Market Timing (26 Mar 2010)

The advisors all advise against it, but everyone all want to do it. Many people all believe that they should time the market. The big stock market crash in 2008 further cemented many investor’s conviction that it was absolutely necessary to time the market. With that in mind, I just wrote a long article about the many pitfalls on market timing for the GM column in the upcoming FSM magazine.

Fear and greed often make us time the market wrongly, so it has to be a very savvy investor who can keep his emotions in check, or one who has taken enough hard knocks from his own investing through the years who will not be swayed. History has not been kind to long term investors in the last 2 years as they would have held their investment to the top of the market in 2008, and then seen several years of gains possibly wiped out within that one year. So, I think it’s futile to dissuade anyone from market timing. Besides, there are many investors who have successfully timed the market and done well too. Also, Fundsupermart will be announcing big price changes soon that may make people want to time the market even more because it is cheap to do so.

Just be aware though that there is always many emotional pitfalls in market timing that will often push you to do the opposite of what you should be doing, which is to buy low and sell high. Also, the shorter the investment time horizon, the more likely market sentiment may drive the market in a different direction as what fundamentals point towards. So, if you do want to market time, please do it with both eyes wide open!

The Best Kind of Rally (17 Mar 2010)

We are now going through what I would term “the best kind of rally”. Why is that? It is because this is the quiet but steady kind of market increases which do not stir up much attention, but it eventually builds up into a bull market. This is the kind of rally that comes off a selloff, like the one we saw in January, and during which there are still concerns aplenty about everything from Greece and the Euro/pound under attack, to the strength of the US recovery.

This is great because it doesn’t draw attention to itself until much later. It’s a slow building kind of rally that can potentially snowball into big gains. A quick and fast 2% to 3% surge in one day, which will draw media attention, will certainly see profit taking the very next day. There are tons of pessimists and detractors who would jump in during a big market surge to question why it is going up so much. But a slow and steady increase is something nobody asks questions about, and one which the media will not cover.

Let’s take the STI index. Just one month ago, it was hovering at 2,750. But now, it is at over 2,900. If it did this with big 3 big 50 point gain days, there would have been the inevitable profit taking, questions on why it can suddenly surge 150 points in too short a time. So, 150 points in 3 days will quickly see it running out of steam and falling back. Yet, 150 points over a month and nobody bats an eyelid. In fact, people hardly even notice! Its not newsworthy at all! The media is more busy covering the latest on Jack Neo or the Thailand mass protests.

I think the market is all set for the next upsurge. It won’t be an eye popping rise, but a more sustained gradual rise. All the bad news has already been said and done to death. People are still talking about US banks’ bad debts, Greece bad debts, China tightening, central bank exit plans and double dip recessions. But its all old news by now. It is fast losing its power to move markets even in the short term now. And all this while, positive economic and company data continues to flow out. The latest is that Singapore’s February non-oil exports grew 23% from a year earlier, and 21% up from January.

It isn’t just Singapore, the whole Asian region is growing fast. Yet, this increasing pace of growth in Asia is being largely ignored by people previously focusing on whether Greece will pull down the Euro, or whether US banks are still hiding tons of debt. Don’t wait until its clear blue skies. Don’t wait until the talk about bad news has died down, because that will only happen when markets have moved much higher such that their strength has muffled these concerns. By then, it would be too late.

There is still time, but before you know it, markets will be a lot higher. Right now, people are still worried, still cautious. Hence, trade volume is still low. But the data that does matter to fundamentals, the economic and company data, these are all continuing their positive trend. If you are like me, and already fully invested, then its just to sit back and wait. For those still waiting, don’t wait too long. We are already in the midst of a rally!

Markets Are Moving Up Again (10 Mar 2010)

It seems like just last week we were still plagued by worries over how Greece’s problems might spread to the rest of Europe, and markets seemed dead. Yet, as of today, when I tabulated how markets have performed over the last one month (as of 8 March), the numbers are revealing. They show that most stock markets have bounced back quite a bit over the last one month. I looked at the category average in the fund selector and drew up a table. Table 1 shows the best performing to worst performing funds on Fundsupermart divided via geography.

Table 1 (Average Performance of funds in area)

	1 month		1 month		1 month
Australia	11.31%	China	7.61%	Italy	5.63%
Brazil	10.22%	Asia ex India ex Japan	7.46%	Germany	5.62%
Latin America	10.22%	Hong Kong & Singapore	7.01%	Taiwan	5.54%
BRIC	8.48%	Thailand	6.98%	US centric	5.38%
Korea	8.32%	Russia	6.73%	Asia Inc Japan	5.12%
Asia ex Japan	8.18%	Indonesia	6.46%	Iberia	5.06%
Eastern Europe	8.06%	Asia Pacific ex Japan	6.40%	Singapore	4.83%
India	7.96%	Hong Kong	6.33%	Turkey	4.47%
Emerging Markets	7.95%	South East Asia	6.32%	Middle East & North Africa	2.17%
China and India	7.76%	France	6.29%	Japan	1.84%
Greater China	7.70%	Europe Inc UK	6.14%	Vietnam	1.47%
Malaysia	7.68%	Global	5.75%

As table 1 shows, Australia, Brazil, Latin America, BRIC and Korea funds were the strongest performers on average over the last one month. Everything went up. Its was mainly a difference of how much. If your equity fund actually fell over the last one month, it would have been an oddity. Not surprisingly, Asia, and emerging markets funds, having stronger fundamentals and growth prospects, rebounded more strongly than developed markets. At the bottom of the table, Japan and Vietnam equity funds disappointed. I turned to look at the sector funds now in table 2.

Sector	1 month
Resources	12.51%
Gold and minerals	11.08%
Materials	9.47%
Finance	8.80%
Property	6.55%
Energy	5.50%
Technology	5.17%
Utilities	0.35%

The performances of the sector funds suggest that resources, gold and finance funds have bounced back in a big way. Commodity and resource related funds are again a favorite. Finance is quite close to the top as well though, which is surprising given the large amount of bad news and potential crisis that the sector always seems to generate. I believe its because it is priced cheaply at the moment. Lots of people don’t dare or wouldn’t touch finance stocks with a ten foot pole right now, but very often, it is such times when there are the best bargains to be had. So, the finance funds could still give us a shock yet as this year plays out.

	1 month
Emerging Market Bond	0.31%
Short Duration Bond	0.26%
Singapore Bond	0.04%
Global Bond	-0.14%
Asia bonds	-0.18%
High Yield	-0.41%
Investment grade	-1.29%

The biggest underperformers this month were the fixed income funds. Its not really that they are bad as an asset class. Indeed, when volatility is very much present in stock markets, as it was in January and February, investors appreciate the stability bond funds bring. But now, in hindsight, it looks like my decision to shift 20% of my bond funds into equity funds in February was a good one. Bond fund returns are likely to stay relatively low given the still abnormally low interest rate environment throughout much of the world. But given the high degree of volatility in markets, I think most of us would still appreciate having at least some bond funds, low return or otherwise.

My sense of the current situation is that a lot of the bad news in recent times like Greece’s bad debts, China tightening, Central bank exit plans, and such have now all run their course in the media. So, these are mostly all factored into markets already. In the midst of these, the global economy continues to grow, with Asia and emerging markets leading the way. So, with much of the bad news already factored in, I believe that the upcoming few months would see gains in most stock markets as positive earnings data and economic data continues to filter through. For those still waiting on the sidelines, don’t wait too long. When markets rally, the speed at which they do so can often catch many investors unawares. Looking at just table 1 and 2 alone, I think many of us would have been shocked that some of the funds have gained close to 10% within the last one month alone.

Added Kids’ Ang Bao to Their Accounts (2 Mar 2010)

It has been a long time since I actually logged in to see how my kid’s investments were doing. After all, those are going to be there until they reach at least 21 years old, unless it is used for their university education. And right now, they are barely 3 and 5 years old this year.

The last time I checked their accounts was around a year ago, shortly after Chinese New Year, and at that time, I remembered their holdings were showing losses. But I was quite sure that if the investment horizon is very long (in this case, more than 15 years), then I am very confident that it would be substantially higher by the time I finally hand the account over to them.

But lo and behold, when I checked their accounts just now, both were back in the black now. What a difference one year makes! In any case, it is after Chinese New Year. And during Chinese New Year, they got Ang Baos (Red Packets). At this stage, my 3 year old daughter just plays with a particular Ang Bao if it has very nice colors, and then drops it on the floor after she loses interest. My son is slightly better, he passes it to his mum, but he has no interest in it either.

So, we consolidate all their Ang Bao after Chinese New Year, and now I am going to invest some of it into their unit trust investment account. Their portfolios are very straight forward. They only have two funds. One is an Asia Pacific equity fund and the other is a Singapore equity fund. They have no bond funds. The reason being that they don’t need it. Bond funds are there to provide stability, to reduce volatility. This is especially important if you don’t have a particularly long time horizon. But in this case, consider my children.

Do they care if the market slumps? Nope. All they care about right now, is whether we bring them to the playground downstairs to play. So, things like market volatility, portfolio volatility is irrelevant to them. They are not going to panic and take out everything at the bottom during a stock market crash. They aren’t going to scream at their dad and demand that everything be switched to a low risk low yielding savings account to “protect” their money.

Are their investment horizons long? Yes, in this case, well over 15 years, if not longer. 15 years is a long time. You could sometimes fit several market cycles into a 15 year period. Will equities outperform bonds over such a long period? It would. So, since volatility is not an issue in this case, then I would go for the asset class that would have a better performance over a very long term instead going for a more “balanced” type of portfolio.

In this same vein, I think those kids accounts, savings accounts are good in principle, but bad in execution. If you are committed to setting the money aside for your kids and you understand investing, then it shouldn’t go into a savings or kids account. The interest rate is so low you would be lucky to beat inflation. Right now, bank savings accounts will only give you 0.1%, and kid’s saving account interest rates are usually similar.

So, for my own kids, I place them into equity fund investments. I am confident that over a period of more than 15 years, they will beat the interest rates that banks are offering right now. All I need to do, is to withstand the volatility in the meantime, and can I kids handle it? Yes they can!

For example, the Singapore equity fund that both the kids have is the Aberdeen Singapore Equity Fund. Its actual annualised bid to bid performance over the last ten years is 9.28%. (Based on 26 Feb prices). This means that $10,000 invested ten years ago would be worth $24,288 or 140% more. In the same vein, $10,000 put into a savings account giving just 0.1% per year would give only $10,100 after ten years.

Assuming the fund keeps up its performance, and gives the same annualized performance over 20 years. This means that after 20 years, the same $10,000 would now be worth $58,994 while the one in the savings account would still only manage $10,201. To me, its quite clear. Am I willing to risk market volatility (which doesn’t have any effect on my kids) for substantially better returns over a very long period? The answer to that is a big “Yes!”

When my kids are old enough next time to start learning about money, I hope to use their own investment accounts to show them how money grows over time, and how much of a difference there is between “saving” money vs “investing” money.