Archive for September, 2007
While most market commentators have cited the expectation of a interest rate cut for the surge in US markets yesterday, I would rather call the surge a relief rally as we have witnessed a peaceful passage of the anniversary of 911. I am truly glad that 911 had passed without major calamities. To be frank, the US markets are a little ‘boring’ at the moment. They are dancing to their normal tune of the various factors in play now. Simply put, the worry of economic slow down/recession vis-à-vis the expectation of interest rates cut. Hence, we would expect market to gyrate as usual, i.e. volatility remains high.
Frankly speaking, the hedge trades (insurance against my holding) that I did last week are in the red at the moment. In fact, I am glad to be in this situation as my holding is in the opposite direction of my hedge. For instance, if we bought an accident insurance, surely we do not hope to claim on this money. In short, I am happy to lose all my insurance premium for my hedge trades. However, the expiry date for my hedge is sometimes February next year. You see, my objective here is to cover the most volatile 3rd quarter, perhaps till end of October. Hence, I have selected a Put warrant with expiry date well covered this period as my hedge target. Should anything happens (hopefully not) that causes the markets to fall sharply during this period, I can still book a good profit from my hedge positions!
In fact, today where STI index is currently trading at around 3,518 is another good level to execute our hedge. For those that wish to hedge against their portfolio, today seems to be another good day to do the hedge (what if Fed does not hike the rates, what if economic data are uglier than expected, what if China stock markets collapse, …etc events risk). As I mentioned before, for those who wish to hedge against their core holding, you may buy the Put warrant on STI index or Hang Seng Index (if you have regional exposure). Before you do that, please make sure that you do understand the option/warrant as an investment instrument. Please take note of the expiry date, conversion ratio, the exercise price and of course the premium that you need to pay for each Put warrant. After knowing these, you can then plan the amount that you decide to hedge, and the period that you wish to cover and work up the cost for this strategy. Cheers!
Master “The Essence of Stock Investment” and ride towards the journey of your financial freedom! Be the “Master of Your Own Destiny”!
Disclaimer: Investors are investing at your own risk. Please read full disclaimer at the end of the blog or from the main page of the website.
September 12th, 2007
NW Teong
I know I know, I am a bit crazy to talk about tech sector three times in a space of 8 days. I simply cannot help it as I think that at current level, it is still very good level to accumulate and build up my tech portfolio (One, please be selective in your stock picks and two be sure to allocate your funds prudently, i.e. diversify whenever possible).
Other than monitor some macro indicators such as the semicon book to bill number (refer earlier blogs), I noted with great interest on some recent news. Both TSMC and UMC has just reported good sales and bottom line numbers for August 2007 and more importantly have improved their guidance for third quarter. Please note that TSMC and UMC are No 1 and No 2 semicon foundries respectively in the world. What does this tell you? Sure, as No 1 and No 2 foundries in the world, they are surely indicative of what this industry is performing few months down the road. In fact, their results are important indicator of what will happen to the entire tech sector in the world as most tech products need semicon components to a varying degree. They give me a very positive feeling and reinforce my positive view on tech sector in the next six months (at least till end of the year). Another piece of positive news came from the No 1 semicon stock, i.e. chip maker Intel which has also upgraded its gross margin and sales guidance for third quarter. Intel cited better world wide demand for the upgrade.
In fact, some of the tech stocks that I am monitoring have, on average rose by about 10% since I first made the buy call in tech stocks. However, these stocks still have the potential to rise another 20%-30% by the end of the year albeit unforeseen circumstances. Having said that I must point out again that markets would still be volatile (by now some of my readers may complain that I am really “lor so” which is a Hockkian phrase for being long winded in English as I have already cautioned a few times in my earlier blogs that 3rd Quarter is one of the most volatile quarter in a year, especially now with the unfolding of the sub-prime saga). However, this also makes it a great quarter to cherry pick the stocks you really like!
Remember to use the strategy that I mentioned before: buy core stocks + insurance (hedge). Ideally, our portfolio should consist of stocks that rely heavily on domestic market (I am talking about Asia Markets, especially, markets such as Singapore) such as the construction sector and other sectors that depend on global trade such as tech sector. My objective on this is to achieve a natural diversification. If we really cannot find good stocks in different sectors, then we should forget about diversification, remember do not diversify just for the sake of diversification. I always urge people to understand the essence of things that they learnt. Diversification is a simple term that most people can understand, however it is also most widely abused by investors.
Another example is dollar-cost averaging. We always hear this from unit trust sale persons, especially when market is on the down trend. They would advise customers to invest more when market is falling so as to achieve a lower averaging cost. If you blindly doing this dollar-cost averaging, you could stand to lose big, very big! Of course, this technique has its own merits but only applicable under certain condition. One scenario that you can use this technique is when the stocks/funds that you like are already at screaming buy level (obviously, you have done your home work…..macro analysis, company in-depth analysis, valuation….TA etc to derive this conclusion) and they are still falling due to extreme bearishness in the markets.
Master “The Essence of Stock Investment” and ride towards the journey of your financial freedom! Be the “Master of Your Own Destiny”!
Disclaimer: Investors are investing at your own risk. Please read full disclaimer at the end of the blog or from the main page of the website.
September 11th, 2007
NW Teong
As a frequent reader of my blogs you would have noticed that my current strategy is simply buy and hold some of my first rated stocks (i.e. those stocks with good fundamental, good earnings growth potential, relatively cheap valuation, best of all give me about 3-5% dividend yield) PLUS buying a Put option/warrant of indices. As I said a few times in my earlier blogs, my hedge strategy really provides me with twin objectives. It provides a cushion in case there is a sharp correction or a market melt-down and also provides me with a profit-making opportunity. The very essence of a hedge is basically an insurance feature, it offsets the fall in your overall portfolio. This is crucial especially during this quarter (I have also told you many times before that this quarter is volatile, didn’t I?)
For Singapore investors, to apply a hedge strategy against your portfolio holdings, the best and easy way to do is to buy a Put option or short against the STI index. However, last week, there were glitches in STI index. What to do under such scenario? The next alternative is to do it on few key component stocks such as SGX, UOB, DBS etc. The objective here is using these stocks as a proxy to the whole market. For instance, I have used SGX as a proxy and have actually bought some of SGX Put option (SGX BNP ePW080211) last Friday. If the market rises instead of drop, I will lose money on my SGX Put option but my portfolio would have made me more money. If market falls, than the fall in my portfolio would be offset (to certain extend as mine is not a full hedge) by the gain in my Put option which I may decide to lock in at certain level.
What has happened in the macro level? We know that US markets fell heavily due to a fall in its latest job data. This basically sparks fear that US economy may fall into recession. In short, the sub-prime problem has finally spread to other sectors of the economy. Well, I think while there would be negative impact on other sectors, we should not write a conclusion too early. If we look at those macro data that came out in the last few weeks, they are basically sending mixed signals. To summarise, we have mildly positive ISM manufacturing data for August but have negative data for housing and job market. However, we still have positive data on the consumer markets too. In short, the crystal ball for us to view the future remains slightly blurred at this moment. My read is that US economy would be slowing down with or without the impact of the sub-prime saga. The sub-prime saga could actually expedite the slowdown in economy or alternatively it can actually help to revive the economy. Sound ironical? The logic is simple, if market signals are clear that economy is going into recession, Fed would surely take action by cutting interest rates to prevent a recession. Under this scenario, the immediate response for the stock markets would be very positive. As you may also aware in my earlier blogs, I have said that Fed is likely to cut interest rates even if the market signals are still mixed for what I called a “err on the safe side” strategy. FYI, at this juncture of about 13,113, the down trend of Dow Jones Industrial Index remains intact. If you can recall, I have expressed bearishness on Dow Jones in my past few blogs.
As this juncture, let’s have a quick look at the US 10-year Treasury yield:
Courtesy of Finance Yahoo.
It had dropped 13 basis points to close at 4.38% which is around the lowest in about two years. This is a clear sign of fight to safety again! Another piece of negative news which most people have kind of immune to it already is the near-historically high crude oil prices. The good news is that the demand for crude oil might come down due to a possible slow down in economy but the bad news is that OPEC is unlikely to boost its production at the moment even at such a high price. This, to me is still a very key factor that weighs on the world economy. What happen if China or/and India economies are also slowing down substantially (not quite likely at this moment)? If this happens, run as fast as you can from the stock markets!
All said and done, this quarter will provide ample opportunities for you to trade. As I have shared in my e-book and e-seminar (The Essence of Stock Investment), we need to investrade carefully. In order to investrade smartly, you need to have the right investment knowledge, acquired the right investment strategies and investment tools, and of course the right mind set. Always investrade prudently and hedge your positions whenever you are not so sure on the big direction. As I have said this many times in my e-publication, we must always have a mind set that tells us that we can never afford to lose money (regardless of how much money we have and whether we can actually afford it or not). Cheers!
Master “The Essence of Stock Investment” and ride towards the journey of your financial freedom! Be the “Master of Your Own Destiny”!
Disclaimer: Investors are investing at your own risk. Please read full disclaimer at the end of the blog or from the main page of the website.
September 10th, 2007
NW Teong
1) There is boom-bust cycle in economy, in business and in each sector of the economy. The current market turmoil in US is a classic example in the real estate and hence the debt market.
2) Do not assume that the authorities will do nothing and hence let the system unravel by itself. If we look back into the history, we would know that the authorities would not hesitate to act in the event of a crisis. Some examples, US Fed took action to ease its policy during the following events: 1997 Asian Financial crisis, 1998 Russian debt default and collapse of LTCM, Y2K date change etc.
3) A financial crisis may force an economy into a deflationary trap and no government in the world would want its economy to reach that stage. If you have witnessed what Japan economy has gone through in the 90s, you would understand this. It took 13 long years for Japan to come out from that deflationary trap. Obviously, we have also noted when the deflationary force has gathered momentum, even an extremely low interest rate environment (even negative interest rates0 could not help to ease the situation. Yes, deflation is an ‘economic monster’ that everyone would love to avoid! Avoid for all you can, that does not mean we would not fall into one.
4) A slow and gradual unwinding of market excesses is fine, a sudden and rapid collapse of market is definitely a no-no. This will cause serious confidence issue which itself may cause a bigger collapse in the world market.
5) US today is still the largest economy in the world, and a sudden melt down in its financial system would have serious implications on the world economy and stock markets. However, we also need to understand that while US has a domineering position, its position would gradually being eroded due to the emergence of other big economies such as China, India and other up and coming economies in Asia, and other parts of the world. At times, we may read news article talking about economy of other countries de-coupling from US’s economy. To me, this is a matter of degree. That is the influence on other countries from US would decrease over time but will not totally decouple from it. Not so for a long long time.
Just like the bull-bear cycle in stock markets, the boom-bust cycle is really a reflection of human nature which has not changed much since the day we human beings first invented “money” or “currency”. We have reasons to believe that Fed and the US government would not hesitate to act in the event of a crisis. In fact both have lots of ammunition and thus have the ability to prevent a financial crisis at the moment.
At this juncture, the biggest nightmare for US would be a serious capital flight by the foreign investors whom might be sparked by the market turmoil in US. This will only happen if foreigners (as well as American) lose confidence in the US financial system and hence decide to divest their US holdings and re-invest these funds in overseas markets. We all know that foreigners have a substantial holding in US assets such as US Treasurys, equities, real estates and others. While this is not likely to happen now, it is always a possibility that this might happen one day. Perhaps, this will be carried out at a very gradual speed.
All of us would not want to be in the middle of a stampede. The worst nightmare that one may have is that you wake up one morning and realizes that you are in the middle of a stampede. What will you do? The most rational thing to do is to secure a safe spot (if you can find one) and wait for the stampede to be over. Remember, the casualties due to a stampede were never caused by the original cause (For instance, there is a stampede due to a fire in a cinema and many people died not due to the fire but due to the stampede itself). A smart investor will never allow herself/himself to be in the stampede situation in the first place. How to avoid, you may ask? My answer is: Don’t follow the crowd!
Master “The Essence of Stock Investment” and ride towards the journey of your financial freedom! Be the “Master of Your Own Destiny”!
Disclaimer: Investors are investing at your own risk. Please read full disclaimer at the end of the blog or from the main page of the website.
September 7th, 2007
NW Teong
Hi, just want to share two incredible pictures which are forwarded to me by one of my contacts with you:
The experienced one catches one fish at a time, the master catches two fish at one go!
In term of investment, we need to be very focus and sharp. We have to understand that, our resources namely time, money and energy are limited resources and hence we need to use them wisely. Always use razor sharp strategies. In short, we use laser-guided bombing with pin-point accuracy instead of carpet bombings. To translate this to investment is like this: do your homework and monitoring the markets, macro, and your stocks closely and zoom in when the timing is perfect (remember my call on 17 Aug 07? This is the result of days and weeks of monitoring works.)
Of course, sometimes we may be wrong, however, the frequency of wrongs should greatly be reduced with the passage of time. This is the important of experience. I am very sure young and in-experienced eagles will miss their catches some times. However, they never give up and continue to try until they have perfected this skill.
Hope these two pictures would inspire you to be a great investor!
Master “The Essence of Stock Investment” and ride towards the journey of your financial freedom! Be the “Master of Your Own Destiny”!
Disclaimer: Investors are investing at your own risk. Please read full disclaimer at the end of the blog or from the main page of the website.
September 6th, 2007
NW Teong
US markets surged yesterday mainly due to the same factors i.e. the ease in sub-prime loan saga and the expectation of interest rates cut by US Fed. This expectation is further strengthened by the latest ISM survey of the manufacturing sector, it registered 52.9 in August versus 53.8 in July. Investors cheered on this number, why? Reason: economy continue to slow down (hence Fed can go ahead to cut the interest rates without the ill effect of stimulating the economy too much so as to stir up the inflationary pressure) and at the same time not slowing down at a greater speed so as to have a recession. (For those who do not know how to interpret ISM data, please refer to my e-book, “The Essence of Stock Investment”, via www.master-rider.com)
Nothing really new at this juncture, as you can see investors are dancing with just two key issues at this moment: interest rates cut vis-à-vis sub-prime loan saga. What changes constantly is the expectation of the investors with regard to these two items, hence, the gyration of the markets.
Today, I would like to share with you this interesting and important feature: Nasdaq
At yesterday closing of 2,630, it had convincingly broken up from the down trend. Not only it had broken up the down trend, it had also pierced through its 50 days SMA of 2,595 as at yesterday close. It is very interesting to monitor for the next few sessions. If it can rise to 2,640 and maintain at least at that level, it has a great chance to re-test its recent peak of 2,720 registered on 19th of July. Frankly speaking, tech stocks (refer to my blog yesterday) purchased yesterday are already in the money! However, it will be prudent to accumulate along the way as the valuation remains attractive even at today’s level.
You see, there could be only two scenarios from now till 18 Sept, i.e the date for FOMC meeting where Fed need to decide on its interest rates policy. Scenario one is that markets are pessimistic and markets will fall to an attractive level. Under this scenario, I have better load up stocks that I want all the way before 18 Sept. Scenario two is that markets will surge substantially due to high expectation of interest rates cut. Under this scenario, I would still accumulate stocks along the way (but not as aggressively as scenario one). However, I may lock in my profit either right before 18 Sept or just after 18 Sept. It all depends on how crazy markets were at that time. My view is that, for scenario two, if markets have surged a great deal till 18 Sept, they may (or may not) get a last hurray right after Fed announced a cut in interest rates. I am prepared to lock in my profit under this scenario, why? 1) I think markets may correct if they have surged a great deal all the way till 18 Sept (hence I need to monitor the quantum that markets have moved), 2) There is still a certain degree of risk that Fed may delay the cut, especially if stock markets have done well, and 3) I still would like to sleep well knowing that there is still a Black Monday to bother investors about one month from 18 Sept!
Again, it is good to buy some insurance (hedge against own portfolio) in the form of Put options or warrants at this juncture. Cheers!
Master “The Essence of Stock Investment” and ride towards the journey of your financial freedom! Be the “Master of Your Own Destiny”!
Disclaimer: Investors are investing at your own risk. Please read full disclaimer at the end of the blog or from the main page of the website.
September 5th, 2007
NW Teong
While this sector is not a screaming buy at the moment, it is definitely worth monitoring from now on.
There are quite a number of tech stocks (in Singapore) that under my watch list look rather interesting at current level. In fact, some of them are at the level that I could add them to my portfolio. Obviously, under current scenario, one can afford to add gradually. In short, I can be a little fussy on the price (hence cheaper valuation) that I buy. I can tell you I am ultra conservative as far as investment in this sector is concerned. I am mostly looking at stocks that normally trade at under 10X current 2007 PERs (a couple of them actually trade at less than or about 5X only!), fundamentally sound (definitely profitable), and most of these also give me between 3.5% to 5% dividend yield. Even in the worst case scenario, I am very likely to still collect a yield that is higher than the pathetic interest rates that the banks in Singapore are giving me! FYI, I am likely to finish my buying of tech stocks after the anniversary of 911 but before the FOMC meeting on 18 Sept.
My rational? 1) I like tech stocks for their cyclicality. I really like cyclical stocks where I can execute my investrate strategy to the max effect. 2) I am taking a calculated risk that traditionally last quarter is very good for tech stocks where the demand for tech products is also the highest in a year. 3) I am prepared to hold at least 3-6 months for my tech stocks. 4) Blue chips versus my tech stocks. The risk and reward profile in my opinion favour the tech stocks at this moment. Blue chips are really vulnerable to event risk and the upside is really limited at this moment. In the event that there is a cyclical up turn in tech, I reckon my tech stocks would clearly out-perform those blue chips. 5) Most importantly, they are fundamentally sound, cheap valuation and give me good dividend yield!
Please note that I am not saying that the tech sector has started to turn around, not yet! If you, like me also monitor the semicon book to bill ratio (please refer to my blog on this topic dated 20 Aug), we know that this ratio is still on the down trend. I, for one will monitor this ratio closely to gauge the cyclicality of this whole sector. However, I wish to park my position in tech stocks way before others do and besides I prefer to invest in my own Master Rider’s way. As I mentioned before, I have no qualm of buying stocks that I like at this moment even though I feel that Dow is downward bias in the next few trading days. Like what I have shared with you, buy stocks with good potential and at the same time hedge them by buying put option/warrant of the relevant indices.
Caution: You need to be selective and prepare to hold at least till end of the year to see good returns. During this period, please continue to monitor key macro indicators! Of course, you do not invest 100% of your fund in this sector, recall those stocks that I shared with you in the construction sector? Diversification has its own merits if we really do understand the essence of its meaning. Cheers!
Master “The Essence of Stock Investment” and ride towards the journey of your financial freedom! Be the “Master of Your Own Destiny”!
Disclaimer: Investors are investing at your own risk. Please read full disclaimer at the end of the blog or from the main page of the website.
September 4th, 2007
NW Teong
Since the Asia markets are relatively calmer today as US markets were closed on Monday due to Labor Day holiday, I shall use this opportunity to share with you this piece of great news! Yes, I will be launching my proprietary investment spreadsheets via this web site: www.master-rider.com in the next few days! Please watch out for this launch!
In order to help those that genuinely want to learn and invest on their own, I have decided to share my investment spreadsheets (excel spreadsheets) via my web site (of course for a token sum). They include the Valuation model, Portfolio spreadsheet and Master Rider System. In the Master Rider System file, it also consists of both the valuation and portfolio spreadsheet.
The most exciting feature is that in the Master Rider System, the spreadsheets are linked to various web sites so as to give you a live feed whenever you open the file or simply refresh your links (all these are done through the spreadsheet!). This, in my opinion would be very useful for retail investors like you as you do not need to pay monthly subscription fees to those financial services for market data. Furthermore, with this feature, you can really actively manage your own portfolio!
Please watch out for these investment spreadsheets on my web site within the next seven working days. I have used all component stocks of the STI for the above spreadsheets. In addition, I also include some of the macro indicators which are also linked to relevant web sites in the Master Rider System.
This is the first time I am sharing my proprietary investment spreadsheets. I personally find these spreadsheets a great help in fine tuning my market timing decisions, and they really make my monitoring work (be it macro, stock watch, buy/sell decisions) a breeze! In addition, with the ‘live’ feed of stock prices and trading volume, I can actually devise many of my own investrading strategies too!
Watch out for this news! Please note that this system is developed especially for every man in the streets. As a retail or individual investor, we may not be able to afford high premium financial services such as Bloomberg or Reuters that are used by professional investors. However, with this system, we are definitely one step closer to the professional investors and yet at the same time avoiding paying high monthly subscription fees! Cheers!
Master “The Essence of Stock Investment” and ride towards the journey of your financial freedom! Be the “Master of Your Own Destiny”!
Disclaimer: Investors are investing at your own risk. Please read full disclaimer at the end of the blog or from the main page of the website.
September 4th, 2007
NW Teong
My short-term view remains the same, markets would still be volatile. Let’s take a quick look at the US markets which are giving stock investors all over the world (perhaps except China stock market) the direction at the moment.
First, take a look at Dow. At current level, it is clearly at the top of the down trend lines. In addition, at 13,357, it is about 84 points away from its 50 SMA of 13,441.
Courtesy of Yahoo Finance
At this level, this is the time for me to execute my hedging strategy. If you have recalled my earlier blog of my current strategy: buy and hold some good fundamental, good potential and relatively cheap valuation stocks and buy Put option (or warrant) to provide certain degree of hedge to your portfolio. I also mentioned that in the event that market is falling, I am always ready to lock in my profit in my put position should market has fallen low enough. I always have a system to monitor all these (I have also shared these in my e-publications). Anyway, my message here is to execute my buy put option today! Of course, Dow may still continue to rise in the next few days. However, I know that at 13,500/13,600, it is a tough resistance for it to cross, at least for now!
Yes, US government has come out and provided some kind of aid programmes for housing loan borrowers and Fed has also mentioned that it will not hesitate to act should situation worsen further. Big cheers from investors, yes but only very short while. The actions by US government and Fed were themselves not surprising at all. In fact, both of these actions confirm the fact that the situation due to sub-prime loan saga was truly very bad, so much so that both the government and Fed need to do or at least perceived to be doing something about it. The action by US government has more psychological than actual impact. We should know that no government on earth will go all out to bail out the borrowers for obvious reasons. However, it is needed to prevent a loss in consumer and investor confidence, on top of political reason.
Similarly, Fed will not hesitate to act so as to prevent the destabilization of the financial system and the negative impact on real economy. We have to know that Fed, due to its unique position (no bail out of speculators but at the same time need to prevent a total collapse in investors confidence) would never reveal its actual policy before the FOMC meeting. It has to practice what I called “vague-ism”. That is, it has to remain vague enough for people to guess what it will do in its next meeting. In short, from now till 18 Sept, markets will continue to gyrate as investors would continue to debate on “the cut” or “no cut” by Fed. The funny thing about the market is that, if the markets recover very fast, the Fed may not want to cut the interest rates too early. This “mentality” of most investors will surely keep market swinging like a pendulum! My take at this moment is that Fed will cut its Fed funds rate in its next meeting for what I called “err on the safe side” policy!
Master “The Essence of Stock Investment” and ride towards the journey of your financial freedom! Be the “Master of Your Own Destiny”!
Disclaimer: Investors are investing at your own risk. Please read full disclaimer at the end of the blog or from the main page of the website.
September 3rd, 2007
NW Teong
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