Stock Markets : Too Calm To Be True !
|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.
|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.”
Market calm returns…tick, tock<Sources:Think.ing.com>
Why stock markets are so calm in the age of Donald Trump <Sources: CanadianBusiness.com>
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 !!
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.
Fri, 17 Jan 2020 , 9.30pm
But what is the odds of winning TOTO ? 1/13,983,816 !!
Wish me good luck! :D