Sunday, 30 August 2015

Blue Black Monday on 24th August

I sure it was all on the news, the 100+ points drop in the STI in a single day, roughly 4% decline, the black Monday of 24th August 2015. For a post GFC investor in the stock market, I have only witnessed that once, and that was after S&P downgraded the US credit rating due to the persistent bickering between republicans and democrats with regards to the debt ceiling. The reaction of the STI was swift, crashing 100+ points within a day, and it continued to decline considerably the following days from 3200 to 2500, severely dampened by the lingering Euro Debt Crisis, which the root of the problem was not rectified since the days of the GFC.

It is because of this experience that I was a little nervous in adding positions on Black Monday itself, telling myself it may continue to decline the following days, just like what happened in 2011. And so I waited, the second day, the STI stayed weak in the morning before quickly rebounding higher, with many bargain hunters picking up stocks in the market. I continued to wait for a couple of days, and the market consistently posted gains each day since, now it has tested the psychological point of 3000, but closed 50 points below.

So have I missed the boat?

Well, this is probably one of the most difficult questions to answer. If I knew, I would have quit my job and trade full time already. Based on technicals, the 3000 level is the obstacle to watch, a break of this level would possibly lead to some strength ahead. However, failure to break that might imply weakness or perhaps trading range bound just below 3000. But then again, this are just probabilities and I would prefer to think on the fundamentals instead of technicals in weak market.

So what has Dividend Simpleton done in this current market turmoil?

After thinking deeply on my poor market timing with Croesus Retail Trust, it is time to lick my wounds and re-strategise. I had been rather successful in the past 1-2 years in market timing, but I would not try to leave that to chance anymore. I have decided on using Dollar-Cost Averaging (DCA) as a suitable way to sort of market time without putting everything in at one go. And of course the only platform available in the market for which I can do so without incurring heavy commissions is with Standard Chartered Bank (SCB). Yes, I know shares are stored in the custodian account, and yes I won't be able to go AGMs or vote in them. These are valid concerns but I am alright having them stored in a custodian account, so long as it is reputable bank with obligations to their clients. I am also alright with not having to vote or going AGMs, my minority vote would most likely be trampled on by the majority stakeholders anyway. My main target in owning shares is to generate wealth via growth/income, not to go AGMs and eat free food. Furthermore, information about AGMs are widely available in the net. As a working adult, I would not be able to find time to go down anyway.

I feel the benefit of DCA is enormous, it takes away market timing from the equation, and allows for a more mechanical versus an emotional effect on trades made. Also, if putting shares in the custodian account worries you, you are given the option to transfer the shares to CDP, of course with a fee. I did a rough check up and the fee is $10.70 per 1000 shares capped at a maximum of $107. Plus, CDP charges another $10 or so for transferring shares in. So say you have 1000 shares, you have to incur a charge of $20.70 to transfer the shares, roughly close to the normal brokerage fees you pay each time. The costs involved is higher than if you were to buy it off the market one time with the normal brokerage, but it does not account for the potential losses you may make by market timing. So I would prefer to pay the fees if I want it shifted to the CDP account. For now, a custodian account works well for me.

I better get back to the question posed earlier before I start deviating from the question. Well, as the market declined from it peak of 3540, I had a small plan to purchase STI ETFs once it has hit certain levels, perhaps I will discuss this more in another post. At the current moment, the market has only allowed me to buy 200 shares of STI ETFs, tucked away in the SCB custodian account. I would be gladly willing to buy more should the market turn for the worst.

In addition, I have accumulated 300 shares in OCBC at $9.05 on Friday, just before Black Monday. Bad timing yes, seriously all these experiences really reinforced me in the belief of DCA. Well, the price I paid for OCBC seems reasonable to me, with PE slightly below 10 and PB at only 1.14. Of course, crises has easily knocked OCBC below its book value before, but I would be more than willing to buy more if the market presents a better entry point. Just nice, Lim and Tan brokerage is still having the small lots promotion, so I could make the trade paying just $10 in commissions.

I also took the chance to nibble on some income shares, mostly 200 or less shares using the SCB account. Capital invested is minimal and I am interested to see how this micro portfolio would perform longer term. Furthermore, the capital invested are mainly profits earned from my bigger trades in the pervious years, so you can say perhaps these small investments are kind of "free". Some of the shares I have nibbled are Neratel, Ascendas Hospitality, Capitaland Commercial REIT, Soilbuild Biz REIT, Accordia Golf Trust and Asian Pay TV. As you can see, the focus is mainly on high-yield counters, with almost all having a yield of 8% or more with the exception of Neratel and Capitaland Commercial. Neratel boasts a yield of the higher end of 6%, but I would gladly pick some, given the net cash position it has, which is actually absent from almost all the other counters, given they have to take on debt to establish the high cash flows. Capitaland Commercial REIT represents some value in my view, though not so much the dividend yield, but the fundamentals remain resilient and attractive given the amount it has corrected recently. I could draw similarities with the fundamentals of Keppel DC REIT, like low gearing, high interest coverage ratio and low average interest rates. Both dangle similar dividend yields, but the risk to DPU is a tad higher with Capitaland Commercial given that several tenants in its properties are shifting out of its premises for cheaper alternatives outside of the city. If the market offers a greater margin of safety, I may add on to my positions.

As of now, it is a waiting game.

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