Saturday, August 22, 2015

Should you panic with the STI below 3000 ?

A lot of folks are talking about the crash of the STI index and started contacting me out of the blue about what I plan to do so I thought I'd write a short post on this.

First off, local markets are down. At this point of time, most investors would have a suffered massive losses. I lost the school fees of my entire JD degree over the past week. This means that I would have been better off had I sold my entire stake before going into Law School and just ate my cash holdings.

But am I worried ? Not at all.

Here are the reasons :

a) Dividend holders are by nature already defensive investors.

Will I lose more money over the next few month ?. Highly likely.

But if I sell, I lose access to my quarterly cash flow from my holdings. I don't like to eat my capital so I will stick to eating my dividends for now. While REITs and Business Trusts are taking a slightly bigger beating than the rest of the market, the overall beta of my portfolio is historically low so I expect to lose less than someone who holds the STI ETF.

b) The China situation may be over-hyped.

The biggest bugbear is China. Greece is inconsequential.

If you read the Economist, The  purpose China's devaluation is to become a reserve currency of the IMF. China risks the ire of the US and Europe if devaluation was made to make their exports more competitive and this would just invite retaliation. I think the technocrats in the CCP would be smart enough to restrain themselves.

c) US will raise interest rates before year end.

The next bugbear are interest rates. While rates are likely to be up, we are looking at one rate change in 2015 so far. This has been priced into the markets ages ago.

I fail to see why investors are worried.

c) Markets really look good at the moment.

Yes, as markets are turning south, I'm not seeing a significant change in the dividends I collect. If anything, yields are spiking as we speak and I am looking at a big payout before end-September. My only disappointment is that I am not working right now as I would have been able to add quite a significant stake at 8.5-13% yields into my portfolio to make my cash flow much bigger in the future,

So instead, I 've chosen to ignore the markets and focus on my lawyer training. Startig next week, I will become a facilitator at the Family Courts to assist folks in getting a divorce. After October when my final fee installment has been paid, I might be able to push 2-4k of my dividends into the market every month so I hope that these bargains would still be around then.

But  what I learnt in the 2008/2009 crisis is this : You don't succeed in becoming rich by investing during good times. You get rich when you are in the markets when times are bad. The only way to do that is to keep each positions small, diversify and refuse to use leverage.

Our markets have been expensive as of late, I remember a year ago, people will look shocked when they hear that I only buy stock which yield at least 8%. I get challenged a lot about my understanding of the markets when people hear 8%.

I was using the SMU Bloomberg Terminals and am glad to say that a decent portfolio of sustainable yields of 6% - 10% is now possible right now. I tested these portfolios over 10 year and they return 15+% with a semi-variance of around 12%.

( I even replicated the filters in the HK market and got almost similar results. )

These are fantastic numbers by my book.

1 comment:

Sweet Retirement said...

I totally agree with you that "You get rich in the markets when times are bad".