Archive for 2016

Irrational behaviour: being happy when stock prices rise

Friday 15 July 2016 23:03
Posted by owq 0 comments
As observed on HardwareZone SSI. Why are people so happy when stocks are getting more expensive? In a bear market, you're going to earn more money! As you reinvest more dividends or other income, you compound your capital at a cheaper rate. Of course it's a different story if you urgently need to liquidate. Then you shouldn't be buying stocks?!

In a bear market, usually pessimism will cause stock prices to depress more than their fundamentals deserve. I mean, a couple of quarters of 20% reduction in earnings simply shouldn't deserve a >20% reduction in price! After all, you're paying for the cash flows of the company in the long term.

So stay invested and don't market time, because eventually reversion to the mean will occur, and you don't know when it will occur.

Value stock vs growth stock: are they really different?

Monday 11 July 2016 09:48
Posted by owq 0 comments

From Investopedia:
"A value stock is a security trading at a lower price than how the company’s performance may otherwise indicate."
"A growth stock is a share in a company whose earnings are expected to grow at an above-average rate relative to the market."
 I have always thought that "value stock" and "growth stock" don't really mean anything. All I am concerned with is that I'm paying less for the value that I get. If I'm paying less for the expected growth of a company, then it is a value stock. Of course, it's hard to predict the future, so it's good to be conservative in case you're wrong.

Price is what you pay, value is what you get. And value is a function of all the cash flows the company will give in the future, and that is affected by growth. However, it is important to see things on a per-share basis, as earnings may shrink on a company level but increase on a share level. So rather than look at growth on a company level, we should look at growth on a share level.

In the end, it is really just buy low and sell high. A simple concept, but yet hard to act on due to our human biases.

China Merchant Pacific Holdings takeover

Sunday 29 May 2016 17:59
Posted by owq 0 comments
Yet another one of my stocks getting delisted. Unfortunately the offer is at a discount to my cost. I suppose this is why buying at a good discount to NAV is prudent for stocks like these. I bought it at NAV last year, and it dropped due to acquisitions. Well, at least I managed to sell it at $1.03 somehow, $0.01 above the offer price. I find the offer a bit undervalued, but at least it's not as bad as the Indiabulls saga. That one is really super lowball.

Anyway, with this unlocking of capital, I put my money on Silverlake Axis. The share price dropped to a reasonable level. I think around 13-15 PE is quite reasonable for such a company. Their track record with acquisitions seem to be quite okay, and I look forward to see what they can do with Sungard Ambit.

Select Group takeover

Friday 25 March 2016 12:52
Posted by owq 0 comments
I bought Select at around the beginning of the year, hoping to enjoy its wonderful cash flows for years down the road. Alas, it was not to be. Out of the blue, a trading halt was called, leaving me wondering whether it was going to be good or bad news. Soon the cash offer came. $0.525 a share.

It is close to a 30% gain on my cost, but I'm not sure whether to be happy or sad. At $0.525, the trailing FY15 PE is 5.25/5.02 = 10.46. Of course, this takes into account the government grants, but I still think the business is worth more than that. It is quite a high ROE business with room for growth. I would say that the PE firm got it for quite a bargain. Of course they would only highlight that 0.525 gives a high premium over the tangible assets.

Anyway, as a minority investor I can only look, suck thumb and just sell. Don't think there's any good alternative to Select in SGX. I have been looking at Neo Group for a long time, but don't think it's value for money right now. So for the time being, I put some of the proceeds into Design Studio. The rest I'm thinking of using for my REIT allocation. Looking at First REIT (which I sold earlier) as well as Frasers Comm Trust.

Is SGX really a monopoly?

Friday 18 March 2016 21:09
Posted by owq 0 comments
I have seen people talking about buying SGX because it's a monopoly. Is it really? Sure, if we're talking about flotation in Singapore only. The market is so much bigger than that. SGX is competing against the world for listings and derivatives. And companies have many other ways to raise capital. Local companies can choose to list in other countries, a popular destination being ASX.

However, is it a good company? I haven't done much research on it, but it definitely has awesome operating metrics with high ROE and margins. Is it selling at a good price? That I'm not so sure. I think there are better alternatives at the moment.

Free lunch in investing

Tuesday 23 February 2016 20:13
Posted by owq 0 comments
Recently a reader of AK's blog complained to him:
Straight to the point. I am very disappointed in you.  
I have been following your blog for more than a year and followed some of your calls, most of them bad. Now you go MIA.

http://singaporeanstocksinvestor.blogspot.sg/2016/02/reader-is-disappointed-and-ak-tries-to.html 
I don't know whether to laugh or cry. The reader expects a free lunch in investing? Furthermore he only invested for about a year or so, judging by his comments. In a bear market, obviously stocks will drop. And investing with a 1 year horizon? Don't expect to make money, buddy.

People who don't understand stocks shouldn't buy stocks.

The great 2016 sale

Sunday 10 January 2016 18:12
Posted by owq 0 comments
I look forward to prolonged depressed share prices, as I will be a net buyer of stocks. One thing I realised recently is that market prices tend to overreact (in both ways). Unless earnings get hit by 10% permanently, the share price shouldn't drop by 10% (assuming it was at intrinsic value).

For example Keppel Corp. It is interesting how some people expect it to drop to $4 or even $3. While not impossible, it is highly unlikely. At that price, Keppel Corp will be worth less than what it paid Keppel Land for (which IMO, was not a big premium).

Anyway, I recently bought First REIT and M1, which are finally at levels that I find attractive. Actually I was queuing for Select, Starburst and Accordia, but bid-ask spread for Select and Starburst is so high that I gave up. I think other than the counterparty/delisting risk of First REIT, it is pretty much a no brainer at this price... The leases are very attractively structured and priced.

Do US indices affect STI?

Saturday 2 January 2016 13:42
Posted by owq 0 comments
Well, it's a popular notion on HWZ forums that STI follows the US stock market, and people like to predict the STI movement based on the last closing of the US indices. So I tested that with data from Yahoo Finance ranging from Dec 2010 to Dec 2015, using Spearman's correlation between ES3 and a number of indices.

Name Symbol Spearman Correlation
Lyxor AsiaIT US$ NF4.SI 0.948438693
Lyxor World US$ H1P.SI 0.922792769
LYXOR Asia EX US$ G1K.SI 0.914623755
Lyxor AsiaCS US$ NF6.SI 0.902705567
Lyxor HSI US$ A9B.SI 0.879719834
Lyxor USDJIA US$ JC6.SI 0.870809236
Lyxor Asia US$ P60.SI 0.846190831
Lyxor Japan US$ CW4.SI 0.836158667
Lyxor Nasdaq US$ H1Q.SI 0.787960823
Lyxor Europe US$ JC5.SI 0.762374024
Lyxor AsiaRE US$ MT7.SI 0.75007067
Lyxor Taiwan US$ A9A.SI 0.733011747
Lyxor ThaiSET US$ P2P.SI 0.638932037
Lyxor MSIndia US$ G1N.SI 0.605130262
Lyxor ChinaH US$ P58.SI 0.528158153
Lyxor MAL US$ G1M.SI 0.487952323
Lyxor Korea US$ AO9.SI 0.418580403
Lyxor EM Mkt US$ H1N.SI 0.27739576
Lyxor Indonesia US$ P2Q.SI 0.232005556
Lyxor LATAM US$ H1O.SI -0.450758975
Lyxor Russia US$ JC7.SI -0.547590704
Lyxor Cmdty US$ A0W.SI -0.657178453
Lyxor CRBxEny US$ G1O.SI -0.665450671

So seems that the correlation with Nasdaq is 0.788, which is pretty high. Note some limitations: 1. no adjustments for currency, 2. Lyxor ETFs are not that liquid here, 3. Short timeframe.