Market timing, bubbles, war chest, property…. value investing skills.

Taking a break away from the media and Lee Kuan Yew state funeral. I find myself tearing every so often when listening to the eulogies. The sadness can be overwhelming at times (whether you love him, hate him…. he is to me what defines Singapore as I was growing up), and the only comfort is that LKY has lived a full life and he wouldn’t like the sentimentality. We have to look forward and build on what he has achieved.

 

Is the market due for a correction? No doubt it has been 7 years since the last major recession. Technically, a correction or recession could be around the corner – if we go by the normal periodic cyclical rise and fall of markets. (read here and here)

The average length of an expansion has increased significantly since the 1990s. The three business cycles from July 1990 to June 2009 had an average expansion phase of 95 months – or almost 8 years.

However, let’s pause for a moment and consider the following:

  1. The STI P/E is not considered very high. Not too long ago (2 March 2015), the SPDR STI ETF, an exchange-traded fund which closely tracks the fundamentals of the Straits Times Index, has a trailing PE ratio of 14 at the moment. That’s a valuation which compares somewhat favourably with the Straits Times Index’s long-term average PE ratio (from 1993 to 2012) of 16.6. (read here)
  2. The STI is still some distance away from its 2007 closing-high of 3875.77 points. It is at 3,450.10 points on 27 March 2015.
  3. Property counters, oil & gas related stocks, commodity counters are all at multi years low. No bull in sight for them. So much for a rising tide raise all boats.
  4. Low volume in Singapore Share market. Unlike in a bubble / bull situation, where there is high participation, in recent times volume has been ‘drying up’. (read here)

Typically I am not a ‘macro’ or ‘top down’ investor. Taking more of a ‘bottom-up’ & ‘micro’ investor. eg. I look at the fundamentals and narratives of the individual companies rather than the market fluctuations and macro nation economics. However, the recent highs of Dow (read here) and the long period of bull run we had, do make me more cautious and worried about a possible crash. To be frank I still buy stocks occasionally as I feel that the growth potential is there for these companies, and the current stock price is lower than intrinsic value while PEG is low.

“Market levels do not stop Buffett from making purchases. Although high general market prices might diminish the number of attractive bargains outstanding, they will not prevent Buffett from buying a company that he finds attractive. However, when market prices are down and pessimism is up, the number of attractive bargains increases.”

“I’m always more depressed by an overpriced market in which many stocks are hitting new highs every day than by a beaten-down market in a recession. Recessions, I figure, will always end sooner or later, and in a beaten-down market there are bargains everywhere you look, but in an overpriced market it’s hard to find anything worth buying.” Peter Lynch

“Everyone has the brainpower to make money in stocks. Not everyone has the stomach. If you are susceptible to selling everything in a panic, you ought to avoid stocks and stock mutual funds altogether.” Peter Lynch

“Buffett believes that unless you can watch your stock holdings decline by 50 percent without becoming panic-stricken, you should not be in the stock market.”

“I’ve heard people say they’d be satisfied with a 25 or 30 percent annual return from the stock market! Satisfied? At that rate they’d soon own half the country…. In certain years you’ll make your 30 percent, but there will be other years when you’ll only make 2 percent, or perhaps you’ll lose 20…. If you expect to make 30 percent year after year, you’re more likely to get frustrated at stocks for defying you, and your impatience may cause you to abandon your investments at precisely the wrong moment. Or worse, you may take unnecessary risks in the pursuit of illusory payoffs. It’s only by sticking to a strategy through good years and bad that you’ll maximize your long-term gains.” Peter Lynch

Market timing is like gambling (read here).

Retirement investors, however, should never be trying to figure out what the market “thinks” about a given investment. That’s market timing, a high-risk endeavor. Every time you get it right and make money, there’s the unavoidable risk of getting it wrong and losing even more.

Currently I have a very small war chest (low cash ratio). I would like to sell some of my under performing stocks to increase my cash quota. However, it would mean realizing some of the current paper losses. It is never easy to sell stocks. These mediocre stocks never did ‘lift-off’. And will probably not ‘lift-off’ before the next crash comes. However, things aren’t exactly all that gloom and doom with these laggards (which in my portfolio consists of SIA (read here), SMRT (read here) and Golden Agri (read here). Could be a case of being too optimistic… ahhh.. but that’s just me. Always like to see things as opportunities. Most of the shares in my portfolio has appreciated, and I have not ‘chased up’ the prices of these. I looked at the share prices and these are all beyond the intrinsic values or PEG I calculated. Did I earn a lot from my portfolio? Not really… after tallying up the unrealized ‘gains’ and ‘losses’, the overall gain is not big.

“A price drop in a good stock is only a tragedy if you sell at that price and never buy more. To me, a price drop is an opportunity to load up on bargains from among your worst performers and your laggards that show promise. If you can’t convince yourself ‘When I’m down 25 percent, I’m a buyer’ and banish forever the fatal thought ‘When I’m down 25 percent, I’m a seller,’ then you’ll never make a decent profit in stocks. Peter Lynch

I do continue to nibble at some stocks which I think have potential to grow further (these showed a small ‘unrealized’ loss from my purchase price). Whether rain or shine, good companies will always be around. I have not reached the stage when there are no good companies (at fair price) to buy in the Singapore Stock Market. Would I want to miss the chance to be part of their growth story? Nope. However, it is without doubt a better time to buy the stock when the market crashes – the question is when will the crash come and will the price be lower than what it is now? I do not know. All I know is I will probably be kicking myself for buying if the market crashes soon after. :p However, if I see a bargain now, will I stop buying? Nope. That is the dilemma I constantly face. However, as the no. of shares in my portfolio (with unrealized profits)  appreciates, I do tend to buy less…. spend more time looking at the portfolio and less time reading up on the companies which I have bought. (I do the opposite when prices drop). I spend more time reading what the other great investors are buying. And even on other companies. Even now, Buffett is still buying (read here).

“Nobody can predict interest rates, the future direction of the economy, or the stock market. Dismiss all such forecasts and concentrate on what’s actually happening to the companies in which you’ve invested.”  Peter Lynch

“The way you’ll know when the market is overvalued is when you can’t find a single company that’s reasonably priced, or that meets your other criteria for investment.” Peter Lynch

“If no company seems attractive on the fundamentals, you can avoid stocks altogether and wait for a better opportunity.” Peter Lynch

 

 

Advertisements

About apenquotes

Born in 1976. Married with 2 kids (a boy and a girl). A typical Singaporean living in a 4 room flat.
This entry was posted in Investing methodology. Bookmark the permalink.

2 Responses to Market timing, bubbles, war chest, property…. value investing skills.

  1. Kyith says:

    you have a large cash holding. visualize how much money you will be channeling to your wealth fund in the next 10 years. and then you realize that you are not invested that much haha. when money will eventually come to you, it is still your money. you are channeling part of the human capital to wealth building.

    having been trhough the last recession you have stuff like vicom which didn’t go down by much. even a small share that is strongly held like telechoice also didn’t go down by much.

    sharpen whether you have a good proposition and what is the intrinisc value. you will find your answer there because when u have that, you have conviction.

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s