STI Soar to a record high again

STI soar to a record high again at 3800 and I have a hunch that it will hit 4000 at the end of the month. From what I have observed, the stocks which are surging upwards with strong buying demand are mainly blue chips so I was wondering if there's a possiblity people are funding it by selling growth stocks. Well, actually I guess daily trading activity is not as important as it seem to be and predicting it may even impair my own judgement but I just can't resist the tempation of viewing my portfolio performance every half an hr because it is just a click away!!!.. HA, I should have work at a place with no internet access (just joking ) ...

As what I have mentioned in my previous post, my portfolio consist of mainly growth stocks where they mainly move together with the economy.. The sectors which I'm currently vested are retail, construction, internet, beverage and water treatment. If I do follow strictly with Buffett's methodology to purchase only stocks with a economic moat (close to a monopoly of business), I guess I would not be holding any of the stocks except maybe for 1. I broke the rules mainly because I forsee them benefiting in the future from global demand and econmic growth but still, I only purchase them when they fulfill the following criterias :
1: Healthy financial Records (3 years Financial statment, balance sheet, Cash Flow)
2: Competent Management (Some indicators like ROE, ROA, Remuneration, Board indepedence)
3: Not purchasing them at an inflated price (Important)

It is extremly difficult deriving the company's intrinsic value using discount cash flow method. Firstly, I have to predict the company's inflow of cash flow for 10 years which is literally impossible because future is uncertain... The best I can attempt is to give a fair estimate to future cash flows to derive the present value of future cash flow but the accuracy depends how aggressive/conservative you define the discount rate.. After obtaining the price from the formulae , I will further discount it at a rate depending on the company growth and that will be my entry price.. Normally, you will get an entry price that is much lower than the current price so patience plays a key factor but having said tat, this isn't any magic number and need not be followed rigidly....

To be continued!..

Melynn

Cherish every second of your life

A couple of days back, a superior of mine got a mild heart attack and a bypass operation was needed because some of his artery was clogged. I visited him at the hospital today and realise that this was actually his first attack . What surpised me is that prior to the atack, he's leading a fairly healthy lifestlye and excerising frequently and the main cause for his attack was his dna, which is hereditary. From this small conversation, I have realised the element of uncertainty in life and also the importance of cherishing everything and not taking them for granted.... Haha, I'm aware all this sounds cliche but well, this can serve as a form of self-reflection in the future when I am unappreciative of things in life

Going back to investing, the STI plunges 50 odd points to 3850+ today... I'm trying to take a bullish and a bearish view on the market currently and below are some of my thoughts :

Bullish thinking
1. More inflow of new funds coming into our market particularly from China...
2. Singapore econmy is growing at a fast pace and with the operation of IR in 2010, more jobs will be created.

Bearish thinking
1 Economy in US is slowing down due to sub prime issues and I read from articles stating that we are not even halfway thru the problem so another bad news may trigger a massive selldown in the global market.

The stocks that I'm holding now are mainly companies which will benefit in the economy expansion period and though I'm confident that they will survive in the event of a recesssion, they may still suffer huge losses . This may result in a deep plunge of stock price due to lack of confidence from investors and I will be in a dilema whether to buy more or to unload them first.

To be continued!!

Melynn

I'm back !!

It's been some time since I last blogged but anyway I don't think I have any ardent fans keeping track on my blog.. Well, the reason why I stopped blogging recently is because I realised I have a mental block whenever I need to write.. Possibly, its caused by my lack of practice and its been like 2 years since I wrote a full length report or eassy. I have decided to give my 100% to overcome this fear because writting may be essential for my dream job ...

My dream job is to be an analyst which requires good writting and analytical skills and I forsee myself in a disadvantage position compare to others if I made no attempts in improving this area. Well, today is not a hectic day at work probably because I'm still relatively new (near 2 months) . I do admit of skiving quite a lot and this is something I am feeling guilty of . Putting myself in the shoes of the employer, I would not want an inefficent staff hence I always give my best shot at work irregardless of the incentives because job satisfaction and the possiblilty is my priority.

I am starting to feel the heat from my upcoming CFA Exam.. Gosh, there are just too many sections to study and though, I have already finished reading through all the chapters but somehow, I just feel that I have yet to attain the "level" that will see me through the exam... 54 days and counting, hopefully I do not need to retake the level 1 exam which will just delay in my plans of making a career switch....

Some random thoughts just struck me today which is the possiblity of trading forex to optimise a portfolio. Well, I need to spend more time to understand the mechanism of forex and trading in demo account which will probably take me a year or so before trading it with real money.

From today onwards, I will try to pen down my thoughts here so that at least there's something for me to reminisice in the future :)..

Melynn

Analysing a company management (Compensation)

A company's management may not be important to short term speculators but it is definately important for long term investors. An excellent management can make the difference between a mediocre business and an outstanding one, and poor management can run even a great business into the ground. Basically, it is the best to find mangement teams that think as if they owned a piece of it (ownership) rather than as hired hands. Recently , I have came across a book authored by morning star and they have pin pointed some of the red flags we can look out for in a management... Basically management assessment process can be sub divided into three parts : compensation, character and operations.. They are ambiguous hence we must view them with our own judgement which i hoped it can be sharpened over time...

I will start with compensation which shoud be the easiest.. Basically, we have to find out how much does the management pay themselves.We should compare the CEO's earnings among different companies in the same industry and in general, the large the firm and the better it's financial performance, the more the executive should be paid but that doesn't meant that they have the right to print money just because they are managing a huge company, no matter how poor a job they are doing. Bigger bonueses will be better than big base salaries because this means that a big portion of the pay is tagged with the performance hence therotically at risk.

Conclusion, the executive's pay should be based on the performance of the company instead of a steady raise. Firms with good governance standards won't hesitate to pay managers less in bad times and more in good times..

My viewpoint on diversification

If you have been investing for a while or either reading up financial journals or books regularly, you will realise that it is a prevalent belief among people that diversification is essential to ensure above average returns and also to minimise risk. There is a saying that one should put the eggs in many baskets but I chose to believe that one should just put the eggs in a basket and watch it carefully. This is because a portfoilio which is heavily diversified will never give u an above average return whereby you may have better gains by just putting your funds into an ETF.

In my opinion, to achieve an above average return, one should remove their own obstacle of allocating a huge portion of his fund to a specific stock but in order to accomplish this, you will need a strategy and a system that suits you well else it may result a huge loss!

In my case, I realized two of my stocks from a portfolio of six and planning to top up the remaining stocks when a good opportunity aries. Pardon me but I will like to reiterate again because I think this is crucial to one's investment sucess. Over diversifcation don't always minimise risk but at times, it may also magnify your lossings so simply allocate your fund in a ETF if your dont feel comfortable to have a concentrated portfolio!

Seeking for a system

Its been some time since I last post as I just got back from hongkong. Recently, I have been reading a book named "The Winning Investment Habits of Warren Buffet and George Soros" and learnt quite a bit from it. Although their styles are poles apart but they share the same mentality where they tend to have their own system.

Currently, my strategy is to buy stocks with relatively good business by using some ratios like PE, PB to determine and also to read through their annual report to get an idea of their management, competitors and their prospect. Secondly, I will also check out the company's financial status by going thru their balance sheet, income sheet and cash flow and in my opinion, cash flow gives you the best picture of their financial status because this is where it involves all the transactions which is finalised. Example : Some company may have high revenue but low cash flow provided by operational activites due to large amount of trade receivable which may result in bad debts but having said that, I will still check their history because they may not be able to report the actual revenue due to the time conflict of annual report preparation.

Till now, I dont have a system to determine my exit therefore I'm adopting a buy and hold strategy whereby I will only sell them if their business fundamentals are greatly affected. One downside of this system is that I'm still not confident to judge a business therefore it may result in a early or late exit which may result in huge losses... Guess I have to do some trial and error and also to read up more!!

My Portfolio

Its bubble everywhere hence currently, I'm taking an extra effort to re evaluate my portfolio. I have started investing in the Singapore Equity Market on December last year and since then, my portfolio has been growing at a tremendous speed.. To track my stock growth, I have predetermine a price for my portfolio which is $1 and subsequently the price will be determined by the nav of the portfolio therefore in the event of any withdrawal or deposit of cash , the growth will not be affected. As of today, my portfolio has escalated to $1.40.

My Portfolio


I have adopted a fundamental approach for my stock selection but recently, I just realised that my analysis is only at the tip of the iceberg whereby I didnt take many things into consideration . Together with fundamental analysis, I also believe in a "buy and hold" strategy because my thought is that frequent trading will diminish one's portfolio due to the comission incurred.

No one can predict when will the bubble burse hence I may realise some of my current stock to cash so when a good opportunity arises, i will not miss out. The idea situation in investment is to buy low and sell high so I am constantly reminding myself not to do the opposite unknowingly by not succumbing to 2 human psychological factors; fear and greed.