STE's Stocks Investing Journey

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 3 rd Jan 2020 by US arm force in Iraq. It seems that geopolitical risk does not deter market to keep hitting the new high.

image credit to asymmetryobservation.com Would like to share this great article on the subject of “ Regression to Trend/Mean”: Regression to Trend: Another Look at Long-Term Market Performance <from www.advisorperspective.com>     “About the only certainty in the stock market is that, over the long haul, over performance turns into under-performance and vice versa. Is there a pattern to this movement? Let's apply some simple regression analysis (see footnote below) to the question. Below is a chart of the S&P Composite stretching back to 1871 based on the real (inflation-adjusted) monthly average of daily closes. We're using a semi-log scale to equalize vertical distances for the same percentage change regardless of the index price range.”

image credit to steemkr.com Yes, this was what President Trump said after Federal Reserve’s recent rise in the interest rate   and signals for more to come which has caused the recent “ market rout” where world major indexes   dropped by more than 5-8% in two days including most of the Asian’s stock market.  I am sure you have been bombarded by all sort of news headlines on “Market Crash “ or even active discussion about share price dropped or portfolio value decreased among your chart group.     Dow plunges more than 800 points in worst drop since February, Amazon and tech shares lead the rout   ( from CNBC.com)

image credit to asymmetryobservation.com This is one of the best articles on the topic of “ Reversion to the Mean “ … just for reading. The Realities of Mean Reversion by Jack Forehand,  Validea's Guru Investor Blog Quote “Mean reversion is one of the most powerful forces in investing. Whether it be the performance of asset classes, the fundamentals of companies, or economic data, almost everything in investing will revert to long-term averages over time. ” Unquote Full article ( here )

<Image credit to CNBC.com> So, it is final that FED increased interest rate by 25 basis points on last Wednesday and you could easily find news and comments on the impact of stocks and economy with this rate hike.  But at least the rate hike is seen as a  vote of confidence in the US economy which has witness increasing inflation and job growth and of course the market react positively on this. Our immediate thinking will be, of course, the cost of borrowing will increase as the bank will price in higher loan rate and this lead me to think further that will bank be benefited with higher loan cost eventually. Meantime, some analyst are more cautious on that because our banks are facing loan crisis from O&G sector hence may not be so sanguine on bank’s future earning.

<Image Credit to Zerohedge.com> I think it is time for me to update the world major stock market’s valuation by “   Regression to the Mean  ”  after DJ exceeded 21,000 marks in such a short period after hitting 20K level. Always remembered that “ Reversion to mean “ is just a “ statistical phenomena “ and it may take much longer time to “reverting to mean” if the market is in bubble or irrational stage.   As renowned economist John Maynard Keynes famously commented, “ The market can stay irrational longer than you can stay solvent. ”

image credit to asymmetryobservation.com Since early December, the stock price for some of the STI counters have increased much as compared to a few months back. Just to recall what I have written in August to explain the concept of “ Linear Regression and Reverting to Mean “ in my blog about “ My Investment Strategy “ ( Click here ). Of course, there are concerns about China’s economic situation & debt stress in the O&G industry which affecting the bank stocks and also some other concern in counters like GLP / ARA / HKG Land separately. *** ARA might be a different case as price increase due to propose of privatization.

Mean Reversion : image credit to asymmetryobservation.com Received inquiry from friends/readers about "plotting regression line " for major stock markets other than STI. Would like to reiterate here that the " regression line " is just a "statistical phenomena " same as other indicators in Technical Analysis where we are just using past price trend or movement to manipulate or so call " forecasting " the future price movement.

Forecasting or predicting the market movement Sometimes I have been asked by friends on how well the market or certain stocks perform in coming months or what will be the direction of index moving towards in next year or so.  Even in every investment seminars, one may notice that the most question people like to ask those investment “ Gurus “ will be “ how do you think the prospect of STI index in 20XX ? or What do you think about the performance of the Bank / O&G / property sector in the next few months?

Before I start to explain the 3 rd and 4 th elements, allow me to quote below from Warren Buffet which is very much related today’s blog post :