Investment Strategies To Beat The Market

I started this blog with the premise to inform other fellow investors out there on how to stay ahead of market cycles. To me, investment strategy should be making sound estimation of market direction ahead of the all the news and crap you hear and read about. Because reacting to news is often too late.
Today's entry is very important to me because i try to understand why the market is reacting in certain ways and why the next big crash is constantly being delayed through manipulation by central banks around the world economic powers.

The graph above clearly shows S&P movement from March'09, as it moves up in steps every time a new Quantitative Easing is introduced. Naturally this is not healthy because of the external influence QE has on the market. And we are left with conflicting data, S&P should not be so high when we still have alot of companies with reduced PE ratios, earnings and growth decline.

If you are looking for value, Europe seems to be a better option than US and Japan. Europe is more than 15% cheaper then US in terms of its P/E ratio (EURO STOXX 50-15.57 , S&P 500 - 18.43) giving it room for higher profit. 
Japanese market on the other hand, i personally will avoid because the monetary policy implemented will result in higher volatility (plus i dont really have the extra cash to gamble away). 

In these kind of scenarios with external influences, technical analysis becomes inaccurate and unreliable in my opinion. However one can still gear their investment strategy to pick the best sectors that perform well during late stages in a bull market. I need to pull up my favourite picture below which explains market cycles and recommendations:

I follow this graph very closely. We are in the late bull stages in the stock market cycle. For very good reason, there is no timeline on the x-axis because stock market cycle time can vary due to different influences. At this point of time i strongly recommend holding onto non-cyclicals defensive stocks such as utilities, consumer and healthcare. 
Keep your eye on opportunities in cyclical stocks such as in the luxury goods, tech stocks and financials but dont buy them yet, wait till late bear market stages. 

Dividend investing is always nice to have, keeping at least 30-40% of your portfolio based on regular dividend paying stocks is a strategy i adopt but keep a look out for dividend cuts, cancellations or script dividends.

To summarise, it seems the US market is already quite high, it would have to go to higher highs before the next market crash. This does not mean we should start worrying and panicking. The key thing would be to take profit where targets are reached, not to be greedy and keep at least 40% of your portfolio in cash by end of the late bull run. (Frankly no one knows when that might be, could be end of 2013 or could be after 1st Quarter of 2014) 

Hectic June but quiet

It has been a hectic time in June in both at my work and financial markets worldwide. I have been quietly watching the markets for opportunities and let me tell you..opportunities are plenty right now. Most counters in Singapore have been correcting to attractive buy levels, but not all. My hands are itchy but i refrain myself from going crazy. Prior to June, i already reduced my exposure in volatile stocks and started to hold onto more cash. Hope you did the same...because short terms corrections do occur during a bull run. Personally i believe we are not hitting peak levels YET. I may be dead wrong and we are actually in the starting phases of a full blown market crash. I am still doubtfull. So lets get help from this famous chart below:

 
Could this be the perfect bull trap right now? YES
Could this be just a normal correction before we head to higher highs (pre 2008)? YES 

I guess we will only know for sure when it is over. My only advice is stick to valuations which are realistic. For example, Starhub has dropped 12% from its peak at $4.70 to $4.10 level now. Yes it is cheaper but i wouldn't put a single cent into it now because it is still too expensive. On the other hand, Chinese stocks have really been doing down ALOT and offer great value, have a look at China Life Insurance, the biggest life insurance company in the world. 

Sell in May and Go Away...to China?

Its the time of the year when i usually do a re-assessment of my investment strategy and capital allocation in order to stay ahead of market cycles. I am guilty of holding onto some counters for way too long even after they have reached my target price. It seems most brokerage houses keep upgrading stocks and shifting their target higher and higher. One such example is Singtel, now its target is $4.20? sure, maybe but not in the short term. I had to take profit early and trust me Singtel will come down eventually to find support at a lower level before the final push to the $4 region. All of my REIT holdings are also above target prices, Genting seems to be under the bus at the moment so i shall have to wait longer for it to reach my target price.

Anyway in order to do capital relocation, i need to free up some money. Chinese stocks look super attractive at the moment, with such valuations one cannot resist. I am going to pick individual counters which are growth stocks and play the broader index to diversify. 

Another point, I know for a fact, battery technology we currently use is outdated (over a century old). Cant wait to say goodbye to the pencil batteries. Having worked on Lithium-Air batteries myself, next generation battery technology is headed towards leaner, paper thin, Lithium Ion batteries with a greater capacity and recyclability than any existing alkaline or lithium cadmium ion battery. Therefore, i invested in BYD, manufacturers of next generation lithium ion batteries, PV cells and Electric cars. They are registered on the HKSE since 2002. Even Warren Buffet himself bought a huge stake for himself, however i must say, his timing was way way off. But you know what, this is a long term play and he knows it. Small retail investors just dont have the sort of capital to throw around so our timing has to be at least accurate. 

*Additional note: Interestingly fellow blogger WealthBuch also started taking profits. Refer to posted link below:
http://wealthbuch.blogspot.sg/2013/05/taking-little-profit-off-table.html

Disclaimer: Same as usual, dont just take my word for it. Perform your due dilligence before making an investment decision.     

Impact of Quantitave Easing till 2014

If we want to stay ahead of market cycle, very important to keep up to date with latest news. I was just reading this morning that US Federal Reserve might slow the pace of debt purchases designed to boost economic growth before 4th quarter. It seems that FED won't start to reduce their $85 Billion monthly bond buying until the last 3 months of 2013, they might end it in mid 2014 or later. 

The "wise" Fed chairman Ben Bernanke supposedly an expert in Great Depression, has pumped more than $2.5 trillion into the economy for two main reasons: Employment & Price Stability. Maybe i am a critic, i do not think pumping money has created more jobs. In fact, it is delaying the inevitable recession, creating asset price bubbles along the way. What is the benefit of this stimulus anyway? The US has a sluggish economy, unemployment in March was @ 7.6%. 

I am convinced this easing policy creates serious risks to the financial system over the long term, it is kind of putting me off because my previous estimation of when a recession is coming might be delayed further. However i do understand (to certain extent) why Bernanke has taken such actions, the US economy would have been in much worse shape if the Fed did not interfere (thats a fact), but many things have been standing in the way, limiting the impact of the monetary easing going forward.

What are the implications? What to look for?
Whether we like it or not, Singapore and the rest of the world is tied to what happens in the US. The economy is very interest-rate sensitive, so if the Fed cuts support too early, the market will over-react and we would see a spike in yields and we're back to slower growth. Majority of Fed officials anticipate raising interest rate until after 2015 as unemployment dives below 6.5% (thats is their prediction).

Number to look at: Interest rate will rise as soon as unemployment is below 6.5%, inflation is 2.5% average or less. General consensus is this will only happen mid 2014 to early 2015...!

What does it mean for our investment strategy? 
Those of us owning a home: Stick to your Sibor-pegged home loan till interest rates start going up, then refinance to fixed-rate to lock in a lower interest rate.
Those holding onto securities: prepare for short term pull-back, followed by another massive bull-run till Feds pull out of easing policy.  

Disclaimer: Please seek proper advice as to your investment strategy, perform your own due dilligence before investing. The above mentioned in article are just my take on the economy, others may differ in their opinion.
 

Worrying Market Update 16 April

It seems we are heading into a short-term bear market around the world. Last night S&P 500 had its biggest drop in 2013 of 2.3% to 1552. Energy and raw-material companies took the biggest hit. It painful to hold onto energy stocks (like ExxonMobil, Chevron, Total etc.) but hang in there.

China also reported a slowdown in its economic growth earlier yesterday, GDP growth fell short of analyst's estimate, 7.7% vs 8%. I personally do not feel it is something to worry about because Chinese stocks are still undervalued and slow growth is better than no growth at all.

In Europe, ECB president is now saying that monetary policy is insufficient to resolve the root causes of the debt crisis and will require government reforms. (Duh!) If you think the economy can be artificially stimulated to grow without each government actively controlling their spending, you are mistaken.

Anyway so what happens now? Is it time to take profit? I am not so worried about the 'emotional' market situation but more so because i might not be able to hit my target prices on some counters and get out in time. Ultimately market direction is determined by emotional traders. Remember Warren's rule number 1: Never Lose Money. If you are unable to get out of some trades this round, its still ok, you'll get another chance to buy at cheaper price, build up, and sell in the near future.

*Last note on Gold/Silver or the ETF GLD/SLV, looks like Gold and Silver prices are breaking down. GLD has broken the support @ $150 last friday and last night traded even lower near $130 region. This is a critical support level for GLD, if it closes below $130 today, there is high possibility we will see further correction to mid-2010 levels in the region of $120. Similarly for SLV, made an error picking it up @ $29. It is now trading at $22.09, it this continues, we will see it reaching pre-2011 levels around the region of $15-$20. Its good for those vested in SLV, you can pick up equal portions at almost 1/2 price.

Market Direction Mar'2013

Nobody can tell which way market is going to head in the future but one can make reasonable judgements. Investors usually have a general idea which way market is headed like during a bear or bull market trend. But its fascinating to observe what "financial experts" are saying on TV, writing on major news websites and what bloggers are writing about. It gets really interesting when we reach changing point in market direction, in my opinion, majority of analysts on TV state too little too late. If you are forming your opinions on market direction and reacting to news on a daily basis, you are probably guaranteed to get caught up in a trade you regret making. 

March Market Update:

No doubt, US market has had a great run from mid 2012 till now. China stocks have climbed as must as they can, now going through a healthy correction. Singapore market is at very healthy levels but needs to go through minor consolidation before it can move higher. 

Wall street rose again last night. But i am worried. In fact whenever I see penny stocks in Singapore and US being hyped up, time to be a little careful. Its true what Warren Buffett once said : "Be Fearful when other are Greedy". 

I also get very worried when Jim Rogers start showing up on the radar again, nothing against him personally. The situation in Cyprus is just a distraction, nothing else.

How can we tell if market it going to change direction? What are the indicators? Here is a few:

1. Penny stocks will start flying

2. Jim Rogers start appearing on every show

3. Put Warrants/Options become popular

4. When Motley Fool publishes articles like "America's next boom"

Of course in all seriousness, I don't actually think we have reached a turning point in the market now. Good News is that: Most companies in US are at healthy P/E ratios, expenditures and jobs are being cut, earnings estimates are within reach, its mostly looking good but it is creating a complex situation which kind of throws me off balance.

Anyway you should be alright if you make investments based on valuation, shift money to companies that do well in bear markets. It is inevitable that market will lose steam, change direction and head lower, the million dollar question is WHEN?