Risky business

One of my readers commented (on good will) that I have taken multiple layered risks by investing all my cash into Singapore blue chips. A sudden calamity will wipe out all I have.

I thank him for his feedback!

My reply was to assure him not to not believe too much in textbook theories! They claim that you will take multiple layers of risk by buying stocks in your country or the company you are working in.

This is actually useful advice if I am a Vietnamese working and buying Vietnam stocks.

Try telling Warren Buffett that?

If he were to follow the textbook theories of risk management religiously, he will not buy companies like Coca Cola, Gillette, Procter and Gamble and Wrigleys!

He also cannot buy shares of Berkshire Hathaway, since he is the CEO!

The sub prime crisis, Iraq war, 911 are all considered "calamities" at the point when it happened.

But he is still the richest man on planet Earth.

My belief if to buy companies which you believe and have studied in. The geographical location is secondary for a value investor. Although a good investment climate is favourable for stocks growth and must be taken into consideration.

The real risk is investing without proper study of the underlying business. Also, I prefer to learn from the best!

Corporate: Potential Vietnam meltdown

Excerpts of CIMB report

Worries on Vietnam mounting. Investors have been concerned about the level of Vietnam exposure among major Singapore stocks recently. While Vietnam was among the favoured developing markets in 2006-07, there are now worries that the economy could be overheated, especially after the release of the latest inflation figures (+25% yoy). Although the Vietnamese dong (VND) has only depreciated slightly (-0.8%) in spot markets, its 12-month forward rates suddenly weakened in the past week. If the warnings signs from the latest inflation statistics and currency markets are right, the Vietnamese economy could be due for a major de-rating.

Property stocks have the biggest exposure. The biggest exposure to Vietnam comes from the property sector. Ascott Residence Trust, Keppel Land and Fraser & Neave all have 15-20% of their assets or revenue tied to Vietnam. These will be stocks most at risk.

Ascott REIT. ART is the only S-REIT with significant exposure to Vietnam. It has three properties there, contributing 20% of its revenue and 14% of its portfolio value. While direct exposure is significant, foreign-exchange risk from a depreciating VND is not as worrying. Although loans taken up for the acquisition of ART’s Vietnamese properties are all in US$ and lease receipts are only 70% in the VND and 30% in US$, we understand that VND leases are priced in US$ and merely billed in VND, at prevailing monthly exchange rates. This ensures some matching of cash flows with asset values. On the other hand, property-related expenses are all paid in VND and locked in for one year. Management is confident that any increases in these expenses, which are renewed annually, can be built into lease renewals of the serviced apartments.

CapitaLand. Minimal impact. We estimate CapitaLand’s RNAV exposure to Vietnam at 2-3%, with all its projects being high-end residential projects. Residential units for sale amount to only about 1,000 (or 2.6m sf GFA). Projects in Ho Chi Minh City include The Vista (219 units, 50% sold), a District 7 condo project (443 units, not launched), a District 9 condo project (79 units, not launched) and a District 9 villa project (302 units, not launched).

Sgbluechip says: I think this report shade light on Ascott 5.4% drop today. Allgreen is also exposed to the Vietnam market, though I am not sure the extend. It has fallen more than 5% since last month. The dipped in prices may signal buying opportunities for the dare devils. The dividend rate for Ascott is currently more than 7%.

I am also giving Ascott a miss though, as I have low risk appetite in investing properties.

OCBC preference shares

I'm giving this a miss as the dividends of 5.1% doesn't even cover the current cost of inflation. I can safely beat that by investing in Singpost, SPH or starhub. Besides, OCBC they can be redeemed at the option of OCBC Bank, but not the preference shareholders, five years from the date of issue.

Considering the SIBOR is at about 1%, any rise in interest rates in the next few years (which is very likely) will bring downward pressure on preference shares trading price.

Hence, I will not consider applying for it.

For those interested, you can apply it via ATM or your trading account.

Corporate: New targets/support for selected STI stocks

Compiled by AMFRASER SECURITIES

Infomation for traders only

Unlike the time when the STI first crossed the 3200 level on April 23, with financials, properties and SingTel behind the move, this time oil and commodity plays have been leading the pack as the index knocks the door of 3200 again.

But many of these stocks led by Wilmar, Olam, SCI and SembMarine, have exceeded our target prices while SingTel is trying to resume its lead which hopefully will pave the way for the banks, SGX and properties to recover to their highs in late April.

There maybe a stronger case to buy DBS, UOB, OCBC, SGX, CityDev and Capitaland besides SingTel which are still significantly below their April 23 levels.

DBS ($19.58) stood at $19.52-$20 on April 23 and slightly exceeded our TP of $20.60-70, reaching $20.80 on May 7, falling to as low as $19.08 last week. It should recover back to $20.

UOB ($20.20) was at $20.70-$21.04 on April 23, meeting our $21.50-22 TP when it climbed to $21.70 on May 7. It dropped to $19.26 last week (ignoring the $18.94 closing low the previous Friday which could be a trading error). It should recover to $20.50-70.

OCBC ($8.67) was $8.59-$8.70 then, exceeding our $9 TP to $9.09 on May 6. Its fall has been muted, touching a low of only $8.53 which suggests its innate strength to test $9 again.

SGX ($8.09) is the worst performer this round, not recovering much from its low of $7.92 last week. It had moved between $8.30-60 on April 23 and exceeded our $9 in a matter of a few days, climbing as high as $9.62 on May 7. The rally was too sharp, causing it to slump back to below $8 and could only rise to $8.20 last Friday.

Traders should seize any weakness back to $7.90-$8 during this current consolidation as SGX should recover to $8.50-70.

Property heavyweights Capland and CityDev should also recover at least near its April 23 levels when the oil and commodity plays take a break. City ($11.54) stood at $12.24-$12.52 then, but fell sort of our $13 TP, touching $12.80 the next day onwards.

After a few rally attempts failed, it fell to a slow as $10.92 last week before recovering to $11.60 last Friday and this morning. City should recover again to $11.80-$12.

Capland ($6.50) has lost a bit from its Apr 23 level of $6.88-95 when we placed a TP of $7 and $7.40. It rallied to $7.18 on Apr 28, and after a subsequent rebound to a lower high of $7.15, it began its fall to as low as $6.20 last week, recovering to $6.57 this morning. It should be able to recover to $6.70-90.

Among offshore/conglo plays, previous laggard SCI ($4.95) stands out, rallying from Apr 23 level of $4.48-63 to as high as $4.93 a month later, above our $4.70-80 TP, climbing further to $5.01 this morning. Resistance should set in at $5.10 and then $5.35. Taking profits should be considered.

Sembmarine ($4.70) was trading at only $4.04-18 on Apr 23, breaking our $4.30 TP only after about a month later but has been shooting up in the last fortnight, reaching a high of $4.72 this morning.

Having reached its highest level since last November when it moved widely between $4.40 and record $5.70 high, it is interesting to see whether it can test the peak soon. The next resistance after overcoming $4.70 is $5.10-25.

KepCorp ($12.24) was at its highs of $11.82-$12.12 on Apr 23 but has yet to test our $13 TP, reaching a high of $12.34 last Friday. It appears to have a bit more steam to go to $12.50-70 with support at $12.10.

SingTel ($3.73) was $3.83-87 on April 23 and failed to rally to our $4 TP, reaching a high of only $3.94 on May 2 before falling to as low as $3.58 last Monday.

However we put out a trading idea on May 23 at $3.61 touting support at $3.56-62 and TP of $3.76-86. It touched $3.81 last Friday and should rally again back to $3.80-90 after some consolidation around $3.65-70.

Sgbluechip says: I will not chase the market after rig builders as they have risen to 85% peak levels when STI was 3800. They just need one piece of negative news before carnage and bloodbath sets in. Analysts have been upgrading rig builders to BUY when they were just recently downgraded. It seems that BUY calls are often made when a particular sector starts picking up (again). Fundamentals do not change overnight. Hence, do not trust analysts reports blindly.

I believe banks still offer positive trading opportunities.

I will stay away from property counters until Capitaland (SEA market leader) reaches $5. I will also be happy to buy City Dev at $8. Property firms pay very little dividends, hence I need to set aside a larger margin of safety when investing in such businesses.

The prehistoric investor (Chapter 1)

As I mentioned earlier, I left my house earlier to beat the ERP and during my new found free time, I am currently reading a borrowed book (from my brother) known as The prehistoric investor written by Curtis J. Montgomery.

I have only finished Chapter 1 (yes, in between the little breaks I have) but I really really like his writing style and his examples (stocks and business) are mostly within Singapore context.

It is obvious he is a staunch follower of Benjamin Graham and Warren Buffett, which my investment style is inclined to. In fact, one point he highlighted in chapter one is that:

“There do not appear to be any technical analysts among Forbes list of the wealthiest people in the world while Buffett and dozens others with a fundamental investment style have became billionaires.”

I believe the above sentence is really encouraging to all subscribers of fundamental analysis like Kleer and Musicwhiz!

One think I like about this book (or at least chapter 1) is that it basically summarizes all the books I have read about fundamental analysis and financial behavioural science! Every sentence seems to me that I have read somewhere (but forgotten) and catches my breath and attention!

(You got to read Your money and your brain: how the new science of neuroeconomics can help make you rich by Jason Zweig if you enjoy understanding how our mind works when it comes to investing.)

One paragraph of chapter 1 was particularly relevant to me! I rigorously highlighted the whole paragraph! Basically it meant that companies that do not pay out dividends retain the full decision to control how money is spent on future investments. However, if dividends are paid out, shareholders (YOU) will now play a part in managing the company’s earnings. YOU can save and spend; reinvest into the same company, other better companies or even competitors. In a way, YOU take part in the decision making process of managing earnings!

True yah?!

The point that struck me is: You must reallocate your earnings (dividends) responsibly!

Hence, do not get too happy when you get your dividends and blow them on the latest gadget! (I know IT fair is coming!) Spare some for reinvestments/diversification/hedging or you will be doing a disservice to yourself and your company! Do not waste your company’s money! You have a share in it too!

For those who are interested in getting the book, you can get it FREE here: http://www.wallstraits.com/

My brother got 2 books free by answering 2 quizzes online. I will not be getting it as he has lent it to me and allowed me to highlight, draw, underline and kiss the book. He is currently finishing “The philosophical investor” , also free from web by Curtis J. Montgomery.

All yours now!

On course: 8 benefits!

I’m on 2 weeks course which is wonderful!

Firstly, I do not have to see my boss’s face and attend silly meetings with silly people.

Secondly, I get to eat different food after eating the same puke in my workplace area for years.

Thirdly, I get to see different people and hopefully meet my future wife there.

Fourthly, I can knock off at 4.30pm after negotiating with the trainer to just give us 1 hour lunch break instead of 1.5 hours.

Actually I requested to leave at 4 by giving up the 2 coffee breaks (morning and afternoon), but was turned down as food have already been intended (SAF style).

Fifth, I get to learn something new in a new environment with new people.

Sixth, I do not have my laptop with me which means I do not have to monitor the stock market and it is in line with my principle of passive portfolio management. It is hard to resist the temptation to monitor the stock markets actually! No more temptation to trade too!

Seventh, I can find time in between lunch and coffee breaks to read an investment book (more about it later) I borrowed. Good utilization of time!

Eighth, I get to wear casual which saves me time from ironing shirts and pants.

As the course was conducted near Tiong Bahru, I have to leave home earlier to beat the costly ERP on PIE and CTE. The money saved on road tolls bought me a healthy breakfast, papers and tea with some spare change. I prefer not to trade 30 minutes sleep by paying $5 for ERP. The money can be put to better use!

Now I realized that it is actually quite costly to work in town area. The MOS burger lunch already cost me $7. My parking expense was fortunately $3 (park and ride) only. The traffic conditions was quite bad on the way home hence more fuel was wasted in between the jam.

Well, the additional expense incurred is well covered by the 8 benefits! You can’t win everything in life! I choose to look on the bright side!

Perhaps my next job is to be a trainer!

Sgbluechip new logo!

SUPER!