[Portfolio]: Added Capitaland & Yanlord Land on weakness, stop out of Emperor Capital

The recent Dow sell off had sent shockwaves around the world. The sell off has triggered the 10% stop loss for Emperor Capital. Also, the sell off created many major opportunities for us to pick up undervalued stocks, mainly, Capitaland & Yanlord Land.

Capitaland.original

Capitaland have been on our watchlist for a long long time. It’s a strong blue chip stock in the property development industry which we believe will benefit from the recovery in property prices this year. Furthermore, Capitaland is grossly undervalued for a blue chip company. With a PE of 9.75 and NAV of $4.38, it gives us a huge margin of safety at our entry price of $3.60.

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As we can see from Capitaland’s chart, it has hit a high of $3.87 in January 2018 in speculation that the property sector in Singapore will rebound. The trend is similar across many developers like City Developments, UOL and many more. The Dow panic caused it to drop all the way down from the peak to the support level at $3.45. Recovery in prices and frequent share buybacks by the Capitaland’s management up to $3.67 per share prompted us to enter this stock with it’s juicy margin of safety and potential rerating of the stock.

yanlord land

As for Yanlord Land, it was a case of insider buying and the perfect Dow crash that prompted us to look at it. Yanlord Land is also a property developer listed in the SGX, however most of their businesses are in mainland China. As it is an S-Chip, we were especially careful when researching and limited our risk by allocating a smaller portion to it.

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The CEO bought back the shares aggressively from $1.58 all the way to $1.886 spending more than $5 million on Yanlord shares. That prompted us to dig deeper into the company. We realised that their 9M2017 results were actually fantastic and we were speculating that the FY result will be even better considering the CEO major buying of the shares.

Also with a PE of 5.7 and a NAV of $2.252, it presents us a juicy margin of safety as well. Knowing that the CEO bought so many shares, we entered Yanlord at $1.60. True enough, the FY results was good and they declared a higher dividend for the year. What we are speculating for Yanlord is that the CEO could be trying to privatise the company given the good business and how undervalued his company is right now. Only time will tell if this is true.

In conclusion,

having a watchlist of stocks and to capitalise on the stock market panic have gave us a favourable entry into these 2 stocks. As the saying goes, buy when others are fearful and sell when others are greedy. In actual fact it is never easy to do so. It was actually the clear margin of safety that gave us the conviction to enter the market when it is still suffering from the sell off.

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[My Story]: Investment outlook for 2018

We are one week into 2018 and most of us would have set our New Year’s resolutions for the new year! And it’s important to do that for investment as well, so that we know what are some of the rules guiding us in the year ahead.

2017 have been a rather uncertain year, and it’s also my very first full investing year (since I started in March 2016). I would have to say that I truly learnt a lot from my friends over at IN and from reflecting upon all my investing decisions throughout 2017.

A Quick Reflection of 2017

2017 was an exciting yet frustrating investing year for me as I started 1st Quarter of the year by hitting a multibagger. And then things went rather slowly for me as the next few stocks that I picked took rather long before showing any forms of gains. Most of them were range bound, and prices hover around my purchase price.

Some lessons I learnt in 2017 includes:
1) Buy towards the end of the week to avoid being trapped by traders.

2) No matter how good a stock is, it is vulnerable to the macroeconomic conditions. There were several times where the global markets was on a downtrend due to macroeconomic instability (like North Korea shooting missiles into the water etc). Those times were the true tests of emotional discipline to stick to your investment plan as all the stocks that I am holding can start recording losses as big as 5 – 10% in a few days to weeks.

3) Always buy stocks with the abilities to catch the industry’s tailwind. In 2017, semiconductor stocks were very much in play and many stocks in this industry recorded at least 50% increase in share price. I guess what many investors’ meaning of “a rising tide lifts all boats” was pretty clear last year. Some semiconductor companies who have weaker fundamentals did not rise as much but still were able to clock in a decent share price appreciation due to positive industry sentiments.

Those were the 3 big lessons I take away from 2017 and sadly to say my own portfolio didn’t outperform that of the STI but I will definitely give it another shot this year!

Now looking on to 2018!!

Looking ahead!

I am looking forward to an even more exciting year ahead as I am rather big on three themes in 2018. Mainly the O&G, construction and property industry. By applying Lesson 3 that I learnt in 2017, I will be parking more funds to catch the positive industry sentiments by investing in good qualities stocks in those industries.

I shall share a little more on why I feel these 3 industries should outperformed the rest in 2018. For O&G, the industry was hardest hit in late 2015 as oil prices started crashing until it hit about US$20-30 per barrel which is too low for many O&G companies to make a decent profit. These caused the industry to consolidate as many smaller companies went bankrupt or were bought out (like Ezra, Ezion etc) This was because many companies took on huge loans to run the company when the prices of oil were very high  and when the oil prices crash they weren’t able to finance their debt as their main source of revenue is heavily affected. Now in 2018, oil prices have gradually been recovering and are now sitting near US$60 per barrel. As with all economic cycles, the period after consolidation is the time most O&G companies that were stronger will tend to survive and ride the next uptrend. (Survival of the fittest haha)

Thus I am looking at strong O&G companies with low debts to ride on the potential uptick in the O&G sector.

As for construction and property, its more for local play. Construction sector have been the weakest link in Singapore GDP as it continues to post negative growth in 2017. The construction sector is a labour intensive industry that have not been disrupted by technology. The government have been encouraging the use of technology in the sector to raise productivity in order to lower costs. However, it has not been working as the initial costs of taking up new technology is high and having more competition from foreign construction firms has led many local construction firms to not make the switch. However, the government intends to support the industry by bringing forward more construction activities. With major developments, like the T5 and MRT lines yet to be build this should inject some activity into the constructions sector this year.

Also, there have been a spate of enbloc activities carried out by property developers in Singapore. This should help to boost the construction activities in Singapore too as the acquired buildings will have to be demolished and rebuild.

With private home prices rebounding slightly in 2017, developers are rushing in to stock up their land banks in hope to be able to build new properties to catch the uptrend in private property prices. This represents an opportune time to invest in construction related stocks with support from both the public and private sector this year. Property developers that have many new private property launches this year may benefit from stronger demand due to a possible rebound in private property prices to cash in on their developments.

In conclusion,

these are the areas where I should be parking most of my funds in hoping that a rising tide can lift all boats. My search for undervalued companies in these industries continues and hopefully I will be able to catch some of them before they fly! 🙂

 

[Building Blocks]: The “More-Than-5%” Dividend Yield Strategy

Imagine having cash passively deposited into your account every half a year. Nope not from your usual day job or work that pays you for your service.

Most companies in the stock market gives out dividends to their shareholders (people who bought their stocks), as a form of reward or to retain shareholders. The company distributes a portion of their cash they earned from their products/services to shareholders. Not all companies give out dividends as some management may feel that the company can use the cash to further grow their company and decide not to give out dividends.

Usually, for any particular company their dividend yield do not extend beyond 5%, let’s not talk about REITs as its an another investment vehicle altogether. So today I want to talk about how to achieve more than 5% dividend yield.

1) What is dividend yield?

Basically, dividend yield is the amount of dividend given per share divided by its share price.

So for instance lets take a look at ST Engineering,

Screen Shot 2017-11-04 at 1.33.14 PM.png

They give out 2 times of dividends in 2017, $0.10 and $0.05 respectively. So dividend yield on the current share price amounts to be about 4.32%.

$0.15/$3.47 x 100 = 4.32%

So if you are vested in ST Engineering for the entire 2017, you would have received 4.32% return just on the dividends alone (not inclusive of capital appreciation if any). In that sense, this is “free money” given to you if are invested in a company stocks.

2) Why would anyone prefer a dividend strategy?

In any dividend strategy, we are looking towards a long term investment horizon of a few years of holding that particular stock ( I mean no point buying for just 1 year of dividends as the return is minuscule of 3-5% only). So normally people who uses a dividend strategy are people who do not want to actively manage their investment, or do not want to take too much risks in their investment (since they can just live off the “free money” given by the company).

Building a portfolio of stocks for people of this profile means that the stocks chosen have to be sustainable in their dividends (you would not want a company to give you 10% this year and decides not to give anymore dividends next year). By sustainable I mean that the company must not be over-stretching themselves just to give out dividends. Imagine a company having to borrow money from the bank just to give you dividends, sooner or later they would have to find ways to finance those debts which is not good. A good dividend company would be one where giving out dividends does not affect their core operations.

That’s why most people who employ a dividend strategy prefers buying blue chips as they are big enough and have a history of giving dividends.

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But if you realise most blue chips dividends yield are in the range of 3-5%, very little actually surpass the 5% threshold.

3) Breaking the 5% threshold

Breaking the 5% threshold would require you to pick company in the middle of their growth phase and hold it for years. Before any company become a blue chip they all have to start somewhere small.

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So where we should look for are middle size companies that are only starting to give out their first or second year of dividends. When a company decides to instate a dividend policy this is usually only after the company feel that they are large enough and are able to now consistently give out dividends to their shareholders.

Using this concept above, we shall look at some examples.

In the example of ST Engineering above, the very first time that they gave out dividend was in 1998, when they just got listed. In 1998, they gave out $0.18 worth of dividends, that amounted to about 5.19% that year.

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Imagine that you now decided that you will buy ST Engineering in 1999 after you have studied their fundamentals and feel that its a growing company with the ability to sustain their dividends into the future. In Jan 1999, you bought ST Engineering at $1.50 per share. Fast forward to today, in 2017, your dividend yield for this year alone is 10%.

$0.15/$1.50 x 100 = 10%

And if you realise, you also benefit from the rise in share price. At $3.47 in 2017, you would have gain 231% just based on share price appreciation since you first bought back in 1999 (not counting the amount of dividends you collected from 1999 all the way up to 2017).

So if ST Engineering can keep up with giving $0.15 per share of dividends or even increase their dividends for the next 10 years, you are looking at a 10% return every year. (Sooo much more than the bank!)

We take a look at another example, Sheng Siong.

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Sheng Siong started paying dividends in 2012 at 2.89% dividend yield.

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Imagine now that you have decided that Sheng Siong is fundamentally sound and will be able to sustain their dividend payout. You decided to buy in 2013 at $0.539 per share. Fast forward to 2017, your dividend yield would be 6.3%.

$0.034/$0.539 x 100 = 6.3%

Share price appreciation would have been 178% just based on share price alone. If Sheng Siong can continue to sustain or even grow their dividend payout, your dividend yield will grow beyond 6.3%!

4) Is this too good to be true?

Yes! Employing this strategy requires more research than just dumping your money into existing blue chips. What you are doing here is buying the blue chips of tomorrow. Not every company that gives out dividends for the first time can sustain them throughout the next 10 years. They KEY here lies in choosing the ones that will.

So checking out their fundamentals, the management and future prospects are all equally essential to the success of this strategy.

In conclusion,

breaking the 5% threshold is easy if you are patient enough to hold a stock for years and choosing the right company at the right stage before it becomes a blue chip kind of status.

[Eye Candy]: Signs of possible recovery in the construction sector?

Some posts ago, I remember talking about how I was fishing for stocks that are out of favour and one place I looked into was the construction sector. This is because construction have been contracting QoQ due to a slow down in construction demand  especially in the private property segment. Hence, many construction stocks were trading below valuation and I thought that might be a good place to look for some gems if any. You can read about my post here. So after doing some research I decided to put money into Tiong Seng as a share buyback and undervalued play as company have be aggressively buying back shares and top management pretty much owned about 50% of the entire company.

Recently, due to a slew of positive developments like the enbloc fever, first upturn in private property prices, government’s pledge to bring forward construction projects etc. Property developers and construction stocks have seem to be quietly on the move. Even Tiong Seng a construction company stock that do not usually have much liquidity other than their own management buying back their own shares on certain occasions have started to move.

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Tiong Seng’s chart

Especially in the month of October, most company that engage in property development and construction have been quietly creeping up.
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Could this be a signal that smart money is coming into this sector in light of an improved outlook on this sector? Do bear in mind that in 2017, the main sector that led the way was the semiconductor industry and this is what happened to them.

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Many companies in the semiconductor industry reported great earnings which led to an upward surge in their stock prices. Could this be an indication that the same is about to come for the property development and construction sector? After all, they say that the stock market cycle is always ahead of the economic cycle. Some of these companies have been announcing more tender wins from the government and some of them are snapping up land sites for development.

In conclusion,

I think we will have to take a closer look in the months ahead to see if these companies start to garner even more contract wins and property development projects which should boost earnings. At the end of the day, it is strong and improved earnings that usually sustain the upward surge in their stock price. A lousy company that cannot translate positive industry sentiments into improved earnings will not benefit much anyway. This is just my own humble observations. 🙂

[Building Blocks]: The ‘Catalyst’ in catalyst investing

Hi everyone, first and foremost a Happy National Day to all of my readers! Today I am going further in depth into catalyst investing. I have mentioned quite heavily about how I like to look for catalysts in the company that will boost the share price. Generally, a stock catalyst is an event that will cause the price of the security to move and sometimes quite significantly. This can come in the form of a superb earnings release, a potential takeover offer, special dividend release etc.

The simple rule of thumb is that all catalysts should lead to an increase in either:

1. Revenue and profits

2. Shareholders’ value

It is purely because of events that lead to higher revenues/profits or enhanced shareholders’ value that will eventually cause investors to bid a higher price for a stock. Hence leading to an increase in share price. And depending on the impact of this catalyst, the magnitude of the share price movement varies.

1) Types of catalysts

When I look at catalysts, I tend to divide them into 2 types of catalysts, “Company-specific” and “Sector-specific”.

A company-specific catalyst is one that tend to be applied only to the company and is independent of other companies in the same sector or not. Examples of this includes, a potential takeover offer by another company, disposal of an asset of the company for a sum of money, spinning off of a subsidiary of the company, a new product that is disrupting an industry etc. All these catalysts are specific to the company and tend to either increase revenue for the company or enhance the value of the shareholders.

A sector-specific catalyst is one that tend to apply to an entire industry. This could come in the form of an increase demand of a particular industry like how the semiconductor boom this year have provided a favourable tailwind for many semiconductor companies. Those in this sector experience higher earnings QoQ which led to higher stock prices. Also events like lifting of regulations on a certain industry can also lead to higher stock prices as earnings is speculated to improve.

2) Real life examples

I will give you some real life examples of what catalysts can do to a stock price.

— Company specific —

1) Takeover offer

Some of you may know that Global Logistics Properties one of the largest logistics provider in Asia recently received a buy out offer of $3.38 per share from a Chinese consortium. However, this catalyst was not new. GLP had announced that it is undergoing strategic review early this year which eventually culminated in a buyout offer. If you had bought in when the strategic review was announced at $2.60, you are already sitting on a 30% return due to the buyout offer of $3.38.

GLP chart

2) Disposal of asset + special dividend

Neratel announced that they are in talks to dispose off their payment solutions subsidiary on April 29 2016 and are intending to pay out the divestment gains to investors.

neratel chart.png

This led to a gain of 18.4% if you had bought when the announcement is released in April at $0.49 to a peak of $0.58. Neratel eventually did dispose off the subsidiary and gave out a special dividend of $0.15 per share.

3) Earnings accretive business venture and acquisitions

Acquisitions that are earnings accretive or entering into a new business with huge upside to earnings are also potential catalysts.

I did a post on GSS before here, which talks about their foray into the oil and gas industry (new venture) which many thought was an earnings accretive venture. This caused the stock price to rocket up. Buying at the top of the green circle at $0.28 also gave you about 30% return at the peak of $0.375.

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Another example would be MM2 Asia, an entertainment company in Singapore. They produce films like Ah Boys to Men. Since 2016, they have been on several acquisitions, they include buying over cinemas, buying over a concert production company Unusual Entertainment and subsequently spinning off Unusual Entertainment. All these acquisitions have improved MM2’s results tremendously and by spinning off Unusual, it also unlocks value for existing shareholders.

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If you had held from the first catalyst announcement in Jan 2016 at $0.20 to the peak at $0.630, this would have been a 315% returns!!

— Industry specific —

Industry specific catalysts generally come in the form of improved sentiments in the industry. Some of yall may know how badly hit the O&G sector was hit due to the drastic drop in oil prices. On the contrary, an improved in sentiments can also bring up the entire industry. For instance, earlier this year MAS announced the relaxation of a regulation governing the financing of SMEs.

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This led to all 3 smaller banks listed in Singapore, Hong Leong Finance, Sing Inv & Finance, Singapura Finance to all rise in tandem as investors believe that it will benefit from the new regulations.

 

If you are following up till now, you will realise that industry specific catalysts are usually more unpredictable compared to a company specific catalysts. However, its also good to choose a company with a good mixture of both. Depending on industry-specific catalysts alone is too risky.

3) Some tell-tale signs to improve accuracy

As you can see from all the examples given above, catalysts are definitely a great booster to a stock’s price. However, one must understand that buying on catalysts is like betting on the future which as investors we should avoid. This is because catalysts depend on many factors to allow it to come to fruition. Just like a company announcement signalling their intention to acquire a new business, it will not become a good investment if the new business do not lead to higher revenue and profits for the company. In this case, it is definitely a catalyst but it has not led to the ultimate end goal.

Thus, it is important to understand how to improve our accuracy when picking catalysts stocks.

— Management —

The management must be capable in order to successfully allow the catalysts to manifest. Thus it is important that the management have a large enough stake in the company (Insider Ownership), so that their interests is aligned with the shareholders. Have the management live up to their promises? A quick run through their Annual Reports should shed some light on the managements’ aspirations for the company. Comparing that with actual results, should shed light to their capability.

 

Always look out for:

  1. Insider buying more shares
  2. Share buyback by the company

These moves are usually an indication of better things coming that will positively benefit the company.

— Timing your entry —

To maximise your returns, one should always look to enter before the catalysts are made known to the general public. This will give you sufficient margin of safety and allow you to lock in the gains when the public come to hear of the catalysts. Doing that is hard because you will not know when it will happen.

Usually, you will hear of news that this certain catalyst is going to happen to this company but there’s no confirmed date. The best thing you can do is to look for a consolidation phase in the chart and buy on the first breakout.

GLP chart

As you can see from the GLP chart. The first breakout in the first week of Jan 2017 is a good time to enter. This is in conjunction with the news released on 5 Jan 2017.

Hence, buying on a strong breakout with high volume is also another way to enter at a better timing as strong volume usually indicates a strong uptrend as buyers are usually funds and big buyers.

In conclusion,

I hope you have learnt a bit more about my own experience on catalyst investing. Buying on catalysts alone is not recommended and this should be mixed with fundamentals analysis of the company including its PE, debts level etc etc. A good stock with strong fundamentals plus good catalysts and a perfect entry timing will be a much safer way to invest on catalysts!

[Building Blocks]: 5 good to know investment ratios for better investment analysis

Looking at a company financial statements and not knowing what to look out for can be a headache for investors, which is why certain investment ratios have been widely used to explain certain important aspects of a company’s financial statement in a more simplified manner. For those who have some investment knowledge would have heard of terms like PE ratio, Debt to Equity ratio etc. These ratios make use of certain elements of the financial statement to give investors an easy understanding of certain strengths or weaknesses of the company. In this post, I shall try to explain some of the key ratios that investors normally use and what it means.

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These are the 5 common investment ratios that I will explain below:

  1. Price to Earnings (PE) ratio
  2. Price to Book (PB) ratio
  3. Return on Equity (ROE) ratio
  4. Quick Ratio
  5. Debt to Equity Ratio

1) Price to Earnings ratio

Just as the name suggests, PE ratio simply means:

 

PE Ratio

PE ratio is widely use by a lot of value investor to see if the stock is undervalued or not. Generally a low PE ratio of less than 10 is considered to be undervalued. Whereas a high PE stock usually are found in high growth stock. For instance the FANGs stocks, Facebook, Amazon, Netflix, and Google, most of their PE are above average PE ratio in the US. This is because investors believe that these tech stocks will continue to grow their Earnings per share (EPS) rapidly hence at present times they are willing to bid up its present stock price to a high level ==> Thus a high PE ratio.

In other words, it represents the amount one is willing to pay for each dollar worth of earnings of the company.

2) Price to Book ratio

Price to Book ratio (PB) is also another widely used indicator by value investors to determine if the stock is overpriced or not.

 

PB Ratio.png

In this case the book value of a company is the value of the assets of the company on the balance sheet =>  since Total Asset – Total Liabilities = Total Equity 

Thus, PB ratio is simply at what price are you paying for the value of the underlying assets in the company. A low PB ratio means that you are paying a low price for the value of assets in the company, the opposite is true for high PB stocks.

However one have to understand that PB ratio has it own shortcomings, for instance, it is more accurate for company that are capital intensive or company with a lot of assets.

3) Return on Equity (ROE)

ROE is a measure of how many dollars can a company generate on every dollar of equity.

 

ROE

Many termed the ROE as a measure of efficiency as it measures how well the management deploy the shareholder’s capital. Being able to get more dollars of profit out of lesser dollar of equity is a good thing to look out for (High ROE). Thus, usually company with high ROE is preferred over one with low ROE.

However also note that ROE can be artificially affected if the total equity portion is changed. For instance share buyback decreases total equity and hence boost the ROE.

4) Quick ratio **

Although not used by many, I feel quick ratio is a rather important measure of the company ability to manage their debt obligations.

 

Quick Ratio.png

Quick ratio provides an understanding of whether a company can meet its short term debt obligations. In this case, the short term investment refers to any securities the company hold that can be liquidated in a year.

A high quick ratio of more than 1 would mean that the company are able to pay off their debt in a year and hence the company would not run into any issues with the debtor within the financial year.

A low quick ratio of less than 1 would show that the company may have troubles meeting the near term debt obligations and could run into financing issues which as investors we would not want. This can prompt management to take on more long term debt to finance their short term obligations or raise funds through rights issues which we usually try to avoid.

5) Debt to Equity ratio **

Debt to Equity ratio is another way to understand about the company’s debt status.

 

Debt to Equity Ratio.png

Debt to Equity calculates the amount of financial leverage the company has.

High debt to equity ratio (usually more than 1.5x, in my opinion) mean that the company is highly leverage and can be rather risky. If the company cannot generate enough cash to pay off the debt that could spell trouble for the company.

Whereas an extremely low debt to equity ratio can mean that the company are too conservative and may be missing out on the extra growth benefits that taking on some debt can bring.

 

** For both of the ratios used to determine the debt status of a company. It is important to distinguish the nature of the debt. Is it being use to expand operations, or is it used to pay off loans that are going to expire? Choosing a company that uses debt well to expand operations that lead to higher profits and growth is good. Whereas a company that consistently borrow to pay off bad debts is definitely bad.

Another indicator would be to examine their cash flow to see if they are earning enough from their operations to cover the amount of debt they incur. Hence, one should never fear away from company that takes on debt, but instead study them closely.

 

In conclusion,

no one ratio can tell you the full story of any company. You would need to actively look at a few ratios, compare across the industry, look at their growth prospects before you can derive at a fuller picture. Hopefully, you have learnt more about certain ratios that are widely used by investors. If you are looking to learn more about how to read annual reports you can click here (for part 1) & here (for part 2) which should greatly aid in helping you make better use of the ratios you have learnt here!

[My Story]: My Investing Strategy

Hi all, apologies for not posting for a while now. Peak period of outfields week in week out made me procrastinate for quite a bit haha. I realised it’s been about 1 year since I started investing. A lot had happen and I am thankful for the many lessons I have learnt over the course of the year. All that happened, made me stronger and allow me to continuously revise my own investing strategy. Today, I shall share about my own investing strategy. How I identify potential investment targets, what I use to time my entry into a stock and when to sell.

1) Investment Objectives

Previously, I shared the importance to know your own investment objectives before being able to craft out your own investment plan.

my-investment-objective

Your own investment strategies are the actions you are going to take in your investment plan. Just a recap, for now my investment objective remains to grow my capital. From a measly sum of $300 at the very start of my investment journey, I am targeting to grow it to at least $10k before I enter the university. (Of course along the way, I added more money into my investment.) As of now I have about $6k vested in the stock market and sitting on a 20% realised return so far. Below is my investment strategy I am using to reach my objectives.

2) How I pick my investment targets

Personally, I like to look for companies with low Price to Earnings (PE) ratio with huge growth catalysts ahead. Companies that are of such qualities fill up about 60% of my portfolio. The reason why I adore such a company is because it is both undervalued and have ample of growth characteristics. (Killing 2 birds with 1 stone!)

Of course, sometimes it’s hard to find such a company. But all you need is that 1 or 2 opportunities to give you astronomical gains. Examples are companies like AEM which was previously PE of 8-9 (undervalued) and had a innovative product (growth). When the market comes to realise the company’s potential, the share price will readjust upwards.

After finding that few value-growth companies, I like to diversify across themes. By that, I like to research their growth areas and see if it fits any major trends happening in the world or in Singapore. For instance, now the One Belt One Road is quite a big thing, companies (construction, railway builder etc) that are undervalued and have operations in this area will potentially stand to gain from the growth opportunities available. Here’s another example, I may want to look at a more defensive theme. Companies that are undervalued and are in the industry that provides services to consumers, governments etc are all plausible candidates.

Of course, after shortlisting the few that make the cut. Checking their fundamentals is next and even better if there has been insider buying. (Here’s how I evaluate a fundamentally sound company)

3) Timing my entry

After all that filtering process, you should probably be left with a list of less than 4 companies. Timing my entry to buy into the stock is next. How should I buy at the correct timing. For me, some technical indicators and the chart have helped me quite a bit.

I like to enter my first position after a period of consolidation (where the price have been around the same level for a few weeks) and with low volume.

AT chart

I use the weekly chart for a better long term view since I usually hold my position for a few months at least. The red rectangle is the period of consolidation where prices close in very tight range. And if you look at the blue circle, the volume is below average for those few weeks. This represents a rather good opportunity to enter. I like to see consolidation period as a spring board to propel you upwards. But, how do we tell if price will go up after consolidation and not down?

AT chart1.png

I use the MACD indicator to see if there’s a possible uptrend coming. (I am not going to go too in depth into indicators) When the blue line cross the red line as shown in the circles, it is a possible indication of an uptrend. For me, I only use indicators as an additional reference after I spot a consolidation zone.

4) When to sell?

Haha to be honest, this question always baffles me. I myself am also not a good seller. There are a few times a stock raced upwards after I sold away all my position. Sometimes, I get to emotionally attached to a stock and tend to sell too late. Hence, this portion is something I am constantly still learning. However I do have a few ground rules to follow.

  1. Sell when the undervalued stocks become overvalued.
  2. Sell at your stop loss.
  3. Sell when the business is no longer attractive or fundamentally sound.

I don’t really use technical indicators to predict when to sell, because I believe that as long as the business’s value and growth aspects remain intact, a downtrend should be temporary.

In conclusion,

planning your own investment strategies to achieve your own objectives is important.  You need to know what stocks you are looking into, when to enter and when to sell. Only then will it translate into gains in your portfolio. Hopefully for those who started investing, you will be empowered to write out your own investment strategies after reading my own strategies. Writing it out is really effective, as it makes sure you do not get flustered when anything happens in the market.

[Building Blocks]: 3 useful online resources to help with your investing journey

Living in a world connected by the internet means information are widely available just a few clicks away. No doubt, I myself have benefited immensely from the information I found online. Today, I want to share with you some of the useful online resources that will definitely be of help to your investing journey.

1) Investopedia

investopedia.png

Investopedia was the very first website that I visited to understand more about investing. It is like a huge encyclopedia on anything related to finance. I would say that it is easily one of the top few investing websites that are easy to understand and well organised. Not only are there information on investing, there are information on current affairs, insurance and many more. The only down side of this is that it mainly focuses on the US markets. However I would recommend this website for beginners wanting to invest because their beginners’ tutorials are very comprehensive and easy to understand.

investopedia 2

You can find tons of tutorials about investing at this website.

And if you are still clueless where to start from, I have compounded a list of tutorials from Investopedia that you should start with. Click on the link below for you to be teleported there haha.

  1. Investing Basics 101: A tutorial for beginner investors 
  2. Stock Basics Tutorial
  3. Bonds Basics Tutorial
  4. Mutual Funds Tutorial
  5. Introduction to Fundamental Analysis
  6. Basics of Technical Analysis

Here you go. Starting out with these few tutorials should allow you to understand investing clearer. If in doubt you can always drop a comment below and I will answer to them 🙂

2) InvestingNote

investingnote

Think of InvestingNote like a Facebook for investors. It boast a huge collection of users ranging from beginner investors to the very experienced ones. Interestingly, this platform is set up by Singaporeans and was only launched recently. The community in InvestingNote is fantastic as many are willing to share about their strategies and styles of investing. What’s more? You can also find out more about the stocks you are interested in, like the information of the company, what other investors are talking about that stock etc etc.

Investingnote 1

For instance, if you are trying to find out more about Japfa, you can get a summarised information on Japfa’s price actions, fundamentals and financials on the left and the chart of Japfa on the right. Personally, I find InvestingNote’s charting platform to be one of the best. It allows you to plot your own lines, overlay them with a myriad of indicators and you can even save your drawings on the chart.

investingnote 2

Scrolling down further, you can see what are some of the things other users are talking about and the upcoming events the company may have. It currently have information on companies in the SG, US and HK markets. But many of the users of InvestingNote mainly talk about SG stocks which are good for new investors looking to go into the local market.

What’s more important is that you can get these amazing features for FREE. All you have to do is to sign up with them. It seems like I am doing an advertisement for them haha. Rest assured I am not paid to do this. For me, this platform have really accelerated my learning on investing and hence I thought of promoting it to you guys.

3) Investment Blogs

Many investors do have their own blogs where they document their own investment experiences. Some of them are so influential that some investors buy whatever they preach. Personally, some of the blogs that I have came about have helped me in terms of understanding how different investors analyse a company, their investment strategies etc.

I think what’s really beneficial about learning from investment blogs is learning the way others analyse a company. By reading their investment thesis on certain companies, you can understand the way they think which you can apply when you are analysing the company you are planning to invest.

Here’s an article on 55 SG Financial Blogs that are useful.

For me I am a regular reader of TTI, thelittlesnowball, my15hourworkweek and TUBinvesting.

Do give them a visit! 🙂

In conclusion,

good resources are everywhere on the internet. Use it to propel your investment knowledge as much as possible. You will realise that you may not have to even pay a dime to attend courses which teach you about the basics of investing. Also, the best way to learn is from each other. Hence, I believe InvestingNote and reading of other investors’ blogs are two good ways to deepen your understanding of investing. Do note that everyone have their unique styles of investing, different upfront capital and different investment objectives. Thus, completely copying someone else’s method may not suit you. I would suggest adopting good practices and incorporate it into your own method of investing. Hopefully this post can help you realise some of the good investing resources online that will be beneficial to your investing journey!

[My Story]: How I managed to regain all my losses with one solid stock

Hi everyone, it’s been about 3 weeks since I last posted. Was away for a military exercise in Thailand. A lot have happened while I was in Thailand, the weather was crazily hot, GID outbreak in camp and I also sold one of my stock holding that gave me a 100 percent return on investment. The profits made from that investment was able to cover out all my losses incurred when I just started out investing. Today, I will be sharing more about the characteristics of that stock and the things I have learnt from this episode.

1) 100% return in just 3 months?!

Yup I was equally surprised! Some of you may have noticed that in most of my recent posts, I have been using AEM Holdings as an example. Yup this is the company that have became my very first multibagger (a stock that returns more than 100%). It all started out when I was screening for low PE stocks in the SGX. (Value approach). This company popped out in the screener which caught my eye. It has innovated a cutting edge product that no one in the world has been able to and back then its PE was less than 10 (relatively undervalued). The company have also just returned to making profits and are planning to ramp up the production of this product which means that further earnings growth is guaranteed.

Since it fulfills the basic principles I set out for a fundamentally sound company and I read an interesting piece of analysis by the guys over at thelittlesnowball.com which reaffirmed my beliefs, I vested into the company at $0.885 per share.

AEM stock chart.png

From the chart, I entered AEM at $0.885 per share, added more shares at $1.055, before selling them at $2. If you were wondering why did I decide to sell it instead of holding onto it longer, it was because this stock was about 60% of my portfolio. I have about $2000 invested in it. As this stock catches the attention of more people, it will become more volatile as big players come into the fray. Since I am just a small fish in this, I decided to take the money off the table and only enter again when there is a dip in prices.

Not all company can be like AEM, which gives a 100% return in just 3 months but there are certain characteristics that the company possessed.

  1. Growing earnings
  2. No debt
  3. Frequent share buybacks
  4. Undervalued

and most importantly it has major catalysts (in the form of their cutting edge products) coming its way.

2) Lesson learnt from this episode

I think the most important lesson I learnt from this episode is to be consistent in your approach. A lot of times, young investors like us tend to be swayed by our emotions. For instance, chasing the next hot stock etc etc. When we are swayed by our emotions, we tend to forget all the framework that we set in place for ourselves. Hence being consistent in our approach and calm minded are very important when we are investing.

This episode also shows that you do not need to be in many trades to profit from investing. Sometimes, all you need is that 1 stock to do the magic. Hence, when you are disappointed because you had to be force to exit a stock due to the stop loss in placed, remember that 1 win can easily make up for many small losses if you exit them early. Personally, I was down about $600 since I started investing and this was still when I didn’t learn to cut loss. In that $600 includes the 70% lost incurred from my Noble’s debacle. I am glad that my revised approach, have led me to recover from my losses and rake in a small profit.

In conclusion,

I would like to say that not all stocks can be like AEM. However, many stocks do have some resemblance to it. With enough due diligence, and a small leap of faith you may just stumble upon the next AEM. Most importantly, do not forget the framework you built for yourself while investing. Personally that has been the most important rule that led me to find this undervalued gem!

 

[Building Blocks]: 4 principles of a fundamentally sound company

Hi all, as promised I would like to share with you some of the criteria I have before I decide that the company is fundamentally sound and worth investing. These 4 simple principles can be applied irregardless of what style of investing you pursue. (Growth, value, income etc) Investing in a fundamentally sound company reduces your exposure to the risk that the company may fail. These principles also act as red flags when a company with good track records flouted any of these principles. Adhering in these 4 basic principles should put you in good stead when investing directly on the stock market.

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Without further ado, here are 4 principles I always apply when evaluating a company.

1) Earnings Record

A fundamentally sound company should have a stable or growing earnings record. If the company can show stable or growing earnings over the past few years, it is likely that the company’s product or service are well sought after and there is some form of economic moat around them.

The 2 most important components to determine the strength of their earnings are:

  1. Revenue
  2. Net Profit

** Revenue – (Cost of Sales + Expenses incurred) = Net Profit

Revenue reflects the amount of sales that the company have done for the products/services it provides. It is often referred to as the company’s top line. On the other hand, net profit shows the earnings after subtracting the costs involved in manufacturing the products or providing the service and the various expenses incurred. Net profit is often referred to as the company’s bottom line. Hence, when someone say a company has achieved top line growth, it is referring to increase in revenue and likewise for net profit.

aem 3q result.png

Companies with stable or growing revenue shows that their sales are increasing. Improving net profit also shows that the company have been able to manage their costs and preventing it from exceeding its revenue. Thus, these are good sign of a company that will be stable compared to a company with fluctuating revenues and net profit.

2) Low Debt

This goes without saying. Company that takes on huge debt are often at higher risk of failing. Imagine being chased by debtors for payment while trying to do business. Earnings will definitely be affected as earnings may have to be used to pay off debt. These are definitely not a good sign for a company. A classic example would be Noble Group which I shared before in [My Story] component.

Of course low debts are healthy as they aid a company to grow its business. So what’s a healthy amount of debt? I have 2 ways to evaluate if a company have over-leverage.

  1. Cash and Cash Equivalents > ST Debt + LT Debt
  2. Current Ratio > 1.5

This works in such a way that if both rules 1 & 2 don’t hold, you are probably looking at an over-leveraged company. The best case scenario would be that rule 1 holds which most of the time means rule 2 will hold.

3) Positive Cash Flow from Operations

Cash flow is important for a good company as some companies can have very strong earnings but those earnings may not be recognised in cash. If a company consistently register a negative cash flow from operations, it should set off some red flags. This is because most of the company’s debt and expenses are paid for in cash, if their earnings do not bring in cash this might be a problem in the future.

Take the case of Yuuzoo Corporation.

yuuzoo

Strong growth in revenue and net profit recorded. Indeed very impressive.

yuuzoo3

However, look at net cash from operating activities. It has been negative for 2 years. It is okay if the company at times record negative cash flow from operations as they may have use the money to pursue expansion etc. But if it has been happening for a few years, it is definitely not a good sign of things to come.

4) Insider Ownership

Insider ownership is often a good sign to tell whether the company’s management believes in the company. This will show whether the company’s management put their money where their mouth is. A good level of insider ownership should give you the confidence that the company is good because the interests of the management is at stake as well.

Hence events like management buying or selling their own company’s shares could be a pre-indicator of their outlook on the company.

shareholder-info-for-dutech

This is extracted from the annual report of Dutech Holdings. Dr Johnny Liu Jia Yan who is the Chairman and CEO owns about 42.76% of the shares. Hence this should reassure shareholders that he will act in the interest of the shareholders.

Bonus

If you can find a company that satisfies most of the above, at least 3 out of 4 and you realise that the company are buying back their own shares (share buyback) or the management have been buying more shares of the company. (Insider ownership) This could mean that something big is brewing within the company and it is likely an excellent opportunity to invest in the company.

Some of you may ask how should I go about finding these information regarding the company I am investing. Firstly you should always check out the investor relations segment in their website which should contain information regarding the company. Alternatively, you can head to SGX website to find them. You can find out about every companies announcement with regards to their financials, insider transactions, annual reports etc here.

In conclusion,

these are 4 principles that I look for in a fundamentally sound company. It may not be fool-proof as many factors can affect a company. But these principles should allow you to sieve out the better companies in the entire stock market which should provide a relatively safe and lower risk investment should you decide to enter the stock market directly.