Saturday, August 1, 2009

Bad news over the weekends

According to my finance lecturer, the worst performing day of equities for the past 100 years is not Friday, but Monday.

Apparently, the worst news are released when market closes on Friday as companies hope that investors have a nice weekend to enjoy thus mitigating the sell down that will happen on Monday.

It rarely works.

Perhaps this is why Great Eastern reported the “good news” that it will take a hit of 250M for its Q3. This is a significant payment as the profits for its Q2 is only 97.7M. Understandably, OCBC will also be dragged down on Monday when market reopens as it expects to take a 218M hit on its books in 3Q.

Of course it is no mere coincidence that OCBC will be reporting a decent set of 2Q results on Monday (3rd August) to mitigate the negative news.

I am not sure how market will react on Monday, but I do feel puzzled that GE and OCBC are not acting on shareholders interest, but on customers’ interest.

The objective of all (for profit) firms, theoretically is to maximize shareholders value. Considering DBS who have paid out only 10% of its earmarked impairment fund for DBS High Notes and Minibonds, it has incurred the wrath of many except the stakeholders.

I presume that GE is expecting this move to increase its image and translate to better sales and maximizing shareholders’ value in the future.

That said, GE and OCBC are great companies to own and if their stock prices dipped to an attractive level of $10 and $6 respectively, there is no harm picking them up for long term investment.


musicwhiz said...

Hi SGBlue Chips,

Without happy customers, a company will not be able to make its shareholders happy too (loss of reputation, goodwill; and relationship management). It's all part and parcel of doing business.


Everlearning said...

Hi Sgbluechips,
GE is commendable in doing the right thing for the investors with them.

I have numerous insurance policies with GE. I have numerous bank accounts and investments with OCBC. But I am not a shareholder.

Ultimately, GE pleases all: investors-customers-shareholders.

Surely I would want to buy their shares if I have the money. Just a thought!

JW said...

Hi SGBlueChips

STI performed quite well on Monday. However, although STI rose, not all stocks rose together; the main index components pulled it up.

That said, fundamental analysis has shown that it is insufficient to rely on financial data and reasoning alone to judge whether Monday was good or bad. Furthermore, as sgmusicwhiz has said, one could be susceptible to value traps as well.

Market is driven a lot by human psychology, that's why I believe in technical analysis as well. Sure, the company is good to own, but because of expectations that it would drop due to perhaps expected profit loss, etc, one waits, and waits, and misses the window of opportunity.