Sunday, October 19, 2014

Protect your profits with a trailing stop loss?

After failing to achieve supernormal returns on the sale of Action Asia, Biosensors and FJ Benjamin, I decided to create a simple trailing stop loss Excel worksheet. What I discovered surprised me or may mean I just need to improve my Excel skills. A trailing stop loss combines for lack of a better word, three "things" we know about the stock investments. 

Firstly, we have to cut loss mechanically because our emotions makes it difficult. Secondly, while we should let our winners run, we do not know how long before they start losing steam and start declining in price. Lastly, we can only identify a peak (or bottom) in stock prices or indices only after the fact.

Using weekly historical prices, I setup my Excel as follows. 

Friday, October 17, 2014

The shrinking of balls

After getting fully vested in stocks on 13 October, the last thing I wanted to see was a stock market meltdown. The American stock market fell steeply this week and this spread globally, with the STI falling 44 points on 16 October. Given that my basket of stocks is mainly defensive,  I did not expect to be hurt badly but I was surprised to see Petra post a one day fall of 35 cents, wiping out SGD 2,500 in my portfolio's value.

That said, the timing of my recent acquisition was premised on this article by Kenneth Fisher, whom I turn to for indicators. It was written in May and argued then that the fourth quarter should see some gains amid volatility. He has been correct on the volatility part. Reading Fisher's piece that reinforced my impulse and convictions, and so I pulled the trigger on the F&N purchase

What ever left needed to be convinced about F&N, was in the form of a Motley Fool article. To a large extent, F&N replaces Etika (now Envictus) in my portfolio as the latter has already disposed of its dairy business. I am not convinced that there will be future growth in Envictus' remaining business given that they have been weak traditionally. Management has hinted at the possibility of property development, but I am skeptical of Malaysia property. I am just waiting for an opportunity to offload the stock. 

I've also been reading bad things about Super Group to the extent I am regretting my purchase, which was done pre-bonus. The Super buy was done at relative high average prices and forms the biggest chunk of stocks by original value. The chronic weakness of the stock has left a gut wrenching feel to my stomach. Nevertheless, I will probably sit on this investment for a while more. If the market improves, and the stock does not move in the same manner, I will probably let Super Group go. Two more stocks on the sell list are GMG Global and Envictus but that is for another time. 

Tuesday, October 14, 2014

Fully invested with F&N buy

I am typing this on my mobile because typing on my PC feels like working. After the many recent sales and purchases, I have utilised all the special dividend distributed by Etika and I am now fully invested.  My latest purchase yesterday was F&N. I may cash out on Etika since I am.overweight the basic consumer sector. More details to follow.

Monday, October 6, 2014

Colex: Collecting is easy, selling will be hard

Over three separate transaction, I picked up a total of 80 lots of Colex. I did this after freeing up some cash towards the end of the quarter with the tidying up of the portfolio. The main reason for me collecting shares of collect was that it had been on my watchlist since 2009 and it was one of the shares that had yet risen much since then, I thought. As per Bloomberg, Colex's share price has risen from a bottom of SGD 0.08 three years ago to its current price of SGD 0.29. To a large part, due to the lack of trading volume for this share, I believe I contributed to most of the price increases the start of October.

The business model for Colex is straight forward - provide waste management for the West side of Singapore mainly through fixed long term contracts. As long as Singapore's population grows, particularly in the West side, earnings will grow in tandem, assuming cost remains the same. The main reason for cost escalation will be manpower costs although fixed capital for the trucks will weigh down future earnings.

Wilmar: Why I Lost Money and Regretted

The chart above shows why Wilmar is currently languishing at just above $3 when at its peak in 2010, it was worth $7. After a strong run up, crude palm oil prices have come down sharply. As per the index, the CPO prices were at the 1,300 level in February 2011, but the latest end-September index is 710. The supply of CPO has adjusted to demand and prices hence have collapsed and producers such as Wilmar have a difficult time improving margins. Other producers such as First Resources seem to have de-trended from CPO price levels, but I still think the fundamentals are still weak at the moment. 

I took a big hit on my investment in Wilmar and to a large extent I regretted. This is because I bought the stock because it looked like a discount from its old days. However, the old days, like the VHS, never did come back. That is why good thinking processes must be in place to make sure silly purchases like this are kept to the minimum. Good processes such as understanding the industry's and company's fundamentals are crucial to protect profits.