Recently, I finished reading Teh Hooi Ling’s $how Me the
MONEY (Book 3) – Fighting Paralysis in a
Market Meltdown and other curious facts.
MONEY (Book 3) – Fighting Paralysis in a
Market Meltdown and other curious facts.
Below is a summary of extracts from the book more related to the stock market. There are also sections related to the macro global landscape, which I have not reviewed here.
Hope the points laid down are useful for the readers.
Teh Hooi Ling is an ex-SPH scholar and journalist for 22
years with Business Times, before she joined Aggregate Asset Management as a
partner in 2013. Just recently, she was appointed the president of Association
of Women for Action and Research’s (AWARE).
years with Business Times, before she joined Aggregate Asset Management as a
partner in 2013. Just recently, she was appointed the president of Association
of Women for Action and Research’s (AWARE).
During her time as a journalist, she ran investment column
Show Me the Money in 2002 for 12 years which became very popular. This book
contains articles written during the Global Financial Crisis (GFC). Teh named
the book “Fighting Paralysis in a Market
Meltdown”, for GMO Jeremy Grantham’s commentary Reinvesting When Terrified, published near the bottom of the market
in March in 2009, left a deep impression on her.
Show Me the Money in 2002 for 12 years which became very popular. This book
contains articles written during the Global Financial Crisis (GFC). Teh named
the book “Fighting Paralysis in a Market
Meltdown”, for GMO Jeremy Grantham’s commentary Reinvesting When Terrified, published near the bottom of the market
in March in 2009, left a deep impression on her.
The Importance of Market
Timing
Timing
November : Record of positive Nov followed by positive Dec
is 100% for the last 29 years for STI since 1985.
is 100% for the last 29 years for STI since 1985.
January : Positive if December is positive is 88% in last
>20 years
>20 years
May: Sell in May? Not too bad a call. Makes money 64% in
last >20 years (1985-2007)
last >20 years (1985-2007)
August : Since 1985, 14 out of 23 were down.
The benefits of buying
on the dips
on the dips
AFC recover faster than GFC. This shows that the impact of
USA is great. 1998 (STI 800) 2009 Mar (STI 1456). Still on both occasions,
stocks rise later.
USA is great. 1998 (STI 800) 2009 Mar (STI 1456). Still on both occasions,
stocks rise later.
Do not underestimate
a downturn
a downturn
But nobody can guarantee economic slowdown will not turn out
to be Great Depression or WWII or 1870s.
to be Great Depression or WWII or 1870s.
Recession can be the
best time to start a business
best time to start a business
Many great companies founded during recession. HP, Disney,
Microsoft, Oracle, Cisco etc. Singapore : Sakae Sushi in Sep 1997
Microsoft, Oracle, Cisco etc. Singapore : Sakae Sushi in Sep 1997
Most important is not to lose hope even when you are
retrenched. Maybe can start business. Best time to start a business is actually
during a crisis.
retrenched. Maybe can start business. Best time to start a business is actually
during a crisis.
Cash is still King
Be patient and there is always time to deploy cash.
Bull vs Bear Market
Bear
Bear not necessary V bottom capitulation. Most bear final
month fall is 10% then followed by relatively modest move off bottom. Smaller
“v”
month fall is 10% then followed by relatively modest move off bottom. Smaller
“v”
Bear rallies normally bigger V
Bear market bottom is accompanied by a healthy increase in
volume
volume
Bull
Tend to be explosive during 1st couple of
weeks. Significant increase corresponds
to increase in volume. E.g. STI in Jul 2007 trading volume is 2.4x average of
previous 9 months.
weeks. Significant increase corresponds
to increase in volume. E.g. STI in Jul 2007 trading volume is 2.4x average of
previous 9 months.
Crisis
2007, STI at 3800 but in 2009 Mar , STI at 1500. A decrease
of 60%.
of 60%.
STI,
2001 dot com : PB ~ 1.25
2003 SARS : PB ~
1.16
1.16
2009 GFC : PB ~
0.9
0.9
The most times the word recession appears in newspaper, the
higher the stock market return in 12 months later.
higher the stock market return in 12 months later.
Never forecast the
market
market
Buy when price below net worth of company and sell when
price significantly higher. Have anchor of buy and sell. Do not be affected by
emotions.
price significantly higher. Have anchor of buy and sell. Do not be affected by
emotions.
Cut loss Vs New Capital Injection (or Average down) Philosophy
From an article contributed by a young financial planner:
From an article contributed by a young financial planner:
“If stock loses 80% of value, they have to climb 400% to get
to where they use to be at. Almost
impossible to recover. Better to cut loss at 20-30% mark.”
THL:
to where they use to be at. Almost
impossible to recover. Better to cut loss at 20-30% mark.”
THL:
Market turned during darkest moments.
But if invest during peak. E.g. in 2007, and do nothing, by
2015, you still sit with 58% loss.
2015, you still sit with 58% loss.
So THL countered and use a table to illustrate that if equal amount of new capital was injected into the assets at significantly lower market price, the climb back to initial capital is actually less arduous and not totally impossible.
Using her table and average down strategy (which I did not present here), E.g if a stock has fallen 80%, the stock will actually only need to rebound by 67% to recoup losses. And if 90% loss initially, only need 82% rise to recoup initial capital. And if market recovers 100%, may even sit with profits.
Using her table and average down strategy (which I did not present here), E.g if a stock has fallen 80%, the stock will actually only need to rebound by 67% to recoup losses. And if 90% loss initially, only need 82% rise to recoup initial capital. And if market recovers 100%, may even sit with profits.
To invest or Not
It pays to stay invested. Never cut losses in good stocks during crisis. Stay invested in fundamentally sound company.
Despite the numerous market worries in the last few years, asset prices have continued to move up and those who were invested have been rewarded.
Better to sell early
than late during a bubble
than late during a bubble
Sensible value
investor will always sell too early in a bubble and buy too early during busts.
But no problem and do not worry. In return, you can lower average risk exposure
and also make important extra money on a round trip.
investor will always sell too early in a bubble and buy too early during busts.
But no problem and do not worry. In return, you can lower average risk exposure
and also make important extra money on a round trip.
Risk management
In any investing or trading, risk management is the key.
Never ever overexpose yourself. “Market can remain irrational longer than you
can remain solvent!”
Never ever overexpose yourself. “Market can remain irrational longer than you
can remain solvent!”
The more STI falls, the lower the probability it will
continue to go down and the probability of rebound increases. The reverse is
true.
continue to go down and the probability of rebound increases. The reverse is
true.
Time the market using
Equity risk premium
Equity risk premium
Equity risk premium = inverse PE – (1 yr interbank lend
rate)
rate)
Eg PE = 15, lend rate
= 1%, then ERP 15 = 1/15 – (0.01) = 5.67%
= 1%, then ERP 15 = 1/15 – (0.01) = 5.67%
If PE = 10, ERP = 9%
If PE = 20, ERP = 4%
The higher the ERP, the better!
Do note that interbank lend rate is at historical low never
seen before, hence ERP has to be higher to justify our purchase.
seen before, hence ERP has to be higher to justify our purchase.
Example of timing the market using ERP :
0-5% – S$100% cash
2-3% – S$100 pm
3-4% – S$200 pm
4-6% – S$400 pm
6-9% – S$800 pm
If you time the market using the ERP method, it is compounding
at 11.2% since 1992 to 2010 compared to dollar cost averaging of 6.3% p.a.
at 11.2% since 1992 to 2010 compared to dollar cost averaging of 6.3% p.a.
Who to trust – sell
or buy side analyst
or buy side analyst
Normally sell analyst more correct!
In my view, the
analyst’s work is a lot of guesswork. The situation is quite comical. Analysts
forecast x earnings. Actual earnings came in below expectation. Analysts
downgrade earnings forecast. I now read analyst reports more for amusement than
insight” – Teh HL.
analyst’s work is a lot of guesswork. The situation is quite comical. Analysts
forecast x earnings. Actual earnings came in below expectation. Analysts
downgrade earnings forecast. I now read analyst reports more for amusement than
insight” – Teh HL.
Acquisitions during
upturn?
upturn?
Most investor or companies make acquisition during upturn.
This is wrong.
This is wrong.
Rights issues need
Right Timing
Right Timing
During Bear period, stock price usually plunge after RI.
During Bull period, stock price usually surge.
If you believe a company has good fundamentals that will get
through the current crisis, that the cash it collects through the RI will give
it more currency to pick up prized assets down the trail, it make sense to
subscribe the rights.
through the current crisis, that the cash it collects through the RI will give
it more currency to pick up prized assets down the trail, it make sense to
subscribe the rights.
However Temasek linked companies will have more RI because
they have more cash. Subscribing to the RI, and thereafter normally the stock
price will increase after the crisis.
they have more cash. Subscribing to the RI, and thereafter normally the stock
price will increase after the crisis.
Small S Chips
Good profit margin in China will not last for small company.
This is because once margin is good, it will attract competition as new
entrants barriers to entry is usually low. Therefore Buy and Hold small Chinese
company is not a good strategy!
This is because once margin is good, it will attract competition as new
entrants barriers to entry is usually low. Therefore Buy and Hold small Chinese
company is not a good strategy!
Spotting red flags /
frauds
frauds
3 conditions
1. Pressure or incentive to commit fraud
2. Rationalization on the part of fraudster that they are
doing good for the shareholders or that they deserve what they are asking.
doing good for the shareholders or that they deserve what they are asking.
3. Opportunities to commit fraud
Common fraud traits
Asset inflation via account receivables and inventories
History repeat itself – Ponzi and Madoff
Operation cashflow out of line with reported earnings,
deferral of expenses, and classification of expenses or losses.
deferral of expenses, and classification of expenses or losses.
Be careful
Read footnotes on accounting policies examining disclosure
of balance sheet
of balance sheet
Evaluate negative side more than the positive side. Is it
good to be true?
good to be true?
Note that the objective of auditor is not fraud detection.
During past downturns
Using 18 STI companies, between 1997 and 2008, earning
declines occurred through 2 years. And earnings decline take place via
extensive period of time and not just over 1 or 2 quarters.
declines occurred through 2 years. And earnings decline take place via
extensive period of time and not just over 1 or 2 quarters.
Peak to trough is 25%.
Different sectors
Utilities and healthcare sectors
earnings always rise during recession
earnings always rise during recession
Consumer staples earnings fell only
once.
once.
Cyclical sectors have borne the
burnt of declines.
burnt of declines.
Commodity sectors particularly weak
Energy decline 30% and material
decline 35%
decline 35%
The impact of Earth Quakes
The negative impact on stock prices from the quake does not
last more than 10 days. More like a kneejerk reaction!
last more than 10 days. More like a kneejerk reaction!
Advice to have a
mixture of everything
mixture of everything
“To have some cash, have some debts, have some investment in
stocks, some in property, some in commodities and most of all keep your core
income intact!
stocks, some in property, some in commodities and most of all keep your core
income intact!
If you have in 2010,
100k cash in the bank, 600k loan for a 1.2mio property, 200k
in SG stocks and 50k in gold,
in SG stocks and 50k in gold,
By 2015, it will be appreciated by 25%.
Rolf’s Thoughts
This is undoubtedly an excellent book reviewing the GFC from a local Singaporean perspective. It prepares us for the next crisis to come. Very suitable for mainstream Singaporeans. The book is easy to read and concepts are easy to comprehend, a typical Singaporean style of direct and to the point.
I also think that the macro and micro views from the author will give readers a more complete picture about investment and not just seeing stocks from bottom up.
Thumbs up for a rare female investment guru.
If any downside I were to pinpoint is probably the “lighter stance” from the author seemingly stem from journalist trait that articles written tend to lean towards lightly opinionated and somewhat regulated manner. After all, we have to remember that the most of the work are actually from local newspapers.
I personally prefer authors who are slightly more critical and opinionated with unorthodox intriguing styles of writing. Yes…not so mainstream lar!
Rolf,
1. I don't know whether it's your typo or THL's.
Under "Cut losses", if our stock loses half its value, we need a 2 bagger return just to breakeven. See? I'm only writing in English instead of % 😉
2. Again under "Cut losses", we say it's better to cut when we hit our 20-30% loss point.
But under "To Invest or Not", we say never cut losses in good stocks during a crisis!?
Not even when we hit our 20-30% cry uncle point?
A bit spear/shield don't you think?
LOL!
Hi Jared,
You are absolutely right. It was my typo and reading errors. I apologised for my mistakes. As I read the book, I actually jot down notes with my illegible handwriting. Furthermore the book was read during my ICT period.
So typo = 80% and not 50% that I mistyped.
And for the contradiction of "cut loss" THL actually highlighted that an average down strategy can also work.
See updated corrected wordings in blue.
Thanks for pointing out. It is very helpful. 🙂
Rolf,
Averaging down strategy in the wrong hands of amateurs, combined with bad luck, well good luck!
I rather not get myself into situation where I am down by -80% 😉
Well, everyone got to learn through the hard way. 🙂
Hi Rolf,
Great summary and highlights, haven't got the chance to read the Book 2 and 3 yet.. will try to get hold of them and read one of these day.
Cheers!
Hi Richard,
Hope you enjoy reading once you get hold of them.
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