Investing In An Unwilling Bull Market
By David Kuo | June 5, 2013
Dear Foolish readers,
Gosh! What a rollercoaster ride it has been for investors in the last month or so. Just when the Straits Times Index was within touching distance of 3,500 points, Singapore's benchmark index turned turtle and started heading lower.
Truth is, the bull market that started back in 2009 is probably one of the weirdest rising markets I have seen. Since March 2009, the Straits Times Index has more than doubled from a low of 1,456 points to almost 3,300 points today.
Strange But True
But here's the thing - the rise has been achieved against a backdrop of, what I consider to be, less-than-favourable economic news.
Generally, we tend to find that positive economic news helps to drive stock markets higher. That's because when times are good, companies tend to make more profits. Conversely, negative news about the economy tends to send stock markets lower. That's because companies might find it harder to make higher profits when times are tough.
But not this time around.
What we find this time is that positive news about the economy can send share prices lower, while any negative news seems to send the market into raptures of delight. And we can thank Ben Bernanke, the Federal Reserve chief, for the bizarre performance of share prices in this unwilling bull market.
Thing is Ben Bernanke pledged three years ago to safeguard a US recovery, come what may. That promise resulted in the US central bank pumping billions into the American economy - $85 billion every month to be precise.
Thankfully, for him as well as for us, there are signs that monetary easing is working. American property prices are starting to rise, US unemployment is gradually heading lower and American consumers are starting to feel more confident.
Those indicators should be seen as positives for the stock market around the world. After all, higher US property prices could mean that American homeowners should start to feel wealthier. Meanwhile, more American people in work coupled with higher consumer confidence should mean more shoppers heading onto US Main Streets to whip out their wallets and cheque books to spend money.
On Your Bike
But here's the rub. It also means that the US central bank may not need to pump as much money into the economy and that is what is spooking the market.
On a CNBC programme a couple of weeks ago, I compared Ben Bernanke's monetary easing to parents who teach their children to ride a bicycle for the first time with the help of stabilisers.
The stabilisers help to keep the bicycle upright. But at some point, the stabilisers will need to come off. The parent knows that. The child knows that too. But it is nevertheless a scary experience for both the parent and the child when the time arrives to remove the stabilisers.
Ben Bernanke faces a similar dilemma. He will need to decide the right time to remove the economic stabilisers that would not jeopardise all the hard work that has gone into helping the US economy recover.
But if we think about it logically, the time when the Federal Reserve starts to taper monetary easing should be seen a time for celebration and not a time for despondency. That's because the US has finally learnt how to ride a bicycle without falling off.
Where Next For Shares
Interestingly from an investor's perspective, the rise in shares over the last four years has mainly been driven by income-producing, high-yielding, blue-chip shares, as investors look for lower-risk alternatives to traditional savings accounts.
Normally though, these types of shares tend to fair less well than cyclical shares in a bull market. But not in this bull market.
For me, this suggests that the stock market may still have some way to go as the next leg of the bull market may be driven by cyclical shares. These are companies that tend to fair well when economies start to grow.
But whether you are an income investor, a value investor or a growth investor, the key to successful investing is to continually look for undervalued shares that will improve your wealth over time.
So go back and look again at those shares that you wanted to buy but never did.
Warren Buffett once said: "You don't drive a truck that weighs 9,900 pounds across a bridge that says 'Limit 10,000 pounds' because you can't be that sure. If you see something like that, go a little further down the road and find one that says, 'Limit 20,000 pounds.' That's the one you drive across."
Remember, a market sell-off can be a great opportunity to buy the shares you always wanted to own but couldn't because they were too expensive. So now that they are cheaper, you should be able to drive across that 'investing bridge' with a greater margin of safety.
Foolish Best,
David Kuo
Director, Motley Fool Singapore
DJ downs another 200 points. Yesterday again REITs are in the sea of Red.
Look like we’re in the storm. Keep clean of high gearing stocks.
Anyway I'm well prepare.
If you have a million dollars, 10 million dollars, hundred million dollars or your CPF nest egg, how are you going to protect your wealth or assets?
I’m listing some common options for discussion and forget about Gold.
1) Deposited into bank and receive peanuts.
2) Unit Trust
3) Property – This is simple way and many are into property. The downside is government intervention.
4) Equities – This is the topic which may interest most of us.
Equities – Equities investment can be risky depend on how you invest it. Many have been treating share market like casino. In fact there are people leaving their CPF money with CPF even though they’re eligible to withdraw out. Why?
How are we going to protect our capital and live on passive income and enjoy life and at the same time grow our asset?
The key is managing risks. How are we manage the risk rather than avoid it?
It is very foolish to speculating on stocks and shares. Buying and selling shares daily or weekly and dreaming and cheering is not the answer. Why waste our times looking at the screen? Why be tempted by making only small dollars and miss out ripping big dollars?
The temptation of cashing out is always real. We should enjoy life by growing our money tree and enjoy the fruits.
My stocks pick is base on buying the right stocks and manage the risk. Important is stocks pick wisely and manage the risk wisely. Review it from time to time.
By following godly principle & the principle of capital protection and manage the risks well, I was richly rewarded. I will share how I make my stocks pick and my experience in the later posting.
STI's gain this year almost wipe out in 2 weeks. The market correction began after Bernanke hinted that QE3 could be coming to an end.
There are 3 big risks if Bernanke withdraw liquidity:
1. Hight borrowing cost
2. Huge swings in financial markets
3. Lower economy growth
It is best to keep clear of REITs which capitalized on debt to increase yield.
Commodities are are highly leverage stocks.
Companies with low margin return, profit can easily wipe out or de-rail by:
Increase in interest rate.
Increase in labour cost.
increase raw materials cost.
Currency risks if not hatched.
Best to source for companies with low debt, high cash flow for opportunities. Best find companies that are able to generate positive cash, high margin business and resilience in nature.
Increase our cash holding for buying opportunities coming our way.
Stock markets usually dislike uncertainties. My view for the stock market now is:
The down-side is much higher than the upside.
I will not be surprise the bull will be back again Bernanke & team make the decision on QE3.
My pofolios are basically structure on capital protection & passive income. Capital gain is therefore a resultant & bonus to me. Important is not working for the money but money working for me. I'm in the market to buy business & not to speculate in stocks & shares. These will help me to overcome the temptation of make small $ & being side-track or influence by daily price fluctuation.
My pofolios are divided into 3 groups.
1st Group Under Value properties. these are Bonvest, Standford Land, Roxy Pacific, Hiap Hoe, Superbowl & Chip Eng Seng.
Bonvest - During early 2009 Bonvest market cap. was below $200 million which is unbelivable for a company holding own two D9 properties with land area of more than 500k sq ft/ plot ratio. It's my core holding average about 50 cts. - I sold half of the holding at about $1.10 recently.
Standford Land dividend of at more than 5%, with many properties down-under.
HH, Superbowl, Roxy Pacific & CES. These 2nd undervalue properties which are hightlightrd by Sumer. I have gradually sold off nearly all because of Goverment properties control measures,I see not much upside potential unless companies unlock values.
2nd Group high yield dividend - REITs
First REIT which I have accumulate in 2009 as my core holding average price 50 cts, yield of about 15%. Previously First REIT was the worse performance REIT, probably many think revenue was in rupiah. It was top performance REITs last few years.
I started to accumulate Cambridge 2 years back average below 50 cts, yield of about 10% another core stock. I have sold off almost all these 2 stocks.
3rd Groups - Potential Growth Stocks:
Thomson Med after IPO bought at more than 20 cts. One of my earlier core holding. Reason good dividend, resilience business, able to gain market shares, cash-flow positive. Bought over by Peter Lim at $1.75.
Biosensors accumulated early 2009, one of my core stock, average about 50 cts. Sold all at about $1.40.
Cordlife only last year average about 50 cts. Sold some excess shares lately, the rest holding as core stock.
Straco only few months ago at 30 cts, will accumulate gradually.
I have learn from 2008 financial crisis, very important to manage risks. Previously just like Greenrockie, when crisis hit only to lost back most of the profit.
These 4 to 5 years I'm able to invest successfully. I attributed this to godly & wise values I have learned. That is why I'm able feel the peace & overcome greed
and not tempted to take per-mature profit & to take unnessary risks.
Currently my cash holding on the high-side about 55%. I'm well prepare to take advantage of the market this market correction.
Successful investing is about analyzing probabilities not possibilities.
CHASING yield is akin to riding a tiger, says veteran fund manager Angus Tulloch - at some point it will turn around and bite you.
Focus instead on careful stock picking. This will stand you in good stead even as interest rates rise, advises the head of Asia-Pacific ex-Japan equities for First State Stewart.
1. How many investors have ever hold onto a growth & profitable companies for 5 to 10 years?
2. Did we ever hold onto a company & see it's share price losing it value each years then buy more and more to average down so that it will break even faster and sell off once it break even for some profit?
