9. Support level of S$3.59 was tested on Friday. I suspect it will consolidate around this level given the U shaped recovery it exhibited earlier. Next support at S$3.4 (5.5% downside), next resistance at S$3.76 (4.7% upside). Smallish dividend yield of 1.7%.

I feel this stock has long run potential as well. Value is alright but given the price of S$3.59 i think i'll invest in the other 3 stocks for diversification benefits. The market might fall in the short run, but i believe over the next 3 to 12 months the stocks will be higher than the current price.

Raffles Global financial analysis

Everyone knows that the education business has alot of potential given that unlike 30 years or so ago, it is becoming a thing of common place. Moreover, as developing economies grow, more and more people will seek education. I was always on the look out for education stocks and another blog i read highlighted that it might be on the uptrend now so i decided to take a closer look at it.

Raffles global has been on the downtrend over the past 2 year and from a technical perspective has broken out of its descent.

Immediate support is at S$0.355 and resistance is at S$0.39. It seems to have formed higher lows, higher highs and also broken out of its descending trend. On a pessimistic side it may trade like in the range of September to November 2012 before breaking support, but on the flip side, with current market optimism, it may trend within the range or continue on its uptrend. Irregardless, i will monitor over the next week.

A closer analysis into the volume revealed that stock volume has been high since Sept 12 2012. This was when billionare Oei Hong Leong bought 10 million shares to increase his stakeholding to 4.86%. This had stimulated market interest in the stock, and thereafter with general market conditions improving, volume was maintained at a relatively higher level of above 1 million. Noted that that stock rose again from 0.31 to 0.34 in late December when the same billionare Oei Hong Leong bought the stocks. What's his deal in this, is he a speculator or an investor? The points at where he bought were generally low, a large sell off from him could trigger an equal fall. Dividend of this stock at current price stands at 2.2%.

I decided to check into the fundamentals to assess the feasibility of investing in this stock given i missed the recent bottoming out. After all, there's still some risk given that if market optimism stops, money from penny stocks might be pulled out.

FY 30 June 2012 financials were released on 24th August 2012.  Noted that the stock went on a downtrend from 0.33 to 0.275 (16.7%) over the August 24 - September 11 period after the report was released. In contrast the market moved downwards 1.37% during this same period, indicating that in the absence of large market movement, this stock will be affected by company financials.

FYE 30 June 2012 FSA highlights:

• Other operating income increased 2396% from S$5.7m to S$126m . Due largely to S$90.1m of government grants
• This is in contrast to actual Revenue which decreased  10% from S$146m to S$131m.
• Operating expenses increased from S$67.9m to S$120.1m, due to provisions for land restructuring, this is compensated by government grant of S$90.1m. There is no actual gain given that the grants were meant to offset costs.
• NPAT decreased  to S$64.7m from S$19.28m despite large increase in core operating income.
• Noted that NPAT would have been worse if not for the currency gain of S$18.5m (FY11: S$32.0m). Poor FX control?
• 
  

Notes:

Lower enrolments in PRC’s Private Education System (“PES”) institutions due to:

a. the continuing decline in university-going students as a result of demographic changes because of the one-child policy; 

b. increase in the overall acceptance rate into National Education System (“NES”) universities and institutions; and

c. increasing number of students choosing to pursue higher education overseas.

Seems like the private education business in china doesn't seem to have alot of prospects. 60.8% of their business is in North Asia.

Group strategy is to expand in the growing ASEAN region and implement new strategies for the PRC region. Didn't really say what these strategies are. Makes you wonder why they would enter the PRC market in the first place given its demographics. 

This stock was worth S$9 in 2008 when financials were good. The financials since then hasn't deterioration proportionately meaning that the stock could have lost its original optimism priced in but could be reflect some value given its cheap price now. Given such a high price previously, I suspect if the market continues on an uptrend, this stock will rise despite it not being fundamentally great.

The question here to ask is that can this stock make a fundamental turn around? Such that you hold it for a few years. If not, is a trading buy, where you hold it for a few months more suitable? 

This stock in reality is still on a fundamental downtrend and will fall again when the next financials are release. Given today's relatively low price of S$0.38 and dividend yield of 2.2%, i might cautiously enter this stock  and monitor firm related news. It might take some averaging down and long run holding, but i believe given that it is in the business of education, there is some long run potential the stock might go up to high levels again in future, that is if management is success in turning around this firm over the next few years.