Week 6

Well. The STI corrected to below the 2,700 mark. I shan't talk about the portfolio at the moment, maybe next week when more results are out.

I am not sure if it is a good thing, but one of the counters I used to hold, China Milk Products, does not seem to have a good quarter again. Those still invested should try to look at its report quarterly. It seems that there has been further downwards adjustment to its inventories. Also the sales of milk are still facing teething problems. I guess with the shift to producing raw milk rather than semen, the high margins will slowly fade away. Interestingly, there is little discussion why there is a shift towards milk.

October ended slightly lower than the previous month. Against the previous three months, the index also ended slightly lower in October. With October out of the way, I think we can look forward to a decent rally through the end of the year.

GMG Global: All Spin No Action (yet?)

GMG Global, which i have 20 lots in, announced its 3Q09 results. it is in the favourite colour of Ris Low - red - for 9M09. this is unsurprising as the price of rubber has remained deflated compared to last year despite the slight rebound.

The stock price has been staying at 10-10.5 cents for the longest times. it is not that i think GMG is a lousy company. I think with sinochem as its substantial shareholder, there should not be any problem getting into markets in PRC or Africa, or for the matter the grander scheme of the PRC government resource grab.

what irks me is that the m&a has been touted as a buying point of the company to its literal death. if you do notice, companies that actually issue rights will say that it is for acquisition purposes only one time - the time when it issues the cash call. GMG on the other hand has reminded us again that it is still on the acquisition trail in its latest financial result.

I am not saying that such acquisitions won't happen. but by touting the fact that it might acquire some company twice in a row might show that it has a weak hand. Anecdotally, companies are usually hush when it comes to m&a. they tend to the let the share price do the talking and maybe let SGX query.

Either GMG's PR firm has run out of material to write for the press release or that the company is really negotiating to acquire a company, the smart money is that the cash call was meant to shore up balance sheet.

All the cash in GMG coffers comes mainly from the rights issue. for the same reason, i highly doubt that the company will announce any dividend for the coming full year. it will be a really long time for rubber prices to revert to last year high's. use oil prices as a guide in general. if you cannot stay with GMG for the long run, it is time to start looking elsewhere.

Stuck!

The STI rose 0.27%, one of the smallest gains so far. the portfolio did worse falling 1.37%. Wall Street suffered a correction on Friday and this might mean a less than ideal start to next week. 2,700 seem like the resting place in the meanwhile. i hope i don't speak too soon though.

my cousin asked me what i thought about Ezra Holding because she is considering of getting following there contract wins. i did not tell her much except show her the 5-year chart and told her that they have that "Ice Maiden" project which they acquired at distressed levels. the latter might contribute to the earnings but when, i do not know.

my dad was perhaps very wise. he said that how much higher can it go considering everyone has heard about it. a watched takes some time to rise and there is always the risk that you are the greater fool. hence, when you buy a stock because it is in the mainstream press, there is that chance you are over paying for it, making inferior returns. try to do your own stock scans looking out for great businesses to hold for 1-year out.

Also, I tried my best not to look at the stock quotes but instead kept my eyes peeled on filings on the SGX website. I feel better not looking at the prices because i get less angsty or excited. i think i will try to do that for the whole of next week, looking only at the end of friday so to update. you should try to do that too.

i think i might to suss out any good ideas.

Coming Soon

will post my portfolio update tomorrow because the brokerage is undergoing maintenance till then. and so the dust has settled on transcu and the price is close to $0.14 cents. with the notes now cancelled, dilution as a result of conversion seems likely as hopefully the company can find better sources of financing.

I think jamie from the business times wrote a followup on the company last friday and there, she said that the volatility of the stock has not led to a query on trading by the SGX. you might think the question she asked was naive, but i think she meant to say it ironically. so it is always a case of buyer beware in the marker when it comes to anything. remember, similar to the casino, the banker runs the gambling tables so that so one makes money of another person but not the banker. in the long run, the house always wins.

transcu has also stated that it makes money from cosmetics and green energy. but the last i checked, the two segments are not able to provide the necessary income to offset the research and development expenses. moreover, I am also unconvinced transcu can implement a successful sales strategy for its lidocaine patch. mind you, this product is still in the midst of testing and it has not begun the rigorous phase three yet. that is going to be more money burning. how it will keep afloat do make a guess. you have been warned.

Some Negative Comments

I have been trying my best not to log into my online brokerage and look at stock quotes. Now, i am relying wholly on the noise coming out of the forum as well as the filings on the SGX. i believe this will free up more time as opposed to constantly staring at the screen.

the negative comments i would like to make first is about Transcu Group. i had indirect interest in the company but i told my friend to sell it off because of the notes conversion. the main problem with Transcu is its $80m equity linked notes.

i have posted something on it in the forum and the gist is that Transcu is obligated to issue shares to the subscriber Advance Opportunities Fund (the person who loan transcu money) shares at a deep discount. for the past few weeks the fund has been converting those notes.

things changed recently when transcu announce that it is appointing DMG & Partners to find a subscriber for 320m placement shares. witness from the day of that announcement, the shares crept steadily from $0.115 to $0.20. that was till tomorrow.

My guess is as good as yours. but i think once placement shares are out and the 2nd sell down has commenced. The first sell down was from 23.5 cents to 11.5cents. However, it is important to note that Transcu has made amendments to the terms of the notes. mainly, Transcu has allowed itself some leeway in deciding whether to issue notes for the monies own. and in the even that transcu does not issue those notes, does note constitute a default in payment.

there are those lucky to have caught it on its way down and on the rise up to make a lot of money. however, i would advise those new to this counter to avoid it and not touch it even with a barge pole. its finances are in terrible shape as you can see it is trying all manner to obtain financing. Furthermore, it is still in the midst of obtaining approval for its products and the bottom line impact will not be obvious till maybe 2011. This is a stock where the retail investor is severely disadvantaged and even one brokerage placed it on its restricted list due to its huge volatility. do not pick pennies in front of a steam roller. you have been warned.

Dear Sumiko Tan

I read about your plight on your latest Sunday Times column. Sometimes it is terrible when your company tells you that there is a pay cut due to the "recession" and the next moment you realize that they are declaring a special dividend of 9 cents for their stock.

I would advise you to find your colleague at the Business Times and talk to them about investing in shares. Teh Hooi Ling is a good source of information cause after all she did write 4 books on how to invest called "show me the money". I am pretty sure you can get heavily discounted copies of her book which is published by Rank Books. if you think that buying her book is not a meaningful investment, you could access the company's data base and print all her previous columns. i mean, if SPH cut your pay, that does not mean you can't print enough of her columns and bind it into a book and label it "research expenses".

Also, if you wait a while more, maybe SPH would have developed the free retail portal, as part of their collaboration with SGX. Hopefully, by developing SGX's website to incorporate exisitng SPH portals such as AsiaOne and ShareInvestor, does not mean more work for the people over there at BT (those cunning bosses).

Personally, is ShareInvestor working out? Because I read that SPH put in $19m to buy it from The Lexicon Group and Michael Leong. The last i heard, the lexicon group is going into the korean disco business while michael leong went on to write a book about making $1,000,000 from stocks. maybe you can ask him for a copy of the book too.

the STI has hit 2,700 recently, maybe you could try to buy into DBS's STI ETF rather than individual stocks. if the market goes on right this year, you could be looking at returns on your capital better than fixed deposits of lehman minibonds. the latter required class actions and spending sometime at the hot and humid hong lim park before getting the returns.

but if you do intend to buy stocks the same way you select your wardrobe then there is still upside for many of the local stocks. as for stock ideas, you can visit Steven Lim's website, where the very talented gentleman has a segment dedicated to stock picks. maybe you can find out where is he going to talent scout or pluck eyebrows. but i pray that he does not strip into his yellow trunks and do that act he so oftens pulls out.

wishing you pleasant week ahead.

a follower of your column.

Maybe Sometimes Love Just Aint Enough

Went to Smart Expo at Suntec last weekend. I heard some get rich stories about how poor people made it good through property investment and it made me sick. Nonetheless, I took the opportunity to grab some books as MPH had a booth there and had a 20% discount. Bought close to $100 worth of books. Teh Hooi Ling's "Show Me The Money Vol 1. & 2.", Peter Lynch's "One Up On Wall Street" and Jeremy Seigel's "Stocks For The Long Run" are on my book shelf now.

The STI broke through the 2,700 levels along with Dow breaking 10,000 and the HSI surmounting 22,000. The STI gained 2.09% while my portfolio gained 4.74%. Most of the portfoliogains were due to Biosensors crazy surge on Friday, while Asiatic edged up slightly on news that it was venturing into green energy.

Read some crazy but true things on the CNA forum. There was this one guy who shared how he lost and gained back his fortune from the stock market. More importantly, he said this, "in the bull run, TA is always correct." In fact, buy and hold can help you make more money than through a short term trading system, due to transaction costs. However I would like to clarify is that most of the studies advising against short term strategies come from the US where transaction costs are minimal but there are taxes on capital gains.

Another significant difference is that the studies done by Jeremy Seigel, support the case that stocks are good for the long run provided that the dividends are reinvested. In Singapore, I am aware that there is a share builder programme but that is mainly reserved for blue chip stocks. otherwise, i am not sure if there is a way whereby dividends can be reinvested meaningfully in Singapore.

One thing I also want to share with people who still believe in the "buy and hold" strategy, something I read from the "Stocks for the Long Run" book. That while you might be able to reap in great returns if you sell at peaks and bought in at bottoms, it is close to impossible to do so because professionals have tried to do so and fail. Rather, it is better to buy and hold, with additional buying in when the market is at the bottom, as bottoms can be roughly approximated. As a rough guide, you can start buying starts which have been battered but are fundamentally good, about 18 months after the peak.

The second half of October looks menancing as history's greatest falls occur there. If you are worried, you can start doing you homework now and create a shortlist of stocks you wish to buy in Novemeber when things get clearer. While the upside is not as great as 4 months back, current media headlines suggest that the strength of the stock market has yet to permeate the general population. People are still fearful and thats a good sign.

All That Glitters. Is It Gold (ETF)?

Very often, things have to be written on what is fashionable to stay on the radars of "netizens". And so, without being an exception, this writer concerns himself with the movement of gold prices, which have reach record highs in recent months.

As you can see, on a 1-month basis, the price of gold, as tracked by the Gold ETF, outperformed, the US Dollar, S&P500 and the FTSE All Shares.

On a 3-month basis however, Gold ETF lags behind both the local and the American stock market. What becomes clear at this point is that the US dollar has been weaking vis-a-vis Stocks and Gold (in the form of ETF).

As we know and have read, the weakening of the US dollar can be attributed to the de facto printing of money by the US Treasury, which has been issuing bonds to help stimulate the economy.

But wait. 1 year since the financial crisis unravelled in full force starting with the collapse of the Lehman Brothers, the STI outperformed the dollar, US stocks and Gold ETF.

From the chart, it can be seen that Singapore's stock market, started to over take the other 3 references from the start of May this year. This was also just after the time, on hind sight, that the stock market hit a bottom in March-April.


What I would like to talk about more in detail is the 5 year chart. It shows Gold ETF convincingly beating Singapore and American stocks as well as the US Dollar.

A writer in his article on The Economist argues that the weakening of the US$ explains the shine in Gold ETF. He supports that arguments by showing that both the supply (which has been increasing) and demand (which has been weakening) for physical gold. This should actually show a downward trend in physical gold prices.

He elaborated further, saying that the weakening confidence in paper currencies can been in a rumour that OPEC will de-peg the price of crude oil from the dollar. Much earlier, there was also a rumour that Beijing was proposing an alternative to the dollar as the international reserve curreny. These are rumours which have since been dismissed. But the fact that they caused jolts to dollar on the days these rumours surfaced, suggests skittish investors.

What does it mean for the ordinary stock investor? I would suggest avoiding chasing "heat", that is, moving entirely to Gold ETFs. My suggestion is supported by the fact that short term gains from Gold ETF are not obvious. The winners riding on the Gold Bull have been those bitten by the gold bug a few years earlier.

This leads to the next question, should you buy US shares or US$? US shares you can buy, but be aware of the tax implications as well as the currency risks, which will eat into your gains.

For the US dollar, I really do not know and my best guess is as good as yours. What I think can happen is that the US$ will stay in a prolonged slumped till when the real economy recovers. There is an excessive debt in the US system, which it is trying to purge itself of. I am not saying debt is bad. What I am saying is that the debt and credit created from the sub-prime mess will take a long time to sort itself out and it is going to be a complicated process. 2011 will be a good time to believe that the sub-prime mess has cleared up.

Our conclusion brings us back to Singapore. Try not to worry and stay invested (if you are already in). As can be seen, the US Dollar has been underperforming compared to the Singapore stock market. You should only worry about the falling US dollar if you are and American on holiday or studying in Singapore. Otherwise, try to enjoy your weekend.

Week 3

While week-on-week the STI rose 1.84%, the portfolio rose only paltry 0.55%. This highlights one of the weakness of a portfolio that does not weight accordingly to the benchmark. Nonetheless, if you are a fan of stock picking, periods of lagging the index should not stop you from feeling disheartened.

In case you have not been reading the news, Li Heng's proposed restructuring was rejected by the SGX. The move would have seen a Newco list in Hong Kong, with the Singaporean counterpart being a shell company. This would be in effect a delisting. Li Heng has been in fact, most creative in its effort to dual list, unlike other S-Chips, which have a straightforward formula.

Also, Australia's central bank raised its interest rates, becoming the first G-20 nation to do so since the onslaught of the financial crisis. Ina Bloomberg report, singapore is believed to have managed gains to its GDP. Gold prices have also hit new highs with spot prices climbing past the US$1,000/oz mark convincingly.

Reporting season for third quarter is near for Singapore stocks, it would be good to see how have some of the heavy weights like SPH and Keppel will perform. A good exercise during this period is to see how analyst earnings projections for those index company measure up against the real earnings.

How To Be Rich 2!

Once again this is a book review on a book by Kenneth Fisher. He offers you 10 ways to be rich, but not all the ways are suitable to everyone. Here is the list

1. Start a successful business. This could be something simple from a blog shop or giving tuition over the weekends. But remember not to splurge on the added income.

2. Become CEO of an existing firm and juice it.

3. Hitch your wagon to a star. You might not be wealthy, but try to network or work with people who are. It’s not who you are but who you know that matters.

4. Turn celebrity into wealth. Just go Google Steven Lim, Xiaxue for more information how to get rich this way.

5. Marry well – really, really well. Either you marry someone rich, or you marry someone who does not cause you financial ruin.

6. Steal it, legally. Be a lawyer if you are still young and have yet to enter into university.

7. Use other people’s money. Be a money manager.

8. Invent an endless future revenue stream. This could be writing a book, a play or even writing songs for famous people. Use your talent!

9. Monetize unrealized real estate wealth.

10. Take the Road More Traveled. Save early and invest prudently.

How To Be Rich!

I'm sorry, but the title was meant to mislead you. The graph charts a scaled down STI with information from Yahoo Finance besides day-on-day changes in the index (the red colour blades of "grass").

First, did you know that if you invested at 30, with a lump sum of $10,000 and you average 15% compounded till you are 65, you will have become a millionaire when you retire then? I know that is a random fact, but it shows that if you start early, even with a modest sum initially can turn into some thing big.

But what is the purpose of the graph? On on hand, if you managed to ride all the Bulls (represented by the green line) and avoid all the Bears (red lines), an old timer would have probably become a millionaire by now. But that is besides the point.

The learning point here is that the end of any bear market is marked by extreme volatility. If you observe carefully, the "tall blades of grass" tend to cluster towards the tail end of a bear market and the start of a bull run. I am not sure why is that so. During most of the bull run, all the short blades of grass start to cluster as well.

At the moment, if I were to plot the same thing using information of the Dow or the S&P500, my MS excel might crash as there are too many data points. But preliminary, I would say that during the periods of currency fluctuations and bear markets, there are extreme stock market volatility. During the short American recession in 00/01 (a result of the Dot.com crash), there was not the clustering of very tall grass seen in the 97 Asian Financial Crisis or the recent sub-prime melt down.

The other observation is that volatility comes in spits and spurts. This point has been explored by Mandelbrot, a very famous scientist who conceived of the notion of fractals. It can be seen that in a bull run, there is not a regular wild price increase or decrease. Coincidentally, during the current phase of the stock market, we have also witness wild movements in the STI and Dow.

What is for the retail investor who is you and me? I think that there are ways to get out the market to minimise the damage done to the portfolio. You can read Fisher's books for how he does it. Briefly, when the general stock market declines more than 2% monthly, and that the market has fallen from its peak by more than 20% 3 months ago, you can turn to cash for safety.

However, you must systematically enter the stock market to re-equitise your portfolio. The point of the post is to show you that the ends of bear markets are really scary. There are enormous intra-day swings and day-on-day swings for the matter. Therefore you must discipline yourself to get into the market between 18-24 months after the peak. This is a rough guideline because so far, bear markets last this long on average. Do no try to bottom fish because very often, it is the fisherman that gets hooked.

What are your thoughts? Do you find what I have posted drivel or banal? Drop your comments or you can email me at sgxstockpicker@gmail.com if you prefer a more private discussion.

Financial Ratios You should Try To Learn

This is a very good resource to learn more about ratios. If you have the basic understanding of accounting terms, you can skip right to sections 6. If you have got alot of time, paper and ink, you can download it in PDF and read in on the train, bus, or when you wife, girlfriend is doing her nails.

Does knowing the ratios guarantee wealth? No. There are many many ways to cover up the weakness of a company through creative accounting. These tricks are very often undiscernible to the untrained eye.

But if you apply the ratios sensibly with your common sense, you can reduce making bad investments. Remember in the earlier posts, Kenneth Fisher talked about using multiple ratios such as price-to-sales, price-to-book, price-to-earnings?

With the knowledge gleamed from Investopedia's short tutorial, you can look at a company with a sense of coherency. When you read the annual report sent to you, as practice, you can try to derive some of the ratios to do little analyst work.

Reading Analyst Reports

There are 3 kinds of people. Those that like the stock analyst, those whose hate them and those who do not know what’s going on in a report. Here’s the deal, a stock analyst works for a securities firm (your brokerage) and almost all of them are linked to a bank. The more independent lot are like NRA Capital and CLSA.

I am not the first one to say this, but local analysts seldom give a "Sell" call on any company. Most of the sell calls I have seen come from the American firms such as Morgan Stanley and Goldman Sachs. "Sell" calls are issued sparingly because, I guess, that if an analyst "offends" a company with his report, his bank might not be included in any financing deals. These deals make more money than any research report issued.

Nonetheless, I have posted a link to research reports at the Society of Remisiers website. The Rating of the company is usually irrelevant to your stock buying decision. Usually when a company has a "Sell" call in place, it usually means it is a gone case. I have seen one such company and that is COSCO Corp.

Target prices are also problematic because it is close to impossible to predict earnings beyond one year. No amount of financial modelling can be so accurate to project earnings within 5% standard deviation.

What you should look out for in reports is the background to the industry. Going through the reports saves you a lot of time doing checks on the industry your stock is in. Some of the companies are already in the market very long, and reading their old prospectus might not yield any utility.

You should also read any SWOT analysis or qualitative analysis that is given. Should you be sharp enough, you will be able to pick up important trends within the industry or any potential risks to investing in the company. Usually risks relating to the company are toned down. You should keep in mind if the general tone of the report seems "bullish" or paints a "blue skies" scenario. Always think carefully and reflect. Ultimately, who pays the securities analyst to do what?

Week 2

Week on week, the STI fell 2.19% while my portfolio saw 4.23% whittling away. The biggest losers were my position in financials UOB-KH and retailer FJ Benjamin. Etika showed some promise this week surging to $0.445 at some point midweek, but returned back to $0.39 in line with the blood bath. During the week, penny stocks like Advanced Holdings, Yong Xin saw their roller coaster rides.

Other notable events were Singtel clinching the rights to the BPL. This has caused upset to existing StarHub subscribers who now might have to get a new decoder box.

My friend asked me for a reason for the blood letting on Wall Street on Thursday. I told him that there were no reasons for the 200 points drop in the DJIA. What I did tell him is that there is plenty of volatility in the market as the markets try to grapple with excessive liquidity in the system, moribund economies and a weakening of the US dollar. I will post my research on volatility in the market soon, once I have meditated over it. I also told him to read the Kenneth Fisher book.

Looking ahead, nothing is expected to change. I hope you mustered some courage to buy in today’s market and have the holding power to last 3 years. Obama will need some time to work with the G-20 leaders to fix the financial systems Stay invested for the long term. Meanwhile, be prepared for swings to the up and down, as punters gamble in the market, along with the “buy-and-hold”gang.

Save Time, Save Money

Taken from Michael Maiello of Forbes 5 Investments You Don't Need

I think that he has hit the nail on the spot. It is good to know that such alternative investments exist. But remember, even stock picking with a buy and hold mentality is a time consuming task. Monitoring stocks takes up at least 1-2 hours a week, ploughing through the relevant SGX filings (You can cut this time if you have newsletter service).

If you intend to be a full-time trader, these financial instruments are fine. But if you are a normal retail investor, I recommend you read up on these instruments rather than attend a course. A lot of the information is available in books at the library. While the courses do teach you the tools and the basic, the amount you have to pay is sometimes exorbitant.

A lot of people get blinded by the marketing promise that there are loads of money to be made within the shortest time. Scalability is their catch-phrase. It is not impossible. But I rather you go to the library and do some read up before signing up for the course. It is always important to have the right expectations. That way, you won’t end up going to the small claims tribunal.

These are the 5

Sensible Forum Comments

On top is an example of good discussion on a the Share Junction forum board. Question is, can both sides be right.

I agree with Jeremyow, who agrees with Hulumas that a portfolio should comprise 70% core stocks that you hold for very long, and the remaining 30% be on speculative trades.

I do agree that