Stock Markets : Too Calm To Be True !
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| image credit to singaporepool.com.sg |
Global stocks market continue to soar with optimism build in
after US-China signed the “phase one” trade deal in White House with China agreed
to buy additional hundreds of billions of US products.
Even before the signing of the trade deal, the market seems very
calm which we can see from the strong and quick rebound after attacked of oil
processing facilities in Saudi in Sep 2019 and a “high tech “ assassination of
Iran's top Army General Qasem Soleimani on 3rd Jan 2020 by US arm force in
Iraq. It seems that geopolitical risk does not deter market to keep hitting the new high.
Quote from a recent article on WSJ :
Stocks Have
Rarely Been This Quiet in the Past 50 Years
“The S&P 500 is in one of its longest streaks without a 1%
daily move in the past five decades, highlighting how the latest leg of the stock-market rally has been a gradual climb rather than a euphoric surge.
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| image credit to Economist.com |
The broad equity gauge hasn’t moved 1% or more
in either direction since mid-October, its sixth-longest streak since the end
of 1969 and third-longest since the end of 1995, according to Dow Jones Market
Data. Driving the extended period of calm trading: An initial U.S.-China trade
deal and lower interest rates around the globe that have eased fears of a sharp economic slowdown.”
Alphabet,
Google’s parent company, hits trillion-dollar market cap for first time <source: cnbc.com>
Market
have another reason to celebrate as Alphabet hit the $1 trillion market
capitalization, making it the fourth U.S. company to hit the milestone after
Apple, Amazon and Microsoft.
The market may continue to soar in view of ample liquidity and full
of optimism, so how are you going to “bet” on the market under the current situation
or environment ?
Howard Marks in his latest memo may give you some clue on
that: You Bet !!
https://www.oaktreecapital.com/insights/videos/the-memo-with-howard-marks/the-memo-you-bet
Some of
his important observations:
Success in investing doesn’t come from
buying good things, but from buying things well, and it’s essential to know the
difference.
It’s not a matter of what you buy, but
what you pay for it
You have to be able to understand which companies or assets are favoured and the the attractiveness of the proposition.
You need a sense for whether your
holding is a good one and for the chance the competition – the
market, which you’re playing against – might have better.
You need the discipline to follow a
process and the wisdom to accept that no process is sure to
produce good results.
You have to understand the
significance of the information you have, as well as that which you don’t have.
You need the nerve to bet heavily based on what you think you know and a healthy respect for what you may not know.
You need to control greed and fear,
hopefulness and despondency. You have to resist making an unwise bet just
because it could enable you to catch up with the indices or the competition.
How can we be sure that we are
choosing the alternative that is best for us? What if another alternative
would bring us more happiness, satisfaction, or money? The answer, of
course, is we can’t be sure. Things outside our control (luck) can
influence the result. The futures we imagine are merely possible. They
haven’t happened yet. We can only make our best guess,
given what we know and don’t know, at what the future will look like. . . . When
we decide, we are betting whatever we value . . . on one of a set of possible
and uncertain futures. That is where the risk is.
Investing is a game of skill – meaning inferior players can’t
expect to be above average winners in the long run. But it also includes
elements of chance – meaning skill won’t win out every time. In the long
run, the superior skill will overcome the impact of bad luck. But in the
short run, luck can overwhelm skill, and the two can be indistinguishable.
--- EOM –
Ultimately, is important to have a diversified portfolio and some
war chest ready. Nobody knows when the crisis may hit and as you may notice
from my portfolio, I am more on an “income investing “ investor, my stocks
consist mostly of REITs, Banks, Utilities and some blue chips which produce and
give me consistent cash flow, quarter to quarter.
As I quoted and highlighted in my previous blog post : (
here )
“In a world like the one described above (negative
interest rate environment), perhaps the most reliable solution lies in buying
things with durable cash flows. Bonds, loans, stocks,
properties and companies with the likelihood
of producing steady (or hopefully growing) earnings or distributions that
reflect a substantial yield on cost all seem like reasonable responses in times
of negative yields. In my
view, durability and dependability are highly desirable (rather than hail-Mary
attempts at a moon-shot). ”
My
current portfolio composition :
You Bet ,
I Bet , How To Bet ?
Ops, sorry, I am not trying to promote the gambling here,
definitely not to teach you how to do the betting on 4D or TOTO.
What I am going to explain and show you here is how to do
the “betting” in the stock market that increases your odds of winning the Game.
## Your odds of winning the market if buying at -1SD level will
be 94.6% where this is the % that price will stay above this level (above -1SD
line), historically.
I have repeatedly mentioned in my blog that the market always moves
in cycles and concept of “ Reversion To Mean “.
I use these tactics to deploy my war-chest in order to
increase my “odds” of winning the Game. I will only deploy my war-chest and increase
my “bet” once the market move below the mean level.
At the current level, STI is not that dirt cheap but also not as expensive
as other developed markets like the US and European markets.
Market has been moving along +/- 0.5 SD level since after GFC and
never hit -1SD, this might be due to many times of QE from world central banks
who have increased and pumped so much liquidity into the market that a little
bit of drop in the market will cause investors to rush in with mind-set of F.O.M.O.
So When
To Buy OCBC hah ?
Statistically, if you are buying OCBC at $10.20, the
probability of winning will be 89.3%, but if are lucky to buy at -2SD level at
$8.4 ( if share price suddenly crash tomorrow ), the odds of winning the Game
will be 99.2%. But one needs to remember that market is very irrational during
crisis and price may drop below -2SD level as what we have seen during Global
Financial Crisis in 2008/09.
At time of writing, OCBC is at $11.21, so the odds of winning are around 52+%, which is quite close to mean level, not so expensive but definitely not "dirt cheap" as well.
This figure is just to show you that your odds may increase
provided you are buying into “market” or fundamentally strong companies like
OCBC, where you may expect the price to revert to mean eventually, definitely
not for the speculative counters.
Ok, need to go and buy my TOTO now.
Next Jackpot
$9,900,000 est
Next Draw
Fri, 17 Jan 2020 , 9.30pm
But what is the odds of winning TOTO ? 1/13,983,816
!!
Wish me
good luck! :D
Cheers !!
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