2008 has been a rather fruitful year for me. As this point of time, STI has declined by around 49% since the beginning of 2008 while my holdings of equities is currently slightly up by 4%. This is because I stayed out of the market for most of the time and I only entered near the interim bottom formed in October and since then, STI has rebounded slightly although it is in a consolidation phase now.
I'm not sure what 2009 will bring. Whether the bottom made in October will turn out to be the final bottom for the STI or it will continue to plunge, I'm not that sure either. What I'm sure is that if it plunge even more, I will be ready to scoop up more equities at a cheaper price.
As I recalled on how I made my purchases in equities, I guess some part of it can be attributed to luck although proper planning is still important. When the market peaked in October in 2007, my plan was to split my capital into 3 portions. I will then use each portion of the capital to buy in when STI has declined 30%, 50% and 60% from its peak respectively. This will help to average down my buying price and reduce the risk of putting all my capital into equities, only to see the market plunging even further.
As it turns out, when STI declined 30% from the peak, I was rather hesitant about buying in because I reasoned that a decline of 30% from the peak is rather low for a financial crisis that has been compared with the Great Depression. After all, the STI actually declined by slightly more than 60% in the Asian Financial Crisis thus I gave it a miss in buying when STI declined 30% from the peak.
Not long after, STI declined 50% from its peak and this time round, I was fearful of buying. Irrationally, I thought that since STI has declined by such a huge percentage, it can continue to plunge even further. On hindsight, this way of thinking is rather illogical. I should be thinking that since STI has declined 50% from its peak, it is the time to buy since equities are at huge discount now. However, I gave it a miss again once again and I still think it is foolish of me to do so since I could be running the risk of the market rebounding off the bottom without me.
Finally, STI declined by 60% from its peak. This time round, I was too tempted by the huge undervaluation of equities and I plonked part of my capital in promptly. It turns out that STI has found an interim bottom at a level which is slightly more than 60% from its peak.
Thus I was pretty fortunate that my holdings are still slightly positive at this point of time. If the market continues to plunge further, I will continue to scoop up more equities. I guess it is important to plan and know what to do when the market reaches there and continue to stick to your plans. In this way, one will feel less fearful and will be able to carry out his plan successfully. Let's hope that 2009 will turn out to be a better year for all of us.
Wednesday, December 31
Tuesday, December 30
How to make money in 2009
Posted by
Kay
at
Tuesday, December 30, 2008
2 comments
In this article, there were also other interviews being conducted but I find that the viewpoint being shared by Gabriel Yap is very informative and I am holding the same views as him too. To summarize the important things that he said,
1. Upside is capped by consistent bad news from the economy, earnings and asset markets, but the downside is protected by already excessive pessimism and historically low valuations.
2. A good indication that the smart money is back can be indicated by the market volume.
3. Equities will bottom first before the economy, then will come companies' earnings and lastly, the property market.
Part of the article, How to make money in 2009 which was published in the Sunday Times on the 28 December 2008.
Mr Gabriel Yap, senior dealing director with DMG & Partners Securities
What was the best and worst thing that happened to you financially this year ?
Best: My decision to liquidate practically all my trading portfolio when the market saw two price peaks in October2007 and broke its trend line after the second one - a strong indication that it was time to sell - in December 2007.
Worst: Despite liquidating almost all of my trading portfolio, I had only begun to trim my investment portfolio in August 2008 when the banks were reporting huge losses despite management’s assurances of a turnaround.
How do you see 2009 panning out?
Equities are on course for their largest losses since the Great Depression and 2009 could exhibit the classic post-boom and bust sideways trading pattern in the first half of the year. That is when the upside is capped by consistent bad news from the economy, earnings and asset markets, but the downside is protected by already excessive pessimism and historically low valuations.
We will likely see a decline in global credit spreads which have already happened, bottoming of companies earnings and a stop in the decline of United States housing prices.
What is one piece of financial advice you would give to a person looking ahead in 2009?
Based on fundamentals, the 60 to 70per cent collapse in global equities since October2007 has brought valuations to 40per cent below replacement values of their underlying assets. Thus, the downside, if any, from the current levels will be minimal.
Look for the market's daily trading volume to rise. At the peak we were trading 9.4 billion shares a day but right now we are seeing less than a billion a day. If you see volume moving up to three or four billion, that's a very good indication that some of the smart money is coming back.
Would your answer be different for a)a single, working person b)a married couple with school-going children c)a retiree?
a) You should be looking to increase your risk profile in equities.
b) Same, but less weightage in stocks highly sensitive to economic factors.
c) Invest or trade with only your spare cash. Keep the bulk of your portfolio in the steady income generation class.
Is it a good time to buy a car or property?
Car and certificate of entitlement (COE) prices move in tandem with the economy, so it is not too timely to do so if it is not necessary.
Based on experience, property will be the last asset class to recover this time round, in view of the looming supply.
As with the past great equity bottoms of the Singapore market in 1985, 1998 and 2002, equities will bottom first before the economy, then will come companies' earnings and lastly, the property market.
In this article, there were also other interviews being conducted but I find that the viewpoint being shared by Gabriel Yap is very informative and I am holding the same views as him too. To summarize the important things that he said,
1. Upside is capped by consistent bad news from the economy, earnings and asset markets, but the downside is protected by already excessive pessimism and historically low valuations.
2. A good indication that the smart money is back can be indicated by the market volume.
3. Equities will bottom first before the economy, then will come companies' earnings and lastly, the property market.
Monday, December 29
Singapore's private home sales, prices & rents fall sharply in Q4
Posted by
Kay
at
Monday, December 29, 2008
1 comment
Singapore's private home sales, prices & rents fall sharply in Q4
By Timothy Ouyang, Channel NewsAsia | Posted: 29 December 2008 1447 hrs
SINGAPORE: Private home sales in Singapore have taken a sharp fall in the fourth quarter of this year.
According to a report released Monday by property consultant DTZ, only 112 private homes were sold in the primary market in October, and 192 units sold in November.
This, compared to the monthly average of 444 units sold in the first nine months of the year.
The October sales volume is the lowest since the release of official monthly sales data by the Urban Redevelopment Authority (URA) in June 2007.
For the full year, DTZ estimated that the number of home sales in the primary and secondary markets will only make up about 35 per cent of last year's sales, which saw some 38,100 units sold.
The figure is based on caveats lodged with the URA so far.
At the same time, the fall in private home prices have started to gather pace in the fourth quarter, with prime non-landed properties the hardest hit.
Prices of non-landed freehold private homes in the prime districts fell by 14 per cent quarter-on-quarter in the three months ended December, according to DTZ Research.
Overall, average private home prices have fallen 21.6 per cent year-on-year to S$1,160 per square feet, below the level of S$1,200 per sq ft in the second quarter of 2007.
Meanwhile, average monthly rents of prime non-landed homes have fallen 9.2 per cent to S$4.36 per square feet.
DTZ expects home sales to remain low next year as the recession takes its toll and homebuyers are concerned over job security.
- CNA/yb
Labels:
Property
Sunday, December 28
Preference Shares
Posted by
Kay
at
Sunday, December 28, 2008
1 comment
Preference shares, also known as preferred stocks can be said to be a mixture between debts and equity. The reason why they are known as preference shares as compared to ordinary shares, also known as common stock is because the preference shareholders are given preference over ordinary shareholders over some issues as given below.
1. Dividends
Dividends must be paid to the preference shareholders first before they can be paid to the ordinary shareholders.
2. Liquidation
In the event that the company is liquidated, the proceeds from the liquidation will be distributed to the preference shareholders first before it is being distributed to the ordinary shareholders. However, the depositors and the creditors of the company will be paid first before the preference shareholders.
3. Voting rights
In exchange for the above privileges, preference shareholders do not have any voting rights as compared with ordinary shareholders.
Unlike bonds or debts, the company issuing the preference shares has no obligations although it may have the right to purchase back or redeem the preference shares although it may have the right to redeem it back at a later period. Thus preference shares will not mature unless the company redeems it back.
The above mentioned features applies to all preference shares generally. There are some issues that separate different preference shares from one another.
1. Cumulative or non-cumulative
In the event that the company do not declare and pay any dividends for a particular financial year, the dividends that is supposed to be paid this financial year will be accumulated to the next financial year only if the preference shares are cumulative. If the preference shares are non-cumulative, the dividends that were not declared and not paid in the previous financial year will not be accumulated to the next financial year.
For example, you are holding 1 share of a OCBC cumulative preference shares that gives 5% dividend on a par value of $1000. For the year 2000, OCBC is supposed to pay you a dividend of 5% x $1000 = $50. However, OCBC decides not to give out the dividend for the year 2000. Now let's move on to the next year. For the year 2001, OCBC is supposed to pay you a dividend of 5% x $1000 = $50 again and OCBC decides to give out dividends for this year. However, remember that OCBC did not give out dividends in 2000. Since the shares are cumulative, they will have to pay out the dividends which they did not pay you in 2000 along with the dividends for 2001, thus you will receive a total of $100 in dividends. If the shares are non-cumulative, you will only receive a total of $50 since they will not have to pay you the dividends which they did not pay in 2000.
2. Convertibility
If the preference shares are convertible, it means that you can convert the preference shares to ordinary shares at a certain price. The advantage of this for investors is that you will be able to convert the preference shares to ordinary shares for a profit if the price of the ordinary shares are high.
I am touching on some other considerations on preference shares and perhaps a case study of a preference share issued by a local bank in another post. You can access it here.
1. Dividends
Dividends must be paid to the preference shareholders first before they can be paid to the ordinary shareholders.
2. Liquidation
In the event that the company is liquidated, the proceeds from the liquidation will be distributed to the preference shareholders first before it is being distributed to the ordinary shareholders. However, the depositors and the creditors of the company will be paid first before the preference shareholders.
3. Voting rights
In exchange for the above privileges, preference shareholders do not have any voting rights as compared with ordinary shareholders.
Unlike bonds or debts, the company issuing the preference shares has no obligations although it may have the right to purchase back or redeem the preference shares although it may have the right to redeem it back at a later period. Thus preference shares will not mature unless the company redeems it back.
The above mentioned features applies to all preference shares generally. There are some issues that separate different preference shares from one another.
1. Cumulative or non-cumulative
In the event that the company do not declare and pay any dividends for a particular financial year, the dividends that is supposed to be paid this financial year will be accumulated to the next financial year only if the preference shares are cumulative. If the preference shares are non-cumulative, the dividends that were not declared and not paid in the previous financial year will not be accumulated to the next financial year.
For example, you are holding 1 share of a OCBC cumulative preference shares that gives 5% dividend on a par value of $1000. For the year 2000, OCBC is supposed to pay you a dividend of 5% x $1000 = $50. However, OCBC decides not to give out the dividend for the year 2000. Now let's move on to the next year. For the year 2001, OCBC is supposed to pay you a dividend of 5% x $1000 = $50 again and OCBC decides to give out dividends for this year. However, remember that OCBC did not give out dividends in 2000. Since the shares are cumulative, they will have to pay out the dividends which they did not pay you in 2000 along with the dividends for 2001, thus you will receive a total of $100 in dividends. If the shares are non-cumulative, you will only receive a total of $50 since they will not have to pay you the dividends which they did not pay in 2000.
2. Convertibility
If the preference shares are convertible, it means that you can convert the preference shares to ordinary shares at a certain price. The advantage of this for investors is that you will be able to convert the preference shares to ordinary shares for a profit if the price of the ordinary shares are high.
I am touching on some other considerations on preference shares and perhaps a case study of a preference share issued by a local bank in another post. You can access it here.
Labels:
Preference Shares
Saturday, December 27
Output in recession-hit Singapore down 7.5 pct in Nov
Posted by
Kay
at
Saturday, December 27, 2008
1 comment
SINGAPORE (AFP) — Singapore's manufacturing output fell 7.5 percent in November, according to the latest data, as exports from the recession-hit economy suffer during a global slowdown.
The 7.5-percent decline, compared with the same month last year, was less than an average 15.0 percent drop forecast in a Dow Jones Newswires poll of economists.
Gains in pharmaceutical production could not outweigh falls in most other categories, the preliminary data from Singapore's Economic Development Board (EDB) showed.
But increased biomedical manufacturing, which includes pharmaceuticals, pushed output up by 6.2 percent on a seasonally adjusted month-on-month basis in November from October, EDB said.
Singapore's manufacturing sector accounts for nearly a quarter of economic output. Virtually all of the production heads for foreign markets, an indicator of Singapore's dependence on the health of the global economy, analysts say.
With key markets the European Union and the United States in recession, Singapore's exports have been hurt and the city-state in October became the first Asian economy to enter recession.
The numbers were "a little better than people expected" but most gains came from the notoriously volatile pharmaceutical sector, said David Cohen, director of Asian forecasting at global research house Action Economics.
Pharmaceutical output grew 17.5 percent in November, the EDB said. Medical technology, the other component of biomedical manufacturing, dropped by 15.4 percent but overall biomedical output rose 14.9 percent, EDB said.
Consumer electronics and information-communications output fell by 58.2 percent while semiconductors dropped 17.6 percent, helping to drag total output in the electronics sector down by 19.4 percent last month, it said.
The chemical sector fell by 20.1 percent in November, on lower petrochemical and petroleum output, while precision engineering output fell by 19.1 percent and general manufacturing -- which includes printing -- declined by 1.7 percent, EDB said.
An increase in ship repairs and aerospace output boosted the transport engineering sector by 5.2 percent in November, the data showed.
Cohen said the economy is likely to grow less than the government forecast of 2.5 percent this year -- "maybe closer to two percent".
Next year, he added, growth should come in at the lower end of the government's 2009 projection, which ranges from a contraction of 1.0 percent to growth of 2.0 percent.
"I think the global demand is still slowing down, which is reflected in the electronics sector," he said, adding that advance fourth-quarter GDP figures due on January 2 are expected to provide further evidence that Singapore is in recession.
"The hope is it will bottom out by the middle of next year, which still seems reasonable," he said, adding that some downside risk remains.
Labels:
Economy
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