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.
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.
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?