My current market position

The market has been volatile for since 1st August 2011 mainly due to the economic problems in Europe and US. STI has hit the 52-week low on Monday, 26th September after closing at 2654 points. The problems in Europe would take time to solve and the volatility may continue for some time.

It’s the first time since I started investing in June 2009 that I’m seeing so much fear and uncertainty in the market. What is my position currently? I have sold off some overvalued stocks like Super (sold in June) and sold off silver (in August) and cut loss on Hock Lian Seng (in Sept). I have also reduced my positions in First REIT and Starhill Global REIT. I’m holding onto certain positions like Kingsmen, Vicom and STI ETF as I believe they are still undervalued. The P/E ratio of the STI market is around 8 and I’ll holding on to it even though STI is on a downtrend.

I don’t want to liquidate all my positions and buy-back later with the use of technical analysis. There are two reasons for this.

Firstly, I do not want to time the market. One cannot predict accurately the macroeconomic issues and the effect it would have on the stock market as there are too many complex variables involved. The Asian markets have dropped more than the DOW even though the liquidity problem is not in Asia.  The debt problem will take time solve but I’m more comfortable holding onto my positions as the dividends I receive in the meantime will cushion my paper losses. After the problem is over, the stocks will surely recover as they are fundamentally strong companies. I’m “loading up on my bullets” (saving up cash) to buy my companies at a cheaper price should prices plunge. I’ll average down if I have losses of 15% or more and will buy in batches instead of all at one go.

Secondly, even though the overall market may fall, some stocks will not fall as much or may even rise (it’s rare). These stocks are usually the defensive counters. So, it’s futile to sell and buy back later as I may be hurting my returns.

As an investor, it is somewhat important to keep up with the economic news and know where the world is heading towards. However, you should not let any negative news affect your investment decisions and make you emotional. Keep out the noise and focus on business fundamentals.  By focusing on the fundamentals of the company you are holding on to and by knowing the intrinsic value of the business, you will do much better by not selling off your stocks prematurely and hurting your returns. Keep a long-term view of your stocks of more than five years (as businesses take time to grow) and remember that “what goes down, must come up” (provided the companies are fundamentally strong).  In the long run, earnings drive the value of a company and reversion to the mean will occur. The fear that is gripping the markets now will turn to confidence after some time and markets will rise again. Also, always keep some cash and don’t be fully invested, ever. Save up a certain percentage of your salary every month. This kitty will come in handy when valuations drop after a temporary negative news of the economy or your company.

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Visit to H&M Flagship Store

Yesterday evening, I visited the H&M flagship store at Orchard Building which was fitted out by Kingsmen  after two previous futile attempts to enter it. The main reason why I wanted to go down was to take a look at the quality of work done by Kingsmen. Another reason obviously was to shop around for fashionable clothes.

I wanted to go down with my friend on grand opening day on 3rd September but it was mad-packed and who wouldn’t have guessed it, right? On the second attempt, exactly a week later, the queue outside the store was not as long but it was still long that we forwent queuing up. It was my lucky break yesterday. There was a queue but the queue was moving very fast and my friend and I queued for less than one minute. You can see a short queue to the left of the picture below.

A shot of the inside from the outside:

Once we entered, the store was quite crowded and there wasn’t much room to move around. The whole design and layout of the store was spartan yet elegant. There are a total of three floors. Ladies wear covers the first two floors and men’s wear and kids wear occupy the third floor. The clothing shelves were packed close together, probably to maximize the floor area. Below are pictures of the first floor, the ladies section, from the escalator:

Next, pictures of the men’s section. In the second picture below right in the middle, you can see the cashier queue snaking. H&M’s cash register must be ringing none stop from the fashion-crazy crowd and the never-ending queues. There was a queue even for the fitting room, as seen from the third snapshot below.

Lastly, a shot of a design near the escalators with a very nice caption on it:

From the queues from the first day till now and with all the hype, H&M’s decision to open their first store of Southeast Asia in Singapore has proven to be an excellent decision. This bodes well for Kingsmen as H&M may engage it again for other stores around the region and the world. I’m looking forward to visiting the Abercrombie & Fitch outlet when it opens towards the end of 2011.

Liquidated silver bullion bars

I recently liquidated 2 Perth Mint silver bullion bars each weighing 1kg last month. I purchased them in early August 2009 through respectable dealers in eBay. I’m still holding on to some Australian, Canadian and Singapore silver coins bought over the years as collection.

The main reason for selling away my bullion bars, even though there might be room for price appreciation amid the uncertainties, are due to these charts:

(graph courtesy of http://www.kitco.com)

(graph courtesy of http://www.cx-portal.com/metal/silver_en.html)

As you can see from the charts, the price of silver has shot through the roof over the past year and it might be in a bubble stage now. The graph is of a parabolic nature. A parabolic graph occurs when panic buying sets in and people are rushing to get a piece of the action, regardless of the price. They don’t want to be left behind and this is driven by greed. It is evident that people are rushing in from the volume which has been increasing ever so quickly over the past year. Many people in the streets are talking about buying silver and gold. When laymen who do not know much about investing or trading recommend stocks or commodities to buy, it’s almost time to get out. Warren Buffett’s saying “Be fearful when others are greedy” rings in my mind.

My plan when I bought into silver was to keep it all the way and not sell it at all. I did a blog post on why I believe in silver and gold for the longest term here. However, when I saw the silver graph after a long time last month, it scared the sh*t out of me and I wanted to sell my silver bars to lock-in my profits.  You might say that I’m fickle-minded but no one has ever lost money by taking profits, right? I might buy them back once the price settles down or just use the money to buy more wonderful companies amid the sell-off and collect dividends meanwhile.

Divestment of Hock Lian Seng

I have divested HLS last week after much deliberation. I purchased it in October 2010 and sold it at a slight loss. Luckily, my stake in the company was just a small part of my portfolio. The reasons for divestment:

1. Order book has been declining ever since I purchased the company. Order book at time of purchase was at $464 million. Order book at end of FY2010 was at $350 million. The current order book (as of 2nd Quarter 2011 ended 30th June) is at $272 million which is mainly from the balance works from Jln Gali Batu Depot and Marina Coastal Expressway projects.

HLS has not won any contracts for the latest Downtown Line Stage 3 and the last contract was given on 29th August 2011. The order book almost halved since my purchased. Even though they might win contracts for the future MRT lines such as Thomson Line or Eastern Region Line, there is too much competition with foreign firms from Korea, China and Japan entering the fray. Many Downtown Line 3 contracts were awarded to these foreign firms.

In the latest quarter report, CEO Mr Chua admitted that there’s intense competition in the market. Due to the dip in order book and also due to lower progress billings, revenue for latest quarter dipped 32% and net profit dipped 37%.

2. I also divested to pave way for some cash to purchase companies that are cheap/will become cheap due to the economic uncertainties. If I had not sold, there will be an opportunity cost of holding on to HLS when there are better companies out there.

Only time will tell if I made the right decision but nonetheless, I will take this whole episode as a learning experience.

The Famous Marshmallow Experiment

The Stanford Marshmallow Experiment conducted in 1972 was a study on delayed gratification and is regarded as one of the most successful behavioural experiments. In the experiment, a marshmallow was offered to each child. If the child could resist eating the marshmallow, he was promised two the next round. Experimenters then analyzed how long each child resisted the temptation of eating the marshmallow and whether doing so had an effect on their future success. The experimenters followed each child into adolescence and adulthood.

The results were astonishing. The kids who could resist the temptation scored higher in tests, had stronger relationships and were promoted more often. They were also generally happier as adults. How is this experiment related to being financially independent? Delay gratification by not being tempted to buy the latest gadgets. Doing so allows one to save enough money to invest. By prudent investing, one can reap the benefits in the future. Time is an investor’s best friend so delaying gratification buys time and allows compounding to take place.