Investing and Vexation 101

In investing, there is always something to worry about. Unless you are living in a cave and has cut off all contacts with the civilized world, you will no doubt be aware of some of the news pertaining to the world economy, stock markets, interest rates, companies, etc.

From the macro point of view, these include:

• Brexit (and the future repercussions – or more EU members exiting);
• Federal Reserve interest rates hikes
• World economy slow down. Sluggish economy despite negative interest rates in some countries (eg. Denmark, Sweden, Switzerland and Japan);
• Crude oil prices prolong plunge
• US market overvalued.

 

From a micro view, I can also worry about the stocks in my portfolio. One can never fully predict the future of the business. For instance, consider the following:

Vicom: 

• A significant net decrease of inspections p.a. for the next 3 years which will affect the vehicle inspection segment.
• Setsco’s business is also affected by the economy slow down.
• The potential rise of electric cars and possible new regulatory framework for car inspections for electric cars. Nevertheless, electric cars do need to undergo car inspections in Singapore.

Riverstone:

• A slower 1Q2016 result.
• The average selling price and margins of group’s healthcare gloves could face downward pressure going forward.
• Cleanroom gloves volume also declined 30% YoY and only contributed 18% of total glove output in 1Q2016.

CapitaLand:

• It estimated that Hotel Properties and CapitaLand’s joint venture projects, d’Leedon near Farrer Road and The Interlace in Depot Road, could also chalk up combined QC fees of more than $22 million if units remained unsold by the year end. CapitaLand told an earnings briefing in Feb 2016 that its share of QC extension fees could potentially be about $7 million if the units in d’Leedon and The Interlace remained unsold by the year end.
• The looming QC and ABSD deadlines are further expected to force developers’ hand, resulting in price cuts to clear unsold stock.
• More recently, CapitaLand was seen offering a 15% discount for The Interlace and d’Leedon.
• It is not just the residential property market, the slowdown can be felt in the retail, industrial and commercial property market too.
• A sharp economic slowdown in China could have serious knock-on effects on China’s property market. Recently, Hong Kong’s home sale has tumbled 70% in March 2016 (read here).

Golden Agri Resources:

• A new mandate in Malaysia to use more biodiesel will not create enough new demand to drain surplus output of crude palm oil (CPO) in the world’s second-biggest producer as exports slow in coming months.
• Palm oil plantations are one of the main cause of the haze. Just last month (May 2016), the Indonesian government has announced that it would stop granting new land for palm oil plantations. Planters are instead urged to increase their yield rather than expanding into new areas.
• CPO production could fall by 10-15% this year due to the more mature profile of its plantations (average age is now 16 years).
• CPO prices remain depressed for prolong period due to low Crude Oil prices (Palm Oil used as biodiesel – hence price is affected by crude oil prices), low soybean prices (commodity prices stay depressed due to slowing world economy), etc.

Singapore Airlines:

• SIA passenger carriage (measured in revenue-passenger-kilometres) fell 2.9% in May against last year, even as capacity was scaled back slightly.
• Decrease in passenger load due to a soft global economy.
• Possible increase in Jet fuel prices / Brent oil prices (increase beyond US$60/bbl).
• Competition from budget airlines and middle eastern airlines.
• The weakened Australian dollar has affected SIA. Australia is SIA’s largest market by seat capacity. The sector has a relatively higher portion of premium traffic and lower loads could thus impact yields adversely.

Super Group:

• Super Group is facing increasing competition from rivals, especially global giant Nestle.
• Key product non-diary creamer faces challenges such as changing consumer preference as well as weaker demand from key brand clients in China.
• Currency headwind is expected to continue in the current financial year. The weakness in the Thai baht and Malaysian ringgit had affected results in the latest quarter.
• Super Group had spent more on advertising and promotional activities for its new products, thus affecting gross profit margins.

 

And lots more…

In fact, some may feel that the more stocks they have in their portfolio, the more worries they have.

The world is always in a state of flux. The only thing that is constant is Change. The road ahead is always unclear.

“There is always something to worry about, BUT don’t”. Think about this. Not a day passes that some economic, financial or geopolitical ” crisis” is brought to our attention by the media. Most of this is financial “pornography” as some have termed it. Yes, pay attention to your investments at all times, but think past the daily noise that can distract you from being a disciplined investor.

I like the idea of the Even Bigger Picture by Peter Lynch. The idea might be a tad dated, but I reckon the Bigger Picture remains pretty much the same today.

In early 1982, I went through my usual scare-proofing drill, concentrating on the Even Bigger Picture, assuming the worst wouldn’t happen, and then asking myself, if it didn’t, what then? Peter Lynch in his book “Beating the Street”.

“Whenever I am confronted with doubts and despair about the current Big Picture, I try to concentrate on the Even Bigger Picture. The Even Bigger Picture tells us that over the last 70 years, stocks have provided their owners with gains of 11 percent a year, on average, whereas Treasury bills, bonds, and CDs have returned less than half that amounts.” Peter Lynch

We often talk about financial freedom, however, I think being in a state of ‘mental freedom’ from worries is equally important (if not more important).

What’s next?