Thursday, January 9, 2014

Investment ideas and wealth allocation for 2014

I had a short discussion with another blogger recently and we agreed that there will be a sharp market correction this year but we could not agree when it would be. Unfortunately, I jumped the gun by acquiring 3 lots of Super Group wiping out most of my free cash for the year in the process. As a result, I am left with the options of selling my current holdings to fund purchases during the “Great Singapore Sale” or being more hardcore and saving up even more capital.

Why do I think there will be a correction this year? I actually thought and wrote that we may enter a bear market a few months back and now. Based on Straits Times Index’s movement over the past seven months, I can confidently say that we are in the middle phase of a bear market.

I would add that this is more the case for the Singapore market than the US market. If you had not realized, one of the classic trailing indicators of a bear market has appeared, namely, falling property prices. While the decline in property prices is more pronounced in public housing, I believe that this is also the same for the private sector.

Why do falling property prices follow a falling stock market?
Mr Market knows is an easy answer. Some would argue that property prices were bound to fall having risen consecutively since the last bottom of the Straits Times Index. Personally, I think it is because once people start losing money on stocks, they start to reign in on their asset allocation by either not buying properties or even selling them. This is just my theory.

Therefore, my investment idea and wealth allocation for 2014 would be simple. Delay your purchase of shares if you can control and wait for a capitulation of the market. When we enter the later stages of a bear market, volatility will be the greatest and the smell of fear is in the air. I do not know when the capitulation will occur. My estimate is that it would be after the World Cup in Brazil, possibly in November. And because I think that most of 2014 will be a bear market, I will be aggressively saving my money to make sure that if anything happens to myself or my family, I will be safe to tide things through.

Having read through some 2013 portfolio reviews, I realized that there has been a strong emphasis on dividends. As such, not that I am a contrarian, I would suggest doing homework on those stocks that will do best when the stock market reaches bottom and rebounds in the second half of the year. If my memory serves me correctly, this would be those that are typically cyclical or have a growth story. That does not mean you cannot pickup defensive stocks for their yield over a longer horizon.
Do your own diligence and invest in what you can afford to lose.

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