Saturday, March 5, 2016

What are you waiting for? Updated

Investing is a waiting game. Patience wins the game. I gathers investors wait for the following, at least I have wait for these one way or another.

1) Signs of market downcycle. 
Shipping and commodity(steel)  are definitely in down cycle. Companies are going bust, merging, and the rates are falling off the cliff. (BDI for bulk carriers and containers rate for containers, it is a different story for tankers, though) Steel companies are also consolidating and its prices cheaper than cabbage. When price of production is higher than market price, we all know it is not sustainable in the LONG RUN, but how long the bottom stays is another question. Shale oil is said to need $60, then $45. But is these figures accurate? Gold production cost supposed to be 1000-1200. 

Properties in not in a downcycle in my opinion. Prices has not come down drastically and while profits for developers have come down, hardly one is in distress yet. The highly leveraged ones might be when the penalty for unsold units kicked in. 

Why is market cycle important? Peterlynch concept of buying alpha company at the downturn to wait for upturn.

2) Bottom up approach of individual company. The problem with this is earnings is not static. If you believe a company can hold their profits or even grow their profits in a downcycle, the lower the price the better. But how low is enough?

I look at my comfortable yield I expect from My counters (which is 6%) Some look at historical price, or SD. 

But the toughest part is determining earnings, I am a dividend investor, so I don't look at asset play. 

Update: 
As SMK mention, this point is not fleshed out. There are several ways to determine earnings and hence dividend payout.

a) Payout ratio and the buffer of earnings
b) Mean earnings over a longer term
c) Track capabilities and markets/ new customers. In another word, monitor execution records and expansion plans. Venture has records of netting new customers and rolling production for new products. It did not show in top line and bottom line for the 2 years prior to 2015, but I took a leap of faith. The recovery did happen in 2015. ST Engineering has MRO downturn that is structural as well as cyclical. Newer aircrafts can afford long period between maintained. But if the aviation and aircrafts numbers are still increasing, it is not rocket science that after a period, the cycle of maintenance   of new aircrafts will kick in. But I wonder how long the LSG growth can continue.
d) Track and calculate the projects' worth. It is possible with property developers by using square foot research. Reits earning projection based in rent can be projected too, but level of commitment and rental rates. Manufacturing is tougher as costs can escalate. But again, track records can give u an idea. Accordia Golf Trust earnings is stable over a last decade, which is surprising. Numbers don't lie, they manage to do relatively well even during 2009 crisis and 2012 earthquakes. Of course, if u read further, they have the driving ranges providing the "growth", which is absent from the trust.  

3) Waiting for STI to hit a certain level.
Unless you are an index investor, this might not be very meaningful. Again, unless you are buying the banks which form the chunk of STI. As explained earlier, while the general sentiments affect all boats, they affect different companies differently, so counters might fall less or might even gain when STI is falling.

I dun really believe in 10% drop and I add etc, because I am not an Index investor yet. But I might in the future. I believe instead of buying exposure to banks, might as well buy some STI ETF. They have a high correlation with the banks. 

4) Waiting for an lower entry price than bloggers/ insiders/ or research reports. 

Self-explanatory.  

Patience is a virtue. Waiting is not a sin. We are wait for different reasons and with different MOS. 

What are you waiting for? Just for it to get lower? 

12 comments:

  1. i agree with all, 2 & 3 not fleshed out. (we don't have an obligation to flesh out unlike those selling course or marketing them. just saying it is not fleshed out, the reader have to go find out themselves)

    * But the toughest part is determining earnings, I am a dividend investor, so I don't look at asset play.

    you classify yourself as dividend investor.
    I ask a few questions:
    - is it important for a dividend investor to maximise(max) their dividends (dvds)?
    - is it important for a dividend investor to wait for an opportune time to max dvds?
    - is it important for a dividend investor to siam the times when dvds is minimising(min)?
    - is it important for a dividend investor to exchange min dvds for max dvds?
    - when you say you are a dividend investor, do you mean max dvds receivedeverymonth(rem)?
    - when you say you are a dividend investor, do you mean max dvds rem or per year?
    - when you say you are a dividend investor, do you mean max dvds rem when retired?
    - when you say you are a dividend investor, do you need that dvds rem ?
    now getting to the point of testing whether you will get testy,
    - when you buy at $1 for 5% yield, and it becomes $10 for 5% yield(dvds being 50cents) and it crashes to $5 for 10% yield, do you buy at $5 or wish that you sold at $10?
    - when you buy at $1 for 5% yield, and it becomes $10 for 0.5% yield(dvds being 5cents) and it is the same for the market everywhere that you are investing in, do you still wish to be a dividend investor?

    when the reader finishes answering the questions and wishes to find out more, john neff is a good read. (smol also mentioned before)

    remember, Mr Buffett is not a value investor, not a growth investor, not a dividend investor, he is a businessman.

    ReplyDelete
    Replies
    1. SMK,

      That's sure a lot of questions. Thanks, and I made an reservation for that book.

      I think the first few questions are all positive.

      Let me offer my thoughts although I have not read the book, and I welcome your input or disagreement.

      There are 2 ways to "maximize chances of" dividends REM. One,get it a low enough price, two get a dividend grower and wait for the growth to materialize.

      If we go for one, it's earning might not stand the onslaught of negative market sentiments making a real impact on earnings. Two, market might have it grower valuation and the risk of high capital loss when growth does not materialize is high.

      So for the next few questions all rolled into one, we want to Siam capital loss by determine earnings resilence and buying it at a low enough price or avoiding sexy growth story that commands too high a valuation.

      Now going for time frame. Although its dividend investing, I believed I can afford to be my aggressive in my building of portfolio as
      1) I have 20 years ahead of me. (Barring touch woods) event, which will at least one bull bear
      2) my initial port is small
      3) my human capital (aka career) is more like an Bonds

      But as I approach my 50s, I would most prob stop building portfolio. I might not sell anything but u would increase cash reserve as well as adding ports instead of equity

      Third, going for the numberic hypothesis

      1) I most prob will not be in that situation as I usually will take 3-5 years of dividends of capital gains unless I see my initial estimate of dividends is too conservative ( hardly the case) as earnings have to really jump to the positive side against my estimate

      If ever, I have a 5 cents dividend growing to 50 cents dividend yielding still 5%. It will be 50% yield at cost, and I seriously would not mind it going down at $5

      Also, I do advocate switching for Maximum dividend as I believe in diversification. I will sell counters for profits or if I felt my analysis is way too off, but not for reason to maximum dvd

      Hope I am replying what u are driving at. If I make no sense... Lol please be patient and continue poking or coaching ;)

      Delete
    2. SMK, I fleshed out point 2. LOL

      I very free hehehe

      I provide value added services remember, although I am
      Not commercial blogger. Lol

      Delete
    3. finally found it.

      **There are 2 ways to "maximize chances of" dividends REM. One,get it a low enough price, two get a dividend grower and wait for the growth to materialize.

      why not both? sometimes they give you both.

      **If we go for one, it's earning might not stand the onslaught of negative market sentiments making a real impact on earnings. Two, market might have it grower valuation and the risk of high capital loss when growth does not materialize is high.

      if we define our purpose for rearing a cat by its ability to catch mice only, then we should only rear a cat that catches mice and best if the cat is the best cat at catching mice.

      **So for the next few questions all rolled into one, we want to Siam capital loss by determine earnings resilence and buying it at a low enough price or avoiding sexy growth story that commands too high a valuation.

      how do you know if a growth story is too sexy to touch?
      only got 1 way: are others touching it? and touching a lot?
      what happens if your eyes paste stamps?
      then you hear whether got more? or got less hoo-ha by others looking at the sexy growth story.

      **But as I approach my 50s, I would most prob stop building portfolio. I might not sell anything but u would increase cash reserve as well as adding ports instead of equity

      depends whether there is monetary contraction.
      don't be fixated on a particular asset class.
      though better to roll into a lower volatility asset class with somewhat steady income as we get older.
      mental faculties will deteriorate - see Philips Fisher


      ** 1) I most prob will not be in that situation as I usually will take 3-5 years of dividends of capital gains unless I see my initial estimate of dividends is too conservative ( hardly the case) as earnings have to really jump to the positive side against my estimate


      Good good. learn to go for a tighter stop loss instead of loose profit taking.


      ** If ever, I have a 5 cents dividend growing to 50 cents dividend yielding still 5%. It will be 50% yield at cost, and I seriously would not mind it going down at $5

      immediately po gong. scrutinize your this sentence and ask yourself if it contradicts what your next sentence says.

      ** Also, I do advocate switching for Maximum dividend as I believe in diversification. I will sell counters for profits or if I felt my analysis is way too off, but not for reason to maximum dvd

      ah this is the next sentence.
      ask you: is your purpose max dvds? or max diversification?
      when you diversify, normally what it means is you don't know enough or you don't know what you like.
      when you like abalone and hate spring onions, do you diversify?
      so here, is it you don't know what you like? or you don't know enough? if you don't know enough, will you ever know enough?

      Delete
  2. my portfolio recover well 13% . and quite a lot of money as my portfolio size is huge.

    ReplyDelete
    Replies
    1. Hi yeh, I am glad market rebounded too.

      Hope it continue north, and I can offload some.

      Delete
  3. Sillyinvestor,

    I must give you a diamond star for your willingness to put yourself out there for "attack". Most would have shrivel into their own shells and never come out ;)

    Glad SMK have already "poked" you with his shotgun style. LOL!

    You better appreciate me; I only use one finger ;)


    "I am a dividend investor, so I don't look at asset play."

    I think you meant "capital gains" when you say "asset play".

    It makes as much sense as saying, "I happy got salary can oredi; whether my school got growth in students I don't care."

    I guess you are not affected by the recent merger of the schools due to low student growth/count.

    What do you think the Principals and Heads of Departments feel? Surely they don't need 2 Principals and 2 HODs for the same subject...

    How long can a company sustain their dividend policy if they are not growing?

    ReplyDelete
    Replies
    1. Smol,

      Oh, I dun mean capital gains. Dividend investing and capital gain are not mutually exclusive. I mean those looking at assets or properties and find companies that might be liquidate then the price they are currently at.

      Oh the merging, al the Ps and HODs will have some place to go. Either HQ or what. Some school have Certain portfolio of hOd in demand (no subject based) if u are willing to take, sure also can go, but that is extreme.

      I am open to poking. If I can answer, means I no empty shell, although I dun pretend to be guru.

      Delete
    2. Even if I can't answer, just learn lor. If u poke, or anyone poke, I look and think.

      Delete
    3. Sillyinvestor,

      OK, you have said the magic phrase - not mutually exclusive!

      I'll leave it to you whether you think dividends and asset plays are mutually exclusive or not ;)


      You are in a good position as we have a current shortage of teachers.

      居安思危

      Just look at our engineer friends in the community. They don't seem to be a happy lot...

      Although I am out of it, I especially hate those self-paying machines at IKEA, NTUC, and McDonalds. I hope they FAIL.

      Its pure emotions; zero logic involved on my part. See?

      How we see the world has an impact on how we process information ;)


      You are doing a good job :)

      Delete
  4. SMOl,

    Actually, I cannot forgive myself if I quit the sector in my own accord and fail outside. My family ... How ?

    But if I given cold shake ... I think I will go all out ... Tuition is one I can think of. But I actually think of owning a hawker stall too. I still know my father receipe for prawn noodles ...

    ReplyDelete
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    ReplyDelete