Some investments thoughts: May - Jun 06

This is a period of stock market turbulence. The local stock market peak at early May and begin its big swings downwards, mirroring the world markets, in the backdrop of rising interest rates in US & institutional investors & hedge funds pulling out.

Between Jan06 to May06, my stock prices grew significantly and I had progressively sold my China stocks and other small caps. On the hindsight, I was lucky not to be too greedy as I was a net seller of stocks, although I have switched to MIIF, MM Prime & Allco REITS using my proceeds from those sales.

As I had learnt from my past experience, do NOT be too greedy on penny stocks as they are mostly speculative and only move with the 'smart' money. I have sold most of my China stocks e.g. Asia Dekor (52 lots ave 16.93 cts), Sunray (30 lots ave 39.22 cts), Zhongguo Powerplus (16 lots ave 30.75 cts) , Hongguo (36 lots ave 31.34 cts - although Hongguo subsequently jumped to above 60 cts) and also took profit on half of my holding in HTL, in view of greater downside risks than upside, in view of the possible punitive actions on sofa imports from China as well as over-capacity situation in China for furniture industry.

I have also come to know about Shareowl.com, a website started by a retired professor, Sebastian Chong. His advocations about investing globally and in highly globalised companies have opened up a new dimension in my investment focus. Even our largest bank in Singapore pales in comparision to global banks like Standard Chartered, HSBC & Citicorp. These are the type of investments I should be looking into in the future to diversity.

He also reinforced my conviction about investing in large cap companies if my horizon is for long
term. Large cap companies have stronger capabilities to withstand economic swings and competitions. I should be looking to invest part of my portfolio in blue chips when the market correct further. As for penny stocks, I shall only buy when there is significant discount to its intrinsic value and when there is potential for growth, rather than solely for dividend yield. Dividend yield should be counted upon REITS, and defensive stocks like SMRT & Singpost as they are much larger.

I have bought some REITs on their way down as I believe average-down should work for this type of investment since their yield would be increasing in such situation. Their prices should recover when the dividend is declared. This is also observed from SP Ausnet price movement, which rebounded from a low of $1.41 (nil entitlement) and now at about $1.47 despite that it is already ex-div. But the most important question is what should be the entry price. My rule is still a minimum of 6% yield.

I'm observing PST now, hoping that it would touch 38 US cts or below, as this is my calculated risk-free instrinsic value over 10 ten years (i.e. free investment after 10 years!).

Summary of my thoughts:
1. Do not be too greedy, sell on the uptrend is always easier than the reverse (as quoted from Ooi Hong Leong)

2. Learn about global companies, esp the banks

3. Gradually to have more exposure to large cap stocks in my retirement nest, esp those which i go for dividend yield

4. Can average-down work for REITS?

5. Always maintain some cash to take advantage of bargain hunting in market downturn