It definitely has been an unprecedented past 2 months with prices fluctuating largely day in day out amidst a longer downwards trend since the start of the year. (The picture above probably describes long-term participants in the market somewhat)
In such times, i do get the rare few messages that ask about
buying stocks and I take that as a sign of people paying more attention to participate
in the market.
Before actually buying stocks there are a couple of
considerations that I feel are more essential to answer before making the final
move. I would try to give my personal inputs although these are just my thoughts
only and could be very wrong or subjective.
Q1) Timeframe. Are we buying for
the long run or are we buying for a short-term trading position?
A1) If it’s the short-term then the
person possibly already has an aim in mind, if he/she does not then its
advisable not to execute.
If it’s the long-term then the person
has to ask him/herself if that amount of money that the person has put in will
not be touched in the foreseeable future despite job loss or any crisis. If say
you only have 10k cash but you do not have the job security then its more
advisable to not put that 10k in stocks. Putting into something less volatile
like Singapore Saving Bonds would be better.
Q2) Choice of Equity. Assuming Q1
did not deter us from investing, should we buy an Index ETF or a specific
counter.
A2) It’s a tough question to
answer personally, I feel that if you are ok with market returns an Index ETF
is always safer as it’s a basket of stocks and it won’t go bankrupt unless the
whole basket of stock bankrupts.
Specific stock picking always entails
a higher risk and most specific stocks require monitoring as well. Which is why
when people ask me about Singapore individual counters, my general advice is
that apart from Banks in the STI, the rest would require reading of its
financials and news related to the counter.
To cite a biased backwards
example of STI ETF (ES3) vs a bank stock DBS (D05) vs a well-known
household name Sheng Siong (OV8)
|
|
1 Feb 2016
|
31 Jan 2020
|
Dividends Collected
|
Total Return*
|
Simple Average Return per year
|
|
STI ETF (ES3)
|
2.596
|
3.205
|
0.376
|
37.94%
|
9.49%
|
|
DBS (D05)
|
13.506
|
25.37
|
4.43
|
120.6%
|
30.15%
|
|
Sheng Siong (OV8)
|
0.841
|
1.23
|
0.14
|
62.9%
|
15.72%
|
*Assumes that the user is like me
who spends the dividends on leisure and anything he/she likes apart from
investing it back.
The point of the example is to show
that returns largely differ between individual stocks and index etfs but that’s
because the risk is different as well.
Say if I had bought DBS/Sheng Siong
in 2016 instead of the STI ETF, I would probably be still somewhat more comfortable
currently.
Q3) Sizing. How much should I be
firing into assuming this amount of money I have decided that its definitely
safe and not affected by other factors?
A3) Sizing is an art, personally I
feel that this really depends on how a person perceives loss of money vs gain
of money in the mental state of mind. In reality when you lose a dollar vs when
you gain a dollar it should be -1 and +1. But a lot of us including myself are
not as mentally strong yet for a variety of reasons. Example: Lack of investing
experience, Aversion to loss, Thrill of gains.
If your ‘lose a dollar’ is more
than a -1 to yourself and you know it, its better to break the amount into 3-5
parts and slowly purchase at every 10% it falls. Sure, enough you might not get
to fire everything but at least you don’t feel that bad when your first few purchases
start losing money.
Do bear in mind how many counters
you are holding because sometimes you might start having to average some of
them and you might realize you have run out of money more quickly than you have
expected.
Q4) What are the SGX counters you
have been looking at?
A4) Just looking of course. Will
list down the counters I’m looking at and short 1 liner explanations.
Sheng Siong – Should it fall even
further by another 20%, it should be quite interesting
SBS Transit- Already fell like
50% from its peak? The upside is winning the bus packages in 2H of 2020 but the
downside is lockdown. Ridership is expected to decrease in this period but
assuming 1 quarter brings in about 6-7 cents eps the fall in profit should not
trigger such a huge sell down.
Tat Seng Packaging – Considering some
foolish sense of averaging and buying back into China just seems a little safer
at the moment.
SingHoldings- With Parc Botannia TOP
likely in 2021, this counter will most likely be cash rich which does not
reflect its current valuations although there is risk of buyers defaulting and
lack of visible projects that will affect its earnings in 2021 and beyond. As
of end March 727 units seems to have been sold, that leaves 8 units left
assuming 735 units on the internet is accurate.
Powermatic Data- When in doubt, a
cash-rich company and really good balance sheet company like Powermatic Data is
always a solid pick.
