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Wednesday, October 31, 2018

Fortune favors the bold

"Be bold when fear paralyses the market" - seems to be the running theme now in most of the financial blogs I am reading.

However, the thing is, if everyone is "boldly" exploiting the recent 20% correction in the STI, then who exactly are the "paralyzed" ones?

Relying on boldness in and of itself is probably unwise anyway.

It is like the wildebeests crossing crocodile infested rivers. Charging in head first is not always the best idea.  Relying on advice by so-called experts is also not optimal. 

No one can predict the depth of this correction. Too conservative and you may miss the boat. Too aggressive and you may go down with the ship. Everyone touts a mythical balance, but nobody knows how to define such "balance".  In short, the answer to the question "should you invest in the stock market now?" is "your guess is as good as mine".

As one of my favorite bloggers likes to say, a good strategy for me is not necessarily a good strategy for you. Always strive to do what you are comfortable with. Do not invest with money you need or can't afford to lose.  Always have a contingency plan.

That said, September and October saw a bit of an unhinged shopping spree on my part, motivated at least partially by an (irrational?) desire to fully deploy my war chest before the end of December.

Report card of purchases at end of Oct:

Share  No. of shares Average price Value (S$) Current Share Price P/L (%)
First REIT 20,000 1.24 24,883 1.18 -5.16%
Lippo Malls 100,000 0.26 26,087 0.235 -9.92%
OCBC 5000 10.63 53,297 10.64 -0.18%
AIMS AMP 40,400 1.34 54,318 1.35 0.41%
DBS 1000 23.43 23,509 23.28 -0.97%
Frasers Logistic Trust 30000 1.03 31,004 1.02 -1.30%

It is not that great obviously. Clearly some choices were speculative (read questionable) - Lippo Malls.  But overall, I am cautiously optimistic about FLT, AIMS, OCBC and DBS. In particular, DBS is now boasting a yield of 5%. If history is anything to go by, one should never pass up an opportunity to load up on a state-owned bank dishing out a generous 5% yield.

Monday, October 29, 2018

The value of analysts

Every morning, my broker sends me a "market pulse" report, which contains a discussion of latest market developments and, additionally, a couple of BUY, SELL, or HOLD recommendations.

On 7 Aug 2018, analyst Carmen Lee from OCBC had a BUY rating on DBS:

Banks: You can bank on it!

Despite recent volatility, the three local banks reported a relative good set of 2Q18 results.  More importantly, the guidance is still fairly positive. With more rate hikes ahead, NIM is likely to stay at current or higher levels. Based on current consensus estimates, net earnings growth is projected at 21% in FY18 and 11% in FY19 – record earnings for the banks. This underlines optimism in terms of growth expectation for both the Net Interest Income and Non-interest Income. The bumper crop of higher dividends also meant that on an annualized basis, dividend yields range from 3.5%-4.5%. With lower allowances, improving margins and healthy dividend payout ratios and yields, we remain fairly optimistic on the outlook for the banks. We have BUY for both DBS and UOB.

Maintain OVERWEIGHT on Banks, with BUY for both DBS [FV: S$31.83] and UOB [FV: S$32.09]

If you had bought DBS on 7 Aug at $26.79 on Carmen's recommendation, you would have lost about 15% of your investment.

How did we get from OVERWEIGHT to the current correction in a matter of 2 months? We went from DBS hitting stratospheric highs to now precariously hovering over the $23 precipice.

Every trade comprises two willing parties, each believing themselves to be making a good deal. Did the institutional clients offload DBS stock at a good price? Would they have been able to do so without a buyer willing to pay historically high prices for DBS? Were these unwitting buyers persuaded into paying such sky high prices based on Analyst Reports?

So many questions. No answers.

Personally, I give almost no weight to these analyst reports. Indeed, the worst-performing counter in my portfolio (95% losses) - Ezion - was an analyst darling back in 2015-17.  As late as Dec 2014, where the O&G crisis was unfolding, Low Pei Han of OCBC securities was optimistically touting a TP of $2.05 in 2015 for Ezion. The rest, as they say, is history.

The common refrain is of course: DYODD. Do your own due diligence. And I could not agree more.  However, if the professionals engaged to perform such analysis can't even get it (remotely) right, why does the layman think DYODD is the panacea?

If anything, I now actively avoid any stock that Low Pei Han rates as a BUY.

Who says analysts aren't useful.