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.
45 comments:
Horse
Congratulation on your Genting, GENM, Genting sp. Good investing turn to handsome reward indeed :)
Today market continue sideway with gradually lower volume, i've taking most of capital off the table, prepare for next correction.
Guiness is expect to proposed final dividend by this wk, but it will only make announcemnt later, i've sold all Guiness due to limited upside.
Currently, portfolio only have two stocks: OIB and Cenbond. Intend to hold just only OIB for long for its 10sen dividend income on early Oct.
hng,
Market is sluggish this week, maybe due to school holiday and fasting month.
Best time to take a rest for now.
Horse
you're right, market too slow to make any profit from trading.
I've almost sold out cenbond today at 64.5-65sen
Plan to take long holiday back to hometown tomorrow :)
hng,
Have a good trip home.
No trading from me.
Genting SP closed 1.02. :)
Upside still look promising.
Finally, sold out all cenbond.
Realize all paper profit in portfolio except OIB, which intend to hold until announcement of its dividend.
Portfolio will likely remain lean and low profile in view of shorter trading day next week. But will continue alert targeted stock under radar screen, will no hesitate to buy stock on weakness that fall under right entry level.
Portfolio for today
OIB 59.8% (aver cost: RM 1.09)
Horse
Good to known Genting sp break though RM 1 mark. Congrat to you again, further closer to your target price for RM1.50. Well done mate :)
another boring day. :(
At hometown now, this morning start to accumulate Kfima. Bought kfima at 73-73.5sen
Portfolio for today
OIB 59.8%
Kfima 21.3%
Bought more Kfima at 73sen, further increase stake to more than 30%
Portfolio for today
OIB 59.8%
Kfima 32.7%
hng,
still have high hope on kfima...haha
Market is very sluggish this week.
Hope for a better next week.
Horse
Kfima always under my radar screen, my strategy on kfima is simple:
a) Buy as much as possible on weakness, and will accumulate kfima until hit maximum if continue on weakness
b) Sell as fast as possible on strength to lock profit.
Kfima still trade cum dividend of 3sen (4% yield), which expect to be announce in 1-2 week time.
Wow lah!
Bought more kfima at 71-73sen in the afternnonn session....
Portfolio until now
OIB 59.8%
Kfima 103.4%
wow, guiness due for announcement?
when up 14sen. :)
I also bought in some kfima at 72sen just now. Hope d 3sen div don;t end up an empty promise. hahaha
Bought more kfima and the stake is now highest in portfolio. Market down more than 2pts, but European market are rally now.
Portfolio for today
Kfima 119.6% (ave cost: 72.2sen)
OIB 59.8% (ave cost: 1.09)
horse
We both have trading experience with kfima and should better understand these stock behaviour. There are big seller as well as big buyer, they just take alternate turn in different day. We as retail investor/trader just need to capitalize on its uptrend and downtrend.
There is no need to worry about kfima dividend due to delay in announcemnt. I think Kfima (3sen) and Fimacorp (10sen) are confirm and just subject to apporval from AGM.
But if no mistaken, the actual date of announcement should be around second week of Sept and AGM on last week of Sept.
Horse
I'm also quite surpirse with Guiness share rally.
Its indeed rewarding for buy and hold investor. Good luck to you
hng,
wow, u have loaded up 119% on kfima!!. i guess no more margin line for u. Hope for a quick execution next week on kfima. Brother, need to give some room for me to run. haha, otherwise with your big bulk of selling i will be no chance of getting rid of mine. :) Just joking. :)
Anyway, lets make money together, i believe next week market should be back in choppy mode....school holiday over.
Guiness just announce 4Q result. The best ever financial year performance & proposing 31sen TE dividend. wow, this is indeed a good news. May surge higher when come next week.
Market open lower, but still better than yesterday slump trigger by china market (down >6%).
I've only left with 20% margin line, have limited bargain power now.
Horse, don't worry, i'm not biggest kfima player, i think kfima has attract fund manager attention due to its undemanding valuation, steady and consistent business in concenssionarie secruity printing and palm oil plantation as well as increasing dividend payout.
Hence, its good for buy and hold investor to enjoy potential capital appreciation and at the same time rewarded with reasonable dividend income. On the other hand, buying kfima now also serve as good entry level for trader, due to limited downside and higher odds for upside once stock value emerge.
Market pare down loss, down just 3 pts compared to 10pts in early morning.
Bought some oka at 65sen
Portfolio until now
Kfima 119.6% (ave cost: 72.2sen)
OIB 59.8% (ave cost: 1.09)
Oka 5.3% (ave cost 65sen)
Macroeconomics
· Most stock markets closed lower end of last week, taking cue from sell-off in China’s main stock market, as traders worried that the recent worldwide rally in stocks was overdone. Oil prices fell 3.8% to USD69.96 a barrel yesterday, but inched up this morning to around USD70 a barrel.
· Recent US economic indicators continued to indicate improving trends. Chicago PMI rose to a neutral point of 50 in Aug from 43.4 in Jul, the highest level since Sept 08 (below 50 indicates contraction and above 50, expansion). This came on the back of improvement in Dallas Fed manufacturing index, and a mild expansion in consumer spending in Jul while personal income and U of Michigan consumer confidence were relatively unchanged.
· In UK, GDP in 2Q fell 0.7%, less than the previous estimate of -0.8%, on manufacturing, auto services and government spending. Contraction in exports and the services industry were slower in 2Q and Jun respectively. In Eurozone, data were mixed. Economic confidence increased twice as much as forecast in Aug, but consumer confidence stayed weak amid a decline retail sales fell for the 15th month in Aug. Meanwhile, consumer prices slipped 0.2% last month compared to a steeper fall of 0.7% earlier; prices may slide further in the coming months, though the pace of declines are forecast to ease.
· Japan’s industrial output grew for the fifth month in Jul as global stimulus spending boosted exports, although growth in new export orders slowed. China also posted higher growth of 54 in its Aug manufacturing PMI, the fastest pace in 16 months, despite a plunge by the Shanghai Composite Index into a bear market.
still very sluggish market.
No trade in afternoon session,
Volume remain very low despite school holiday over. Most Asian market trade sideway, but European market open lower.
Portfolio for today
Kfima 119.6%
OIB 59.8%
Oka 5.3%
No trade as well, better ermain sideline for now until there is clearer sign.
Macroeconomics
· The US stock market is not in sync with economic news these last few days, as a long anticipated market correction takes place. DJIA fell for a third consecutive day by 2.0%, and crude oil also followed suit with a 2.7% drop in price to close at USD68.05 a barrel.
· Overnight US data were positive. The manufacturing sector grew for the first time in more than a year and a half, as the ISM index rose to 52.9 in Aug. Pending home sales jumped 3.2% in Jul, a sixth consecutive month of gains, as buyers returned to the housing market. A slow recovery is underway with jobless rate that is forecast to rise into 2010 and restrictions on lending posing as major downside risks.
· Mixed results were reported in Europe. Unemployment in Eurozone which crept to the highest level in more than 10 years at 9.5% in Jul, contrasted with the PMI manufacturing which rose to 48.2 from 46.3 in Jul, signaling easing contraction. In Britain, mortgage approvals climbed to the highest level in 15 months, but PMI manufacturing eased slightly to 49.7 in Aug, halting the first expansion in more than a year in Jul.
· In Hong Kong, retail sales continued to fall in Jul by 5.5%, marking the sixth consecutive decline amid lesser tourist arrivals and high unemployment. Meanwhile, in Australia, RBA kept benchmarked interest rate unchanged at 3.00%, citing that accommodative setting of monetary policy remains appropriate for the time being. The country’s 2Q GDP registered a growth of 0.6% after a 0.4% expansion in 1Q, on resilient consumer spending, exports and business investment.
Hng,
Kfima did not declare any dividend even though 4th qtr already reported. Reckon they will declare any later?.
Tan
Kfima dividend is long overdue, but I'm personally expect kfima announce its dividend payout by second week of Sept.
Hng,
Expected it's price to perform when the result was announced, but what a let down. Hope dividend announced soon as price keeps heading south everyday.
wow, Genting SP inching higher !! trading at 1.05 now..
i would say kfima's performance is remain unchanged as the surge in recent profit is mainly contributed by asset disposal if not mistaken, created one time huge profit. The 3sen dividend is long overdue but it is for sure that they will keep their promise. Hopefully the announcement can raise the share price.
even if kfima were to announce div, i would presume its gonna fall on 3rd week of September.
Horse
Kfima surge in EPS of 7sen was partly due to 5.25m capital gain from disposal of banding island resort.
If stripping out of this one time profit, core earning should be EPS = 5sen, still very undemanding if annualize EPS = 20sen or trade at PE just 3.6x.
The kfima 3 main contibutor are security manufacture; plantation and bulking, all command good gross profit margin at 27%; 28% and 43% respectively.
Tan
I'm personally don't feel panic on kfima current share weakness. I would rather remain calm so long as the share still trade above 70sen support level.
Share tend to response to good financial result, but very soon will correct back due to lack of following support. But if stock announce dividend and is trading cum dividend, generally, stock would gain more prolong support until ex-date.
Horse
Congratulation to your super pick on Genting SP, currently trade at 1.07 despite world market correction. Well done!
"Share tend to response to good financial result, but very soon will correct back due to lack of following support. But if stock announce dividend and is trading cum dividend, generally, stock would gain more prolong support until ex-date."
The above statement is very true, after many years of dealing with dividend stocks i agreed what hng's point here. Cum dividend always create some protection there especially to all dividend stocks like BJTOTO, GUINESS, PBBANK & PANAMY. You will notice the share price is steadily supported well before the ex-date. So, best time of buying this type of stocks, of course is when you know well verse the timing of its dividend announcement and financial result. Buying into this type of stock at the right timing with well expected financial result had almost certaintly provide 100% rate of profit, of course the amount of profit could sometime be big or small.
hng,
Genting SP is indeed a good investment for me, i've almost 53% gain by percentage so far from my initial entry price at 0.70, yet my target is still far from reaching. Minimum 1.50 before tempting me disposing it, so, still keeping at the moment. Despite world market make u-turn, Genting SP still in rally, mostly boosted by its impending opening of casino early next year. Hardly find such good opportunity in stock market after years of investment. My gain had always stay around 7%-13% annually, this round hope to make it higher.
Horse
Well done! paper profit of 53% is really rewarding especially for buy and hold strategy. Admire your style that getting alike Warran buffett, once spot undervalue stock, will keep for long unless stock are fully or overvalue. In this case, Genting SP still have great potential, at least until its casio is open.
Bought Ireka at 72sen, margin line almost used up :(
Portfolio until now.
Kfima 119.6%
OIB 59.8%
Ireka 6.9%
Oka 5.3%
Just bought ATRIUM at 77sen for longterm & income distribution.
wow, what is wrong with ireka? drop 10sen...1Q profit up by 17%. Proposed 2.6% dividend.
Bought more Ireka at 72sen, hitting maximum level using remaining margin line.
Ireka proposed 2.6sen less tax + 2.4sen Tax Exampt = 5sen dividend or equivalent to 7% dividend yield
Portfolio until now.
Kfima 119.6%
OIB 59.8%
Ireka 15.3%
Oka 5.3%
Apart from the attractive of 7% dividend yield, the other brighest ireka is trading at 72sen against its NTA of RM 2.08 and subtantial outstanding order contract of 650m, underpin at least 2 year earning.
Current order book has just secure in mid 2008 (Seni Mont Kiara super luxury condominum, already take in account all time high steel bar. building material in 2008 etc), Hence the net profit margin should be at least 5%.
Based on Q1 result EPS= 3.04; estimate annualized EPS at least 11sen, PE = 6.5x; dividend policy at least 40% net profit payout; expected dividend is at least 5sen gross dividend.
Horse
Congratul to you again, Genting SP continue surging, 1.13 now. Ha!look like your target 1.50 likely to surpass sooner than expected. Must be very exciting, thinking of own capital increasing everyday :)
Post a Comment