Bloodbath all across the markets

There has been early warning since the past recent weeks that the Fed could do early tampering with its Quantitative Easing (QE) sooner rather than latter. The result - BLOODBATH across the markets all across the globe. Dow Jones and S&P led the early losers while Nikkei, DAX, FTSE, HSI and STI followed soon after.

 

 

 

Today's STI drop of 61 points probably marks the first time since it drops more than 90 points 2 years ago during the Eurozone crisis in mid 2011. Back then, it was chaotic and almost every stocks were left on the bargain shelf. Since then, we have seen a relatively strong progress of the STI moving upwards for 2 consecutive years until yesterday before bombing out to today's losses. Of course, it is only early days now and this could simply only be a knee jerk situation. But we can almost see how much money has been pumped in and out during these situations.

 

This post is going to focus more on specific stocks which has been more resilient than the others in paring today's losses. As with all corrections, no stocks are spared (even defensive stocks) but these stocks fares better than others in times of corrections and could hold a key point should a recession comes. SPH, Vicom, Neratel, Second Chance, QAF and SIA/ST Engineering are a few of those in my portfolio which have fared better in today's bloodbath market. I've been a little fortunate to have switched most of my holdings in these stocks which have defensive ability performance.

 

REITS are not spared lightly in today's losses. Most REITS have dropped easily 5% from the most defensive healthcare (Plife/First Reit) to Retail (CMT/FCT) to Industrial (Cache/Ascendas/AIMS). I have used today's opportunity, which I think has been way oversold, to accumulate more FCT as I am comfortable with a 5% yield. I think pressures for REITS will be around in the next few weeks as we see weak investors exit the market. For the long term investor, this could be another round of opportunity to accumulate which is akin to the 2011 situation.

 

Have a good long weekend and most importantly, watch the DOW tonight and tomorrow!!!

Tadas Viskanta: "Cash is a Drug for most investors"

Tadas Viskanta - the author who wrote the book "Abnormal Returns" has recently tweeted:

 

"Cash is a Drug for most investors. Easy to start, difficult to kick. Always a reason not to get back in"

 

With the stock markets hitting a new high these days, the idea of holding cash becomes a scrutiny and natural options for investors. I know of a few investors around me who are selling off their equity holdings to raise more cash in order to "participate" in the next possible recession. The question becomes when will this "recession" comes?

 

In his book, Tadas Viskanta has made distinction between investors who hold "CASH as an investment" and "CASH as an asset" He advocates that Cash has over time only provided minority investors with positive real returns. Over time, by large holdings Cash has returned investors with negative real returns. Therefore a strategic allocation to cash, above and beyond what one would need in case of an emergency, represents a large opportunity cost. In his book, he said:

 

"Cash is at best a place for nimble investors to park assets, and avoid risk, while waiting for more attractive opportunities to present themselves."

 

However, the problem for this is that most investors who do this do not have the discipline nor the foresight to participate during a correction. They simply do not have a solid strategy for using these cash on an opportunitic basis. Their market timing investment strategy will always be a wall of worry. If the market corrects 5%, they will think that the market will correct more and so will wait for the next 10% correction. Once it corrects 10%, they will think that this is a recession and will wait for the next 20% correction, and so it goes on.

 

Some people are advocating that we are probably in a secular bull run period right now. If rightly so, then investors who are holding too much cash allocation will probably regret in a few years time after the market has run up higher and they could start employing their cash at the worst possible time, especially if they do not have the discipline.

 

Market timing is a gateway to cash addiction and a bad habit. Are you one of these investors?

Review of Boustead (Full Year) FY2013 Results

I previously mentioned (link) that Boustead Ltd will report excellent results for its full year FY2013. EPS for the 9 months of FY2013 at that time of writing was already matching the full 12 months of FY2012. I wasn't wrong. Since then, Boustead shares have gone higher and higher each day to a record high of 1.52.

 

 

 

I was also right in predicting that they will be giving a more generous dividends in view of their spectacular results - Final dividends 3 cents and Special dividends 2 cents, amounting a total of 5 cents/share. The spectacular results were driven mainly due to its Real Estate Solutions Division of design and build projects which has increased a massive 88% year on year. Energy related division is flat while Water & Waste division has dipped 38%. The Group's profits were also boosted by write-backs of previous year overprovision of tax which contributed to a lower effective tax rate.

 

What is interesting is that in the report, the management has played down the strong performance of the Real Estate Division for FY2014, claiming that it is almost impossible to repeat the results it had in FY2013 due to margin pressure and competition. However, the group expects its Energy related segment to perform better next year.

 

Boustead is currently sitting on a net cash of 37% of its total. I feel like an M&A activity would be required to boost up its earnings profile. Energy and property segment may look suspect in FY2014 due to uncertainty. At current price, Forward P/E looks to be much higher than Current P/E, making its share price less attractive. It'll be interesting to see how market reacts to the Boustead price tomorrow. If it reacts well (which I think it will), it could possibly give me an opportunity to exit partially.