Aug 01

SGX CSP Module 3 Fundamental Analysis: Preview of Course

I attended the preview of the SGX CSP Module 3 Fundamental Analysis course on 24 July 2018. The course is to be conducted by Chua I-Min on 3 evenings on 17 August, 24 August and 31 August from 7 pm to 10 pm.

Why choose fundamental analysis?

As an introduction, I-Min explained how someone who practises fundamental analysis (FA) thinks. When he buys a stock, he thinks of it as a business venture and himself as the owner of the business. He explained the difference with another method, which is using technical analysis, whereby investors buy or sell using charts. Technical analysis (TA) believes that charts map out human behaviour.

I-Min advises that for newbie investors, they should use the first 6 months to figure out if TA or FA suits them. You should either be a TA or a FA.

When people asked I-Min why he chooses to be a FA and jot TA, I-Min explains that a lot depends on personality. When I-Min buys into stocks, he is prepared to hold for 3 to 5 years. If you want to be a FA, you need to be patient. If you are impatient and can’t wait long, maybe TA is better. He shared that he has a friend who is TA, and his friend advised that to be a TA, one needs to be heartless. For example, if he bought a stock at $1.00 and it dropped to $0.80, he would not think too much and would cut loss.

Why not use technical analysis and fundamental analysis together?

I-Min said that if FA is good and TA is good, people asked why not do both, so that FATA (发达meaning prosperous). I-Min explained that for a newbie, he would not encourage to do both FA + TA at the same time. This is because sometimes FA said ‘buy’ but TA would say ‘sell’. For example, now STI is 32XX, beginning of 2018 is 34XX, so TA say prepare to short, but for FA, it could be prepare to buy as a lot of stocks are cheap. I-Min said he uses TA sometimes, but he is mainly using FA.

Design of SGX CSP Module 3 Fundamental Analysis

I-Min explained the course structure briefly.
Professional course targeted at:

  • clients serving professionals
  • investors keen to perform more comprehensive analysis. (However, professional doesn’t mean more difficult!)

Facilitation based learning

  • Focus more on subjective content for discussion
  • Some hard facts / calculation may be covered briefly
  • Participants are expected to contribute and self-learn

Assessment

  • Discussion
  • MCQ

Fundamental Analysis

For I-Min, the order of analysis will start with the most important (from left to right):
business/industry analysis -> financial statement analysis -> pricing analysis -> risk analysis

To I-Min, the most important part of FA is the business model analysis, not what a lot of people thought FA is about—focusing on financial statements, P/E ratio etc.  We can use the SWOT analysis to help us analyse the business of the company.

I-Min gave the case study of Capitaland using the SWOT analysis.

CSP Module 3 FA Case Study Capitaland

We can look at the Market Drivers – Porter’s Five Forces Model.

CSP Module 3 FA Porter Five Forces Model

I-Min used the example of the company ComfortDelGro, which is a taxi rental transportation company.

When Uber and Grab came in, they disrupted the company. But can it kill ComfortDelGro? No, because ComfortDelGro still can rent out cars.

However, if driverless cars come in, it might kill ComfortDelGro because driverless cars optimise the number of people to carry. Also, it can save parking spaces.

Investment theme of the year

We need to look at investment theme of the year. For example, I-Min shared how in one year the theme was education and he bought into an educational company and there were stock splits and the price of each share went up multi-fold. In another year, the theme was construction and he bought into all the different construction companies and the stock all went up by 50%.

What are the investment themes for this year? I-Min shared a few here.

  1. Real Estate
  2. Healthcare
  3. Technology

Other topics covered in SGX CSP Module 3 Fundamental Analysis course

Management and Corporate Governance: What are their qualifications and experience?

How to seek out red flags? Use of financial ratios e.g. Net Profit Margin, Current Ratio, Debt to Equity ratio, Interest coverage ratio etc.

  • Other red flags and business warnings e.g. off-balance sheet transactions like operating leases versus purchases
  • Distribution of earnings: dividends, bonus share
  • Other actions: mergers and acquisition, delisting
  • Pricing analysis: different industries make use of different indicators (P/E, P/B, and dividend). For example, for property, P/B is preferred whereas for REITS, we look at dividend yield rather than P/E

Economic analysis

I-Min advised that to do fundamental analysis, we need to have opinions. How to get opinions? We can look at macro indicators such as unemployment rate, study events, e.g. currently there is the trade war. Do you think it will end soon, or it will get worst?

Historically, STI is trading between 8x to 16x and today, P/E of STI is round 10x. For US Dow Jones Industrial Average, historical range is 10x to 20x and it is now at 18x. Now, US market is expensive and Singapore market is cheap. So how do we proceed?

How was the first lesson of the course on 17 August 2018?

A lot of materials were covered on 17 August 2018 during the first lesson. I will write about the first lesson of the course in another post shortly. Stay tuned.

Jul 30

5 Takeaways from The Key to Investing: Planning and Strategizing by Wong Kon How on 9 July 2018

For those who missed the seminar ‘The Key to Investing: Planning and Strategizing’, here are 5 takeaways I gained from the session conducted on 9 July 2018.

1) Who would find this seminar useful?

3 types of investors who would find this seminar useful:

  • Those who underperform despite a bull market. For the past 20 months since Trump’s win, there has been a bull run in the US and other markets.
  • New Investors who want to start investing in the right footing.
  • Passive investors whose strategy is to buy and hold but who Kon How feel should understand that the current market is different and where necessary, they should take profit first and then reinvest their money.

2) What is the next crisis?

No one knows what would be causing the next crisis? Is it the ongoing trade war? Is it the rising interest rates?

Kon How explains that instead of just doing micro-analysis, for example, just looking at a particular stock and doing analysis, investors should also perform ‘macro-analysis’, ie look at the big picture.

Kon How cautioned that if the macro environment is not conducive, although one should still invest, it might not be advisable to invest heavily.

3) Why we in Singapore should care about the trade war?

When there is a trade war, costs of business will increase. For example, raw materials are needed in the manufacturing of products and some of the raw materials could be imported and tariffs will increase the cost of these materials. Rising production costs would likely be passed on to consumers with higher product prices. This will cause inflation.

To curb inflation, central bank will likely increase interest rates further. If Fed further increases interest rates, Singapore and other countries would likely have to follow.

For Singapore, there was a rise in stamp duties on 5 July 2016 to curb speculative demand for properties. Kon How explained that this is because the Singapore government understands a property investor’s ability to repay his loans will be affected when interest rates rises.

Kon How feel that it is no coincidence that the property cooling measures came a day before the trade war officially started on 6 July 2018. The Singapore government likely want to prevent investors from being too heavily leveraged in a rising interest rates environment.

4) How to invest in a rising interest rate environment?

Kon How advised that we still need to continue to invest in a rising interest rates environment. However, it would be safer to choose companies with low gearing.

5) How to make use of technical charts?

When looking at technicals, Kon How believes that markets move for a reason, especially if there are significant moves.

Charting or technical analysis show the human emotional behavioural of greed and fear. However, investors who choose technical analysis need to know that charts do not predict the future. We study the charts from past to now only to form a probability of what is likely to happen next. There is no guarantee.

Kon How shared that he uses technical analysis to form an opinion of the probability of what is going to happen next. When trading, he uses just technical analysis. However, he uses both fundamental analysis and technical analysis when investing.

Jun 21

Angels in the Snow: Actions Make Us Who We Are

“When I was a child growing up in Michigan, we used to make angels in the snow.

We would find a fresh, untouched patch of snow and lie on our backs in it. Then, flapping our arms, we’d leave the impression of wings in the snow. We would then get up and admire our work. The two movements, lying down and flapping our arms, created the angel.

This memory of Michigan in the winter has come back to me a lot in recent weeks. It first happened when someone asked me what the connection was between self-motivation and self-creation.

While answering the question, I got a picture of snow. I had a vision that the whole universe was snow, and I could create myself any way I wanted by my movement. The movement of the actions I took would create the self I wanted to be.”

A story related by author Steve Chandler, author of “100 Ways to Motivate Yourself” on how actions make us who we are.

Continue reading

Jun 16

Melodious Jurong, a Chinese Orchestra Concert on 9 June 2018

Melodious Jurong, a Chinese Orchestra concert at Jurong Secondary School Hall on 9 June 2018. This is the second time that my mum and I watched the performance of 琴牵裕韵. The tickets were courtesy of my neighbour who performed in the Chinese orchestra.

We were delighted to have Mr Tharman Shanmugaratnam as the Guest of Honour and Mr Ang Wei Neng as the distinguished guest.

Melodious Jurong， MrTharman Shanmugaratnam

 

Melodious Jurong

For those who want to listen to the performance, videos of the performance are available on the facebook page of Taman Jurong Community Centre at www.facebook.com/tamanjurongcc

 

 

Jun 12

5 Takeaways from Market Depth Trading Strategies Seminar by Wong Kon How on 4 June 2018

Here are 5 takeaways from the the Market Depth Trading Strategies seminar conducted by Wong Kon How on 4 June 2018.

1. How is the current US market?

Although Singapore investors might not trade the US market, we need to be aware of what is happening in the US as it is still the largest market. In 2018, there is more volatility in the market. It is not unusual for the Dow Jones to go up or down 1 % in a day. This is not surprising because of the current political climate and economic policies.

Kon How cautioned investors about US equities because Dow Jones has dropped from the high of 26,684 points on 29 Jan 18 to 23,088 on 6 Feb 18, a 13.5% drop.

Is the end of the bull run near? We will never be 100% sure when this will come but Kon How gave three reasons for being cautious about US equities.

  1. More interest rate hikes in 2018
  2. US dollar depreciating
  3. The sharp drop of Dow Jones in late Jan to early Feb

Read more at Kon How’s blog about market volatility.

2. How is the current Singapore market?

When the audience was asked if they think that the current Singapore Market is in a bull market, bear market or in a range, there were the most number of hands raised for the range market. So Kon How asked, “In a range market, would you go heavy or light?”

3. How to use market depth to decode price and transactional volume for better entry?

Kon How asked, “Does price move first before an announcement or announcement made first follow by price?”
Many in the audience were aware that often price moves first. When there are more good news, the price will then move up more. Sometimes this might not be insider trades but due to real demand.

Kon How advised investors to read into significant moves because it cost a lot of financial burden. He always assumes that there is a reason for such moves. These are the steps Kon How will take when he is interested to buy a stock:

  1. Do some research
  2. Check if the price is fair
  3. Read the company’s past developments. Check the CEO’s statement for many years, hopefully the CEO is the same person, to see if the message is consistent.
  4. Fine-tune the entry for the day using market depth

Kon How shared that usually serious seller will try to hide their selling. He explained the concept he termed ‘fake price’. ‘Fake price’ are prices that are transacted. However, these are prices with transactions where sellers are trying to trick real buyers into buying, by having many buy orders in small quantities to make it seemed that there are a lot of buyers at a particular price. Especially retail buyers, seeing such a situation, might quickly buy in because of their fear of losing out. Market depth allows us to see these small quantities of buying, and real buyers can use this information to better understand the demand and supply and then decide if they want to buy in.

4. Understanding impact of rising interest rates in US

Rising interest rates is not good for property and stocks because companies usually need to borrow money to expand. Rising interest rates means companies have to pay more for their loans.

Fed is preparing us for the rise in interest rates and there is an urgency to raise interest rates because USD is depreciating.

If the interest rate is raised gradually, the market can absorb. But an accelerated raise in interest rates is not good for the stock market.

5. Investment strategies for current volatile market

Kon How mentioned that selling off stocks is not a bad thing. It will release cash back and Singapore dollar is very strong. Cash is also a position. If market condition is not conducive, it is ok to keep cash.

In volatile market, we need to identify the current trend and when it is reversing. Instead of being a long-term investor, it would be beneficial to learn to be proficient in short-term investing (3 to 24 months), short-term trading (2 days to 3 months) and intra-day trading. Know when to take profits and how to manage risk and volatility and grow our investment funds. We need to understand that when one market is down, other markets will go up.