Excerpts from a monthly investment outlook by Financial Alliance (FA) sent to its clients recently.
In November 2008, Financial Alliance (www.fa.com.sg) became the first and only Financial Adviser Firm in Singapore to achieve both the Singapore Quality Class and the People Developer status.
Key points:
> The saying “Sell in May and go away” could not have been more accurate as equity markets had a torrid month (till May 29). Many suffered sharp losses which effectively wiped out the gains seen in Q1, leaving many markets with no gains and even large losses year-to-date.
> We are in a very good position to take advantage of opportunities in the market as we have remained defensive since August last year. Thus we were generally spared the large decline in August and September. We have also managed to avoid the see-saw movements over the past few months. The question now is one of timing.
> Be prepared to re-enter markets. We have made it no secret since late last year that we are looking to re-enter this market in stages via a Dollar Cost Averaging strategy in 2012. What is for sure is that we are getting closer to pulling the trigger.
Q. Are there opportunities?
FA: We are in a very good position to take advantage of opportunities in the market as we have remained defensive since August last year. Thus we were generally spared the large decline in August and September.
We have also managed to avoid the see-saw movements over the past few months. The question now is one of timing.
Overall, we believe that markets may experience some more downside from here. This is because markets have broken to the downside from a 3-month consolidation and, technically, this normally leads to a sustained move.
At this point, we see markets pricing in a slowdown in global growth and the happenings in Europe, but there is a chance it will also over-react and price in the worst case scenario in both these cases.
For instance, we have read a few fresh reports that expect a potential global recession later this year or in early 2013 as the European crisis worsens.
On the European front, the discussion is also moving from what will happen to the rest of the crisis-hit countries like Spain, Portugal and Italy to whether a potential exit is in store for France and even Germany – which we find a bit far-fetched. But as such discussions intensify, as usual, we are likely to see markets over-reacting and pricing in the worst-case scenario.
Similarly, valuation matrices suggest a bit more downside may be in the pipeline.
The forward price/earnings ratio for the S&P at the bottoms of recent crashes reached 11.5 and 10.4, while it is currently at 12.2.
According to a report, Morgan Stanley’s market timing indicator is presently at -0.4, which is close to the buying signal of -0.5, although it is still a long way off the 2009 low of about -2.5.
However, it is also at these depressing times that opportunities arise. Larry Fink, chief executive of BlackRock, the world’s largest asset manager, believes that “because they’re scary times, it’s a good entry level to be a long term investor.”
One well-known name in European fund management was quoted by CNBC as saying he believes a contrarian buying opportunity is approaching, but things need to get worse first.
In his words, “I would like the situation to be even more stressful, and I’m waiting for that to happen. We are keeping some powder dry.”
He definitely took the words out of our mouth.
Q. So what do we do now?
FA: Be prepared to re-enter markets. We have made it no secret since late last year that we are looking to re-enter this market in stages via a Dollar Cost Averaging strategy in 2012. What is for sure is that we are getting closer to pulling the trigger.
Understandably, some may feel we are being too aggressive given the situation. Our reply to this is that we have always stuck to our views: we called for investors to go defensive ahead of the August 2011 crash and again for investors to stay sidelined despite the strong rally in the markets earlier this year.
Both these calls were clearly contrarian in nature but have proven to be correct. Right now, we feel that the best time to re-build our equity position is in the second half of 2012, when the global economic and European situations may be at their worst.
What about the Greek elections on June 17? We don’t have a view on the outcome itself but we feel it could lead to very different consequences. If Greece leaves, the problems outlined earlier in this report will unfold and we could see a Lehman-type of sell-off.
If it remains in the euro zone, it is easy to imagine that the social-politicaleconomical situation in Europe would remain a mess for some time to come, especially as Spain and Italy have increasing problems of their own.
Recent story: SANI HAMID: "Add exposure to China and gold"
Stick to the golden rule: buy low, sell high. If you are a trader, you short a stock on a down-trending market. You must be prepared to cut loss.
The longer term investor will time the market to buy very low at market troughs and patiently wait to sell at market booms. This can take many years, though economic cycles have shortened over the years. Alternatively, he may dollar cost average as advised by Sani.
Try not to use CFDs (high borrowings) which can greatly impoverish you.
In a highly volatile market today, retail investors have largely kept out of the market, leaving remisiers, traders, institutions and syndicates playing, some using high frequency program trades that can astound the experienced trader.
The average investor is well advised to keep things simple, learn the basic know how, and apply his knowledge intelligently.
In short, Sani Hamid and Cheong Wee are right only when they have, and are consistently reaping their rewards in greater measure.
Thanks Sani, i read you . But i still prefer to trade like a cowboy, since it is very profitable so far, unless otherwise, something happen that cause me to be converted to a
So, what is the different? they choose the wrong guy, just like we choose the wrong stock. Just one wrong stock is enough to take all your profit you make in all ohter counters.
So can we said they are smart for choosing one cowboy trader to make them famous. You choose me as some one call me cowboy is much better, i am very black in the money, shorting.
So would you forgive them if that is your money??
Sani , could be right abou the the cost averaging going forward, i will be covering my profitable short position soon. About time to long, soon.
if morgan stanley so smart with their indicater, will they lose 2B???
We cannot change the wind direction, but we can change our sail.
Go long only in 2013, not now, buy gold in Oct, why? because risk asset will be in play, so ppl will sell gold, buy stock next year , gold will shine in 2013.
Buy gold at 1500, not now?? my prediction.
Don't buy anything except trade. Don't drive or jog or claw, or whatever till 17/6. !8/6 come, dow either go up a few hundred pts or crash., then you can take the next step.
I think i will let my trailing stop to take profit for me.
About time to go long. What a waste if you have not shorted these weeks???
good luck, i will jog, then claw under , then i will fly next to go long, then 2013 i will slaughter the market.
Learn to short, still got time.
Join me shorting, still got lot more meat than you think.
I will long when it reach 90c, and wait and see, whether it will go to 60c. Unlikely, worse case scenerio.
U don't drive a car is it?