Personal Investing - By Ooi Kok Hwa
AS the stock market continues to move higher, a lot of investors are wondering when it will come down again. Those who have been involved in futures trading may be tempted to short the KL Composite Index (KLCI) futures contracts.
Unfortunately, each time they start shorting the index, the market surges even higher and touches a new high. As a result, they are forced to cover their short positions as the market turns against them. In this article, we will look at how to apply contrarian strategies in the present market conditions.
Contrarian strategy 1: only correct when the market turns around
Investors need to be careful when using contrarian strategies. These strategies are only effective when the market starts to turn around, otherwise, investors will end up being wrong.
Contrarian investors feel that most people in the market tend to get carried away by the market sentiment, so if they keep calm, they will have a better position by taking actions that are the opposite of what others are doing. They believe that they can make big money by betting against popular investment trends.
In the current stock market situation, even though the average daily-trading volume is about one billion shares, we notice that there are not many retail investors. The market is mainly filled with some big fund managers or day traders. Some investors who managed to catch stocks at cheaper prices may have been selling most of their holdings lately.
Unfortunately, the market continues to trade higher than previous selling prices. In such situation, the worst mistake for some retail investors is to abandon their contrarian strategies and start buying back the shares that they disposed off earlier at even higher prices.
Normally, when everyone starts to think that the stock market will continue to go up, that is the signal of an impending market crash. Hence, investors need to be patient to wait for the right prices before buying back those stocks.
There is also the danger that some investors may start accumulating their stocks too early. We believe that “the panic may be over, but not the crisis”. Even though there are signs that the overall economy may be on its way to recovery, we think it will take some time before we can see the real recovery of the stock market.
We need to understand that once the fund managers feel that the stock prices are far above the fundamental of the stocks, they may stop accumulating stocks.
As a result, due to a lack of demand, the market may start dipping lower again with dwindling trading volumes. It may take a long time before the market turns higher again.
We saw this phenomenon in 2000-2001 when the market dipped slowly with very thin volume for a 15-month period, with the KLCI tumbling from about 1,000-level in February 2000 to 550-level in May 2001, a total decline of about 45%.
Investors need to take note that unless they have deep pockets to average down their purchase prices over a long period, they may run out of funds before the market reaches the bottom.
One way to avoid accumulating stocks too early is by adopting the filter rule strategy proposed by Alexander (1961). He proposed that we should only buy stocks when the market touches the lowest point and starts recovering for k% from its low and sell stocks when the market discovers the peak and starts falling for k% from its high.
This strategy may reduce the feeling of regret from selling stocks too early. Given that we may never know when the market touches its peak, it may be a good strategy to let the market find the top and only start selling when the market confirms the declining trends.
Contrarian Strategy 2: Buying neglected firms
Recently, as the result of the merger between main and second board companies into the Main Market, we notice that some second board companies, which have good fundamentals but previously lacked analysts’ coverage, are starting to get the attention of investors.
We believe these companies may provide good buying opportunities for investors who have missed out on the opportunities of accumulating blue chip stocks at cheap prices. Some academic studies have shown that the returns from buying neglected firms, over a long-term period, may be better than investing in “popular” companies.
Invest your money wisely to strive for financial independent. A slack hand causes poverty, but the hand of the diligent makes rich. (Proverbs 10:4)
Wednesday, August 26, 2009
Monday, August 24, 2009
Received Dividend from PBBANK & hng's portfolio
horse said...
Just gotten my PBBANK dividend :)
August 23, 2009 8:25:00 PM PDT
hng said...
Sold out remaining kfima at 75.5sen, sold partial cenbon at 66-66.5sen, realize most of the paper profit :)
Portfolio for morning session.
OIB 59.8% (aver cost: RM 1.09)
Cenbond 23.7% (aver cost: 62.6sen)
Guniess 15.3% (aver cost: RM 6.26)
Just gotten my PBBANK dividend :)
August 23, 2009 8:25:00 PM PDT
hng said...
Sold out remaining kfima at 75.5sen, sold partial cenbon at 66-66.5sen, realize most of the paper profit :)
Portfolio for morning session.
OIB 59.8% (aver cost: RM 1.09)
Cenbond 23.7% (aver cost: 62.6sen)
Guniess 15.3% (aver cost: RM 6.26)
Wednesday, August 12, 2009
How to screen overseas stocks
A VERY GOOD PIECE OF INFORMATION :-
Personal Investing - By ooi Kok Hwa
Four criteria to look at when choosing counters that are suitable for long-term investment
LATELY, interest has grown in overseas stock investment. Given the foreign markets’ relatively high volatility of returns compared with the local market, a lot of retail investors find it more exciting to invest in overseas stocks.
However, a common problem most investors face is how to filter, from among all the listed companies in the respective markets, the right stocks that are suitable for long-term investment.
Market capitalisation
One of the most important selection criteria is buying stocks with big market capitalisation. The market cap of a listed company can be computed by multiplying the number of its outstanding shares with the current share price.
In general, we should buy stocks with big market cap because they are normally well-established blue-chip stocks with higher turnover and widely-accepted products and services.
Even though some academic research shows that buying into small market cap stocks can provide higher returns compared with big market cap companies, unless we are quite familiar with the stocks available in those overseas markets, it is safer to put our money into bigger market cap stocks.
It is not difficult to find out which companies have the largest market cap in any stock exchange.
Such information is available in most major newspapers in that particular country or the stock exchanges themselves.
For example, if we intend to buy some Singapore stocks, we should pay attention to companies that are ranked in the top 30 in terms of market cap. One can get the rankings by market cap for the Singapore Exchange in StarBiz monthly.
Price/earnings ratio
Once we have filtered out the blue-chip stocks, the next selection criteria is the price/earnings ratio (PER), which should be lower than the overall market PER. This is computed by dividing the current stock price by the earnings per share (EPS) of the company. It represents the number of years that we need to get back our money, assuming the company maintains identical earnings throughout the period.
Even though some published PER may use historical audited EPS compared with forecast EPS, given that our key objective is to do stock screening, the PER testing will provide us with a quick check on the top 30 companies – whether they are profitable and selling at reasonable PER compared with the overall market PER.
If we cannot get access to the overall market PER, we may want to consider Benjamin Graham’s suggestion of buying stocks with PER of lower than 15 times.
Dividend yield
A good company should pay dividends. We strongly believe that this is one of the most important ways for the investors to get any returns from the companies that they invest in.
Our rule of thumb is that a good company should have a dividend yield that at least equals or is higher than the risk-free return, which is usually based on the fixed deposit rates.
The dividend yield is computed by dividing the dividend per share by the current share price. In general, most blue-chip stocks do have a fixed dividend payout policy and reward investors with a consistent and growing dividend returns.
Based on our observation, most smaller companies may not be able to pay good dividends as they may need the capital for future expansion programmes.
Price-to-book ratio
Most investors would like to invest at a market price lower than the owners’ costs in the company. The book value of a company represents the owners’ costs invested in it.
In a normal business environment, unless the company has some problems that the general public may not be aware of, it is quite difficult to find stocks selling at a price lower than the book value of the company.
As a result, we may need to purchase at a market price higher than the book value. According to Graham, the maximum price one should pay for any stock is the price which gives a price-to-book ratio no greater than 1.5 times. This means that we should not pay more than 1.5 times the owners’ costs invested in the company.
Lastly, the above four selection criteria are merely a preliminary quick stock screening process. Even though investors may be able to find stocks that fit the criteria, we suggest investors check further the fundamentals of the company, such as the balance sheet strength, its gearing, future business prospects and the quality of the management before deciding to invest.
Personal Investing - By ooi Kok Hwa
Four criteria to look at when choosing counters that are suitable for long-term investment
LATELY, interest has grown in overseas stock investment. Given the foreign markets’ relatively high volatility of returns compared with the local market, a lot of retail investors find it more exciting to invest in overseas stocks.
However, a common problem most investors face is how to filter, from among all the listed companies in the respective markets, the right stocks that are suitable for long-term investment.
Market capitalisation
One of the most important selection criteria is buying stocks with big market capitalisation. The market cap of a listed company can be computed by multiplying the number of its outstanding shares with the current share price.
In general, we should buy stocks with big market cap because they are normally well-established blue-chip stocks with higher turnover and widely-accepted products and services.
Even though some academic research shows that buying into small market cap stocks can provide higher returns compared with big market cap companies, unless we are quite familiar with the stocks available in those overseas markets, it is safer to put our money into bigger market cap stocks.
It is not difficult to find out which companies have the largest market cap in any stock exchange.
Such information is available in most major newspapers in that particular country or the stock exchanges themselves.
For example, if we intend to buy some Singapore stocks, we should pay attention to companies that are ranked in the top 30 in terms of market cap. One can get the rankings by market cap for the Singapore Exchange in StarBiz monthly.
Price/earnings ratio
Once we have filtered out the blue-chip stocks, the next selection criteria is the price/earnings ratio (PER), which should be lower than the overall market PER. This is computed by dividing the current stock price by the earnings per share (EPS) of the company. It represents the number of years that we need to get back our money, assuming the company maintains identical earnings throughout the period.
Even though some published PER may use historical audited EPS compared with forecast EPS, given that our key objective is to do stock screening, the PER testing will provide us with a quick check on the top 30 companies – whether they are profitable and selling at reasonable PER compared with the overall market PER.
If we cannot get access to the overall market PER, we may want to consider Benjamin Graham’s suggestion of buying stocks with PER of lower than 15 times.
Dividend yield
A good company should pay dividends. We strongly believe that this is one of the most important ways for the investors to get any returns from the companies that they invest in.
Our rule of thumb is that a good company should have a dividend yield that at least equals or is higher than the risk-free return, which is usually based on the fixed deposit rates.
The dividend yield is computed by dividing the dividend per share by the current share price. In general, most blue-chip stocks do have a fixed dividend payout policy and reward investors with a consistent and growing dividend returns.
Based on our observation, most smaller companies may not be able to pay good dividends as they may need the capital for future expansion programmes.
Price-to-book ratio
Most investors would like to invest at a market price lower than the owners’ costs in the company. The book value of a company represents the owners’ costs invested in it.
In a normal business environment, unless the company has some problems that the general public may not be aware of, it is quite difficult to find stocks selling at a price lower than the book value of the company.
As a result, we may need to purchase at a market price higher than the book value. According to Graham, the maximum price one should pay for any stock is the price which gives a price-to-book ratio no greater than 1.5 times. This means that we should not pay more than 1.5 times the owners’ costs invested in the company.
Lastly, the above four selection criteria are merely a preliminary quick stock screening process. Even though investors may be able to find stocks that fit the criteria, we suggest investors check further the fundamentals of the company, such as the balance sheet strength, its gearing, future business prospects and the quality of the management before deciding to invest.
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