4 Forces on Crude Oil Funds (四面楚歌)

Posted on April 25, 2020 Written by
crude oil funds

Crude oil is a commodity giant, similar to gold, physical price should not drop to $0.  However, it is possible for derivatives of crude oil (eg. futures contracts) to drop below zero under special condition, eg. US oil price for WTI was negative $37/barrel for May 2020 futures contract during the most fearful time in Coronavirus pandemic with the lowest energy demand due to lockdown in US and global countries.

For gold commodity, investor could buy physical gold bar (if price drops below zero) and hide under pillow or as display at home. For crude oil commodity, investors could not keep the explosive materials at home, therefore need to have storage place which would incur high cost during the pandemic period as oil storage level is near to its maximum level, may be full by mid of May 2020.  Therefore, investors who buy oil, even at positive prices, may not able to store the oil unless demand is more than supply, only then there is new room for storage.

Nevertheless, oil commodity is still a giant for longer term investing. However, there is no ideal way to invest directly in oil, each option has its own pros and cons. Typical ways are through oil futures trading, oil ETF (eg. USO, UCO, BNO, etc), energy ETF (eg. XLE, VDE, etc) or major oil & gas stocks (eg. Exxon Mobil – NYSE: XOM, Chevron – NYSE: CVX, etc).

Among all options, USO oil ETF (the largest crude oil ETF fund in the world) is a compromised way for investing in short term to mid term to follow oil price but investors may need to pay for monthly holding cost due to losses in contango (reversed is holding gain during backwardation, search for past articles by Dr Tee for details). Oil & gas stocks are more suitable for long term investing (benefiting from oil price recovery indirectly through business) but investors has risk of weaker oil & gas companies may go bankrupt during oil crisis with prolonged low oil price, therefore safer to focus in giant oil & gas stocks with strong business fundamental, continue to be profitable even during last 5 years of oil crisis.

USO (WTI oil ETF) and oil commodity used to have good correlation within about 3 years (longer than that, contango will show significant difference, reducing the capital gains). The past few months of high contango (especially for May 2020 futures contract) has resulted in USO value declining significantly. If oil futures continue to drop to negative prices for June 2020 and a few more months, not only USO may have risk of going bankrupt (NAV approaching $0), even many global oil & gas companies may disappear (Hin Leong Trading of Singapore is just an example of victim).

The correlation between USO and WTI oil is used to be this way:

Oil  (WTI) / USO (ratio is about $1/barrel oil = $0.21 USO)
=============
$20 / $4.20

So, when oil price drops proportionally in a gradual way within months or years (not within 1 day), USO (without high contango) may follow closely in this manner:

Oil  (WTI) / USO (ratio is about $1/barrel oil = $0.21 USO)
=============
$20 / $4.20
$15 / $3.15
$10 / $2.10
$5 / $1.05
$1 / $0.21

However, oil market becomes speculative during Coronavirus pandemic, negative oil price (happened only for 1 day) becomes the victim. USO suffered great loss in that day of negative price. USO has about 20-25% risk exposures for May 2020 futures contracts, probably could still sell at low prices above $0, therefore overall losses are about 25% due to rollover to June 2020 futures contract with higher prices. USO is in a better shape than other oil fund, eg. Bank of China oil fund (Yuanyou Bao – 原油宝) which selling May 2020 futures contract at closing market price of negative $37/barrel), suffering permanent damage, risk is much higher (this fund is stopped for new investors). Despite oil prices fell to negative region, actual transaction are fewer, prices for nearby month futures contract (Jun 2020) quickly recover, now back to a more normal price of $17/barrel.

USO oil ETF is the largest oil ETF, could quickly get new investors with new funds whenever there is a new in oil prices. Even so, USO suffers major correction over the past 1 month, the new correlation (with USO contango losses) as of now is

Oil  (WTI) / USO (ratio is about $1/barrel oil = $0.15 USO), new ratio based on 24 Apr 2020

=============

$17.30 / $2.57

So, for every $1/barrel oil price, it means USO has depreciated from equivalent $0.21 (before negative oil price) to $0.15 (after negative oil price), about 25% loss due to contango during that day with negative oil price (rollover from May to Jun 2020 futures contract with historical high price gap). If June 2020 happens again for negative oil price (may or may not happen again, only knows about a few weeks later), USO would suffer more losses again.

Whether USO (and other oil ETFs) may go bankrupt (NAV approaching zero) in short term or could survive and recover together with oil commodity giant in longer term, depending on these 4 market forces:

1) Coronavirus (Demand vs Supply)

How long would Coronavirus last and when US would restart economy are keys. This determines when demand > supply for oil. Now oil supply < demand during pandemic. Based on the current Coronavirus trends, there is earlier sign that US has reached intermediate peak of new daily cases but downtrend is not so clear. With 50 states of US take turn to restart the economy, there is high risk of second peak with more infection (this is reflected in Europe countries as well with restart of economy too early).

If there is no major change in policy, Coronavirus could fade away in June for US but this implies at least 2 more months of low demand for oil price. So, there is at least 2 months of winter time for low demand for oil in US and even the world (similar trends as US).

2) Oil Storage Limit (Demand = Supply)

In the near term (eg. June – July 2020 futures contracts), it is possible for negative oil prices to happen again, especially oil storage in US will reach maximum limit by mid of May 2020, market sentiments with great fear (四面楚歌) may cause abnormal negative oil prices again. 

By then, new oil produced has no more storage. So, demand = supply for oil when there is no more new storage. It means most oil & gas companies would lose more money (no oil = no income), there is high expenses to shutdown the oil well.  When more oil & gas companies go bankrupt or stopping production, naturally supply will be less (even demand is still low), oil price could be supported but it would take months for some weaker companies with little cash reserves to burn out first.  When company goes bankrupt, it is bad news for energy sector ETF (eg. XLE) as it is business fundamental dependent but it could be good news for oil market (survival of the fittest).

During bearish market, for farmers, historically there were cases of some pour away milk (or destroy vegetables), instead of selling at low prices or given free. This is a way to reduce supply to support the “commodity” price. The idea is the same for oil but it could be a challenge to throw away oil as it requires proper way to dispose the explosive materials, any spill would be a high cost to clean.

3) Political Economy (Invisible Hands)

US government may intervene when more US shale oil companies go bankrupt with over 6 months without much production (no place to store oil if producing anymore) if demand is low during pandemic. Collapse of oil & gas industry (if not saved by global countries), may start with US shales oil company with production cost of $50/barrel, burning money each month when oil price is below $20/barrel. After that, it may extend globally to OPEC and non-OPEC (eg. Russia with production cost of $20/barrel), eventually even Saudi with the lowest production cost ($5/barrel) may not able to survive.

Historically, oil & gas companies are strong supporters of local government, contributing to local economy, creating jobs. Therefore, there is high possibility that global stimulus plans (including “unlimited QE” of US) would save this key industry for collapsing in short term, so that it could recover again in mid to long term with natural demand > supply when Coronavirus crisis is over.

In fact, there is no need for demand > supply for oil price to goes up. As long as oil storage reaches a limit, no new drop of oil could be produced before it is being used, so oil price would be stable. This is similar to 0% car growth rate in Singapore, for each car deregistered, only then a new car COE (Certificate of Entitlement) may be issued, therefore the car price would not drop to zero. However, under extreme fearful condition, it is still possible for car COE to drop to $1 but car price would never drop to zero unless there is a derivate for car such as “futures contracts of Singapore cars”, only then it is possible to have negative prices, implying car buyer would get paid when buying a car.

If oil market is speculative (eg. negative oil price by right should not happen), when oil is at very low price, eg $10 or $5 or $1/barrel, then shorting won’t help much as even USO may go bankrupt, then not much “meat” of profits left. If so, the “invisible hands” (big boys) may start to turn to long oil price to profits again from oil, but using reserved direction.  So, who are these invisible hands? It could be big investment funds (non-oil related), major oil producers themselves (covering the losses in oil prices with investing in giant oil & gas stocks at very low prices). In the next 6-12 months, we may know who are the big gainers in oil market, then invisible hands would be clearer. Usually they could affect the oil prices, therefore there could be major news in next few months if they decide to turn the oil market around again.

4) Size of Oil Funds (Strength of Fund)

New global investment would keep on coming to oil ETF funds (including USO, the largest and most popular fund, despite it has contango issue with high holding cost), especially whenever oil prices coming to new low. The reason is there is no other better way to invest in crude oil, unlike some people could buy gold or silver and keep at home for price appreciation one day.

If USO losses in contango is supported by new funds (entering at lower unit price), the fund still has positive NAV, could still continue follow the oil prices for possible recovery. It means this is a mind game between high rollover cost (monthly holding cost) vs tremendous high potential of oil prices (when demand > supply with no market threat one day). If USO could last until oil prices reverse the mega trend (from the worst case, could be negative $37 or even lower), then the high rollover cost of contango is a good issue to have because capital gains from higher oil price could offset this holding cost. However, an USO investor may not expect 100% capital gains when oil prices recovers from $15 to $30/barrel as there was cost incurred during the holding period.

However, when fewer new funds come in, USO continues to lose in contango for 6-12 months with negative oil prices or large monthly prices gaps, then possible even for USO to go bankrupt but this will be a very severe market condition as it means many oil & gas companies may also bankrupt at the same time (even XLE would have serious correction, many oil & gas stocks would disappear).  Before that, smaller oil funds which are less popular would go bankrupt first if could not last through the winter of high contango with low oil prices.

USO plans for 1-for-8 reverse share split (stock consolidation to 8x higher price by reducing the number of shares), price gap from $0 (psychological limit) would be further, giving more rooms for contango to erode the prices with monthly holding cost. In addition, USO also could rollover to 2 months later, not just to next month of futures contracts which could avoid high right of negative oil prices. However, if so, correlation of USO and oil commodity would be weaker, may not benefit fully when oil prices recover in very short term (eg. certain unexpected good news from major forces mentioned).

In short, size does matter for oil ETF. USO could not be 100% protected as it is based on derivatives of oil futures contracts, therefore it is not the same as oil commodity which is a giant. USO is a conditional giant when the rising oil prices could offset the contango cost. If contango cost is more and faster than the rising oil prices, then any oil funds (including USO and many other oil funds) or even oil producer countries (not just companies) have to go bankrupt.

===============================

In short, whether USO and other global oil ETF funds or even many oil & gas companies may go bankrupt depends mainly on 4 factors above, a power struggling among big funds, invisible hands, Coronavirus and oil storage limit. If USO could still survive and reverse the trend, due to recent contango losses, the capital gains (eg. when oil price is over $30/barrel again) would be less. For an investor entering USO around $4 with oil price around $20/barrel, after 25% contango loss (could be more), may need to wait for oil price to recover to about $30/barrel to breakeven.

It will be a mind game among the earlier 4 market forces to determine up and down and mega direction of oil prices. Oil commodity is still a giant but it has become a tool for speculation, behaving in an abnormal way. USO oil ETF is based on oil commodity derivative, not a giant during contango period with low oil prices, especially during negative oil price which is very abnormal, mainly due to complex interaction of 4 market forces.

So, investors of oil funds must understand own personality, how much risk tolerances (any diversification or position sizing or cut loss measure) could take as crude oil is a high volatile and speculative market due to unpredictable market forces, especially during this period. Hope the sharing on oil market has helped readers. Please make your own decision for investing.

There is no need for investors to take risk to invest in crisis commodity or crisis stocks. There are many giant global giant stocks which could continue to grow in business and remain profitable during Coronavirus pandemic. Dr Tee spends about half a day to prepare this article as some readers may be worrying about the crude oil market, including chance of survival of oil ETF funds. When I finish the article, it is about 8pm, very touched to hear the cheering sounds all over the neighbourhood, motivating one another during this pandemic crisis. Even we may not know when the health or financial crisis may be over but we have faith that it will be over one time, so we need to ensure we are safe during this period of uncertainty, staying healthy by exercise more and enriching mind with valuable investment knowledge.

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Healthcare Giant Stock Q&M Dental (骨肉相连)

Posted on April 24, 2020 Written by
Healthcare Giant Stock Q&M Dental QC7

Healthcare stocks (eg. hospital business, pharmaceutical companies, vaccine development, etc.) are having competitive advantages, therefore those with growing businesses are usually growth giant stocks. Between life and money, which is more important? The choice is clear (金钱诚可贵、生命价更高) to put life at a higher priority, therefore healthcare has been a high growth sector in most countries.

Q&M Dental (SGX: QC7) is a young healthcare giant stock with focus in dental services. The company started business in year 1996, having main businesses in Singapore (79 branches), Malaysia and China.  For China, due to stronger competition and higher cost, subsidiary stock, Aoxin Q&M (SGX: 1D4) with poorer business there, is not a giant stock, not performing as good as parent stock, Q&M Dental.

Q&M Dental has so many branches all over Singapore in many convenient central locations, despite it is not a monopoly business, this ease of access has become a strong economic moat. It is hard for neighborhood experienced dentists to compete with this rising star which has sophisticated facilities (eg. x-ray, etc) and better customer services.

There was one day last year, Dr Tee tooth was not feeling well, since my teeth has been in good condition for many years, I need to go around to look for a suitable dental service.  Q&M may not be best in dental skills (some are younger dentists with only a few years of experience), so I try to book for appointment with more senior dentist with over 10 years of experience (similar to selecting a stock with long history of business performance). Despite there are 3 Q&M branches within 1km radius from Dr Tee place, I was surprised that I could not get an immediate service as appointments are required and all full until the next day.  To cut the story short, a dental checkup with clean was over $100 (normal rates, Q&M has help the dental industry by setting some minimal standard fee), finally become a more serious issue which needs root canal operation and crowning, spending over $2000 as I engaged the most senior specialist for a more reliable service (not life and death issue but a good tooth could last lifetime is crucial when observing my own parents).

For certain non-urgent health issues, it is possible for some people to drag or ignore it to save cost. However, when there is sudden tooth pain (骨肉相连), even within Coronavirus pandemic, there is no choice but to visit a dentist ASAP. Therefore, dental industry is a consistent growing business and price is non-negotiable (demand more than supply). There are shortages of dentists in Singapore. There are about 2000+ dentists in Singapore, over 10% are from Q&M. To overcome this issue, Q&M has even started own College of Dentistry to train future dentists for own companies (perhaps cost could be lower). I observed my own dentist has to be multi-tasking, attending to 2 patience in 2 rooms within the same hour (while another patience is waiting, eg taking mold for crown, etc).

A few months ago, when Dr Tee students were reviewing Q&M stock, the prices were at lower optimism level, especially during the Coronavirus pandemic period with global stock crisis. Q&M has growing business, profitable with strong cash flow. This year, it will give special dividend (ex-dividend in May 2020), an investor could get about 5.5% dividend yield (usually about 2% dividend yield). Q&M share price is undervalue considering the growing business for decade but share prices have been declining over the past 5 years, dropping more than half to 36 cents, last 6 years low.

Recently, share prices of Q&M surged suddenly by 2 times to about 70 cents, mainly because of a news that Q&M has acquired a company with COVID19 testing capability.  Similar to another healthcare stock, Biolidics (SGX: 8YY), share prices also shoot up by a few times which are purely speculative trading.  Biolidics is not a giant stock but investors assume it would become a giant, benefiting from Coronavirus crisis. Question is, after the health crisis is over, can the company continue to sustain a few times of business growth to support the share prices? Therefore, after senses are back, share prices of both Q&M and Biolidics are corrected to more normal high prices to reflect the positive hopes.

In fact, Q&M has strong business fundamental in dental services, does not need this speculative news at all. It is good that few people aware of this stock. Unfortunately, the share prices go up too fast, hope readers have chance to buying at lower optimism before that when prices were below 40 cents.

Some people may not care about stock investing but they do worry of rising healthcare and dental cost as human body and teeth are similar to a car, there could be “wear and tear”, need repair and maintenance each year to stay in top condition. Dental cost could be minimal, still over $100 for regular check-up, also could be over a few thousand dollars if getting complicated (eg. tooth implant). A mechanics could ensure a car is fully repaired before charging the fee. However, a dentist or medical doctor could not guarantee a service will have positive results but patients still need to take the risk and pay for full services.

Let Dr Tee show readers a way to get free dental or even medical services for lifetime. It is simple, just look for giant dental or healthcare stocks (eg. hospital related), buying their shares at lower optimism prices. Even healthcare stocks usually don’t give a lot of dividend, for $10000 capital, minimal 2-3% dividend yield could pay $200-$300 for regular dental check-up of a small family. Healthcare stocks usually are positioned more as midfielder, minimal dividend with higher growth for capital gains (eg. over 10% appreciation in yearly share prices, could be $1000, could help to pay for minor surgery cost).

Q&M Dental is still a young giant stock, performance is not as steady as other proven global healthcare giant stocks. So, a smart investor may leverage on high healthcare costs overseas, investing in those giant stocks to profit from rising healthcare industry.

There are 37 Healthcare Stocks in Singapore including Q&M Dental (investor has to focus only on giant stocks for investing):
Accrelist Ltd (SGX: QZG), Alliance Healthcare (SGX: MIJ), Aoxin Q & M Dental (SGX: 1D4), Asia Vets Holdings (SGX: 5RE), AsiaMedic (SGX: 505), Asian Healthcare Specialists (SGX: 1J3), Beverly JCG (SGX: VFP), Biolidics (SGX: 8YY), Cordlife (SGX: P8A), First Reit (SGX: AW9U), Haw Par Corporation (SGX: H02), HC Surgical Specialists (SGX: 1B1), Healthway Medical Corporation (SGX: 5NG), Hyphens Pharma International (SGX: 1J5), IHH Healthcare (SGX: Q0F), ISEC Healthcare (SGX: 40T), IX Biopharma (SGX: 42C), Lonza Group (SGX: O6Z), Medinex (SGX: OTX), Medtecs International Corporation (SGX: 546), OUE Lippo Healthcare (SGX: 5WA), ParkwayLife Reit (SGX: C2PU), Pharmesis International (SGX: BFK), Q&M Dental Group (SGX: QC7), QT Vascular (SGX: 5I0), Raffles Medical Group (SGX: BSL), RHT Health Trust (SGX: RF1U), Riverstone Holdings (SGX: AP4), SingMedical Group (SGX: 5OT), Suntar Eco-City (SGX: BKZ), TalkMed (SGX: 5G3), Thomson Medical Group (SGX: A50), Tianjin Zhong Xin Pharmaceutical Group (SGX: T14), Top Glove Corporation (SGX: BVA), Trendlines Group (SGX: 42T), UG Healthcare Corporation (SGX: 41A), Vicplas International (SGX: 569).

==================================

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10 Key Notes Before Investing in Oil (十年寒窗)

Posted on April 22, 2020 Written by
oil investing commodity stocks negative price

With oil price drops to negative recently (as if Singapore car COE drops to $1), some investors may be interested in investing in oil to buy at extremely low for tremendous potential capital gains. Before any action, readers may read through these 10 key notes carefully to identify the suitable way of investing in oil aligning to own unique personality.

1) Oil Commodity

Crude oil (WTI or Brent) is a pure commodity trading, based on buy low sell high to make money.  Unlike stock, there is no business supporting the commodity prices. The hidden fundamental is with demand vs supply of economic cycles and black swans (eg. oversupply with price war of oil producers countries and low demand during Coronavirus pandemic).

2) Oil Investing

There is no simple way to invest or trade oil commodity directly, usually could be done in 3 ways, each has own limitation:

– buy physical oil (not practical as need to store the oil which incurs additional cost)

– trade oil futures (more suitable for seasoned traders for short term trading, could be speculative)

– investing oil ETF (more suitable for short-term to mid-term investors without leveraging)

3) Oil ETF

For oil ETF, investment is through oil futures contracts, rollover in each month to track either WTI (US oil) or Brent (world oil outside US).  The alignment of oil ETF and oil price is acceptable within a few years (short term to mid term).  For longer term oil investing, oil ETF usually would underperform actual oil market due to rollover cost (holding cost) during contango which happened about 60-70% over the past 1 decade.

For oil ETF, there are 2 stages to take note: Contango (negative rollover yield) vs Backwardation (positive rollover yield).

4) Contango for Oil ETF (Rollover Cost – loss in holding)

This is when oil futures contacts prices of later months are higher than nearby month. It happens usually in lower level of oil prices (lower optimism) with outlook of higher prices in future. There is rollover cost each month for swapping the futures contacts, could be a few % higher prices each month. Contango effect is getting more serious over the past few months during Coronavirus period, over 10% from month to month.

Investors could make money when the potential capital gains from volatile oil prices (eg. 20-50% within 1 year) is much higher than Contango rollover cost. In longer term, if oil price remains at lower prices with Contango stage, the high rollover cost would offset the capital gains from appreciation of oil price. So, an investor has to weight between these 2 conflicting factors, potential high capital gains at lower optimism vs rollover cost (holding cost).

A compromised way is to buy only when there is clear reversal of low optimism oil price (eg. applying technical analysis) when price is more bullish (with uptrend). This way, potential capital gains could offset the rollover cost of Contango. Alternatively, avoid investing during period of high Contango (much higher prices for futures contracts in later months), although usually the oil price is usually having more discount during this time. Of course, investors have the choice to wait for Backwardation period to get positive gain from rollover for holding the oil ETF.

5) Backwardation for Oil ETF (Rollover Yield – gain in holding)

This is when oil futures contacts prices of later months are lower than nearby month. It happens usually in higher level of oil prices (higher optimism) with outlook of lower prices in future. There is rollover gain each month for swapping the futures contacts, could be a few % lower prices each new month (saving cost when rollover to cheaper contracts). Examples of Backwardation were in years 2012-2013, 2019, about 1/3 of the time.

Investors could make money when capital gains in oil prices is moderate (eg. less than 10-20% within 1 year) but combined additional positive gain in rollover yield (as if passive income as dividend stock), will be reasonable. Backwardation may not stay for long term, even if it does, the potential capital loss (oil price at higher level, more potential to fall in long term) is higher if hold long term. So, an investor has to weight between these 2 conflicting factors, capital gain / loss and rollover yield.

A compromised way for Backwardation is to buy only when oil price is still uptrend (despite higher level). This way, potential capital gains from trading (despite lower potential at higher price level) is reasonable as there is some rollover yield (at least no rollover cost as in Contango).

6) Negative Oil Price

Technically, it is possible for oil investors to apply multiple entries during low optimism (balance potential high capital gains with high rollover cost during Contango), eg

$20, $15, $10, $5, $1 per barrel. This way, there is no need to predict the bottom of oil price.

This is true with assumption that oil would not drop to $0 which is true for physical oil (similar to petrol in gas station, could be lower price but never could be $0).  However, due to human greed (political economy with price wars in oil producer company) and fear (Coronavirus with over 50% people in the world staying at home during lockdown with low energy consumption), together with nearly full storage of oil capacity, oil price dropped to negative $40/barrel. This is as if a buyer could get a barrel of oil, not only free, but additional $40 reward for buying.

This is against human nature but negative oil price actually happened on 20 Apr 2020 as Apr-May 2020 are likely the peak of Coronavrus pandemic in the world (especially US with which US oil consumption would be the lowest during this period). The negative oil price may happen again for June 2020 oil futures contract if there is no significant improvement in oil market sentiment.

Negative oil price is as if a complex number (i) in mathematics which is not real but could have its effect.  So, for very conservative oil investors, instead of $0, need to consider negative $40 as new bottom in multiple entries:

$20, $0, negative $20, negative $40 per barrel.

In addition, the investors at such crisis time also need to suffer the potential high Contango (over 10-30% monthly rollover cost). Therefore, oil investing is more speculative than it should (if one could go to gas station to buy 1 barrel of oil at $1, selling back at $10 after 1 year later). In the physical world, buying oil requires transportation, storage and other costs, not as simple as buying 1 ounce of gold (another commodity but different condition as crude oil) which can be kept safely at home for long term investing.

7) USO ETF (WTI)

USO ETF is a way to invest WTI (US Oil) which one has to consider al the points 4-6 above with Contango, Backwardation and even negative oil price. Since an investor could not buy oil directly, the multiple entries have to be based on USO prices, eg:

Assuming the USO price is $/unit, multiple entries could be around:

$4, $3, $2, $1, $0.10 per unit of USO

Which is corresponding to oil prices of

$20, $15, $10, $5, $1 per barrel

Since oil price could fall into negative, therefore prices targets based on USO is more exact than based on oil price (especially when it falls momentarily to negative, no reference in USO price). With time, USO would approach similar scale as above (eg. USO $2 when oil price is around $10/barrel, USO $4 when oil price is around $20/barrel) with exception of sudden drop to negative price (which would recover the next few days).

For investors who could take higher risk of high contango during Coronavirus crisis need to take note that negative oil price may not mean super low price for USO ETF as the physical world could not take negative fund which means bankruptcy. An investor may wait until oil price to stabilize first (over Coronavirus period), even if oil price could be higher, safer for positioning. 

Of course, one has the option to totally ignore oil investing through future contracts or oil ETF (see other options in later points). Oil could drop to negative number or near to $0 but oil ETF could not stay at near $0 for too long as there is rollover cost. To minimize high volatility in nearby month futures contract, USO ETF may need to rollover to 2 months later, not just on nearby month, to minimize the risk of negative price. However, it means USO and oil price will not be so closely correlated during those blind spots of time.

8) Potential of Oil Market

Similar to global stock market, oil market also depends on black swan, Coronavirus, whether it could end on time by summer, in US and also for the whole world. If so, people could step out from the home, could travel (cars, trains, cruise, flights, etc), could work (manufacturing plants) and many other activities that need more energy. Based on the Coronavirus analysis so far, there is a high possibility that the pandemic may end or fade away by summer. However,

Oil produces may not let the oil market (the largest commodity market in the world) to fall to low for a long period of time as it means these countries would suffer losses at national level.

US – largest oil producer (production cost is about $50/barrel), mainly shale oil companies would go bankrupt if oil is below $20/barrel, not to mention at negative price or near to $0. Trump may use the low oil price to top up the national oil reserves and support US oil price at the same time but it subjects to congress approval. If shale oil companies go bankrupt, US economy would be serious affected.

Saudi (with OPEC) – second largest oil producer (production cost is about $5/barrel), despite it is the only country which could last the longest with lower price, high national expenses with high dependency on oil revenue, the oil price could not stay at low level below $20 for a few years. Currently lower oil price is partially supported by high US dollar strength (higher revenue when converted to local currency) but when USD is weaker, it would become double blows to Saudi and also entire OPEC.

Russia (with OPEC+) – third largest oil producer (production cost is about $20/barrel), it is already a loss for current oil price, when Russia economy remains weak, this will be a high pressure. This is also true for all other oil producers countries.

These top 3 oil producers countries control about half of the world oil production and having influence over other smaller oil producers countries. The production cut starting in May 2020 is below market expectation, therefore more cut may be required to fight against the immediate risk of storage capacity issue (which will be full in May 2020 for most places in the world, no place to keep for new oil produced).

Price is moved by demand vs supply. Oil producers countries could control the supply but another 50% is dependent on demand which mainly depends on Coronavirus. Therefore, commodity has a natural market cycle of low and high, only uncertainty is duration and timing of low and high is a variable.

So, oil commodity investing may not be suitable for those without holding power, not to mention there is no suitable investing tool as oil ETF would incur high rollover cost during Contango period. A safer compromise is not to buy oil at the lowest point with the most uncertain period with the highest rollover cost. Instead, wait for some light at the end of tunnel with higher oil price, lower rollover cost, higher uptrend price which is an insurance premium for extra safety.

9) XLE (Energy ETF)

An alternative to oil commodity investing is to investing in a portfolio of oil & gas stocks through XLE (SPDR Energy ETF) or similar energy ETF with energy related stocks.  Many of the composition stocks are oil & gas companies (integrated, upstream, midstream, downstream) which has certain correlation to oil prices. The up and down in oil prices would affect the businesses of these XLE sector companies, therefore an investor could benefit indirectly the low oil price when investing these oil & gas companies through XLE.

XLE ETF provides diversification, suitable for lower capital investor for crisis sector investing. Even it is possible for a few companies may eventually go bankrupt (eg. if oil price below $10/barrel for a few years), energy fund is based on business, unlike USO ETF which has high rollover cost, XLE is more suitable for holding longer term. When oil price is at higher optimism level or just moderate optimism one day (assuming Coronavirus disappear), XLE would also benefit with capital gains in share prices, which are reflected in sector ETF. However, it is more suitable for longer term investors when investing at low optimism level (十年寒窗).

The bonus for XLE investor is to collect 3-10% dividend yield (which may not be stable, depending on the entry prices), as if Backwardation period USO oil ETF with positive rollover yield. Contango is as if negative dividend yield, more holding cost with longer term investing.

XLE investing requires alignment with optimism (entry at low optimism, exit at high optimism, collecting 5-10% dividend yield during waiting period). Management cost is relatively lower than USO but it won’t benefit from sudden surge in oil prices for short term, instead, profiting through the businesses with stocks in oil sector which benefits from higher oil price over mid to long term.

10) Oil & Gas Giant Stocks

For smart oil investor, one may not just invest in oil through ETF (rollover cost) or XLE (stable but requires holding power). One could become own fund manager to invest in oil & gas giant stocks (44 global giants based on Dr Tee giant criteria). Even when oil prices have been at lower optimism over the past 5 years of crisis, these giant stocks are strong in business fundamental, still can make money each year with consistent growth.

Some of these companies, for example, are in midstream segment of oil storage or delivery business, not affected much by oil prices. When oil is full storage capacity due to low demand, these companies could charge a higher price. They are also good candidates for longer term investing, investing at lower optimism, collecting dividend (over 5-10% yield) as passive income while holding during winter time, eventually better with growth investing with higher optimism when oil and share prices appreciate one day. At higher optimism, an investor has a choice to either sell for profits or even hold for longer term investing (if the stock is defensive in nature).

Crisis investing is not easy as it is not simply Buy Low or “Be Greedy when Others are Fearful”. It requires understanding the risks and opportunities of each option, then an investor may choose the right tool (eg. oil ETF, XLE energy ETF or oil & gas giant stock) with strategy aligned with own personality, either for short term trading or long term investing.

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Drop by Dr Tee free 4hr investment course to learn how to position in global giant stocks of growing sectors with 3 value investing strategies (undervalue, growth, dividend stocks), knowing What to Buy, When to Buy/Sell.

Learn further from Dr Tee valuable 7hr Online Course, both English (How to Discover Giant Stocks) and Chinese (价值投资法: 探测强巨股) options, specially for learners who prefer to master stock investment strategies of over 100 global giant stocks at the comfort of home.

You are invited to join Dr Tee private investment forum (educational platform, no commercial is allowed) to learn more investment knowledge, interacting with over 9000 members.

Dr Tee Investment Course (Stock, Property, Commodity, Forex, Bond)

Filed Under: Commodity Market, Market Optimism, Market Outlook, Stock Market Tagged: , , , ,

Myth of Negative Oil Price (扑朔迷离)

Posted on April 21, 2020 Written by
negative oil price

US oil (WTI) May 2020 futures contract price crashed yesterday (20 Apr 2020 is the last day before May 2020 US oil future contract expires) to negative $37. Global investors may be confused, why it is possible for oil price to drop to negative, does it mean oil investment fund will go bankrupt? Global consumers may be excited, does it mean petrol from gas station is free from now? Here are the details to uncover this myth.

An oil futures contract is an agreement to buy or sell a certain number of barrels set amount of oil at a predetermined price, on a predetermined date.  There are 2 main oil futures contracts: WTI (mainly US oil prices) and Brent (overseas oil prices, outside US). Oil investors would choose futures contracts over spot contracts which requires delivery / storage of physical crude oil in barrels which is not practical. 

An alternative is investing through oil ETFs (eg. USO, UCO, DBO, BON, etc) without actually owning a futures contract by investor (maximum risk is limited to investment on ETF), aiming to follow the oil price movement for capital gains. However, these oil ETFs are not suitable for holding long term (eg. more than 3 years) as there is high rollover cost for futures contracts, a strategy by oil ETF fund manager to keep the oil investment without need to physically store the oil. When futures contracts prices for later months are higher than nearby month, it is called “Contango”, would incur additional cost, when adding up over long term, could be significant to reduce the potential capital gains in actual oil price appreciation. Reversed process is called “Backwardation” which oil ETF would have positive rollover yield due to lower futures contract prices for later months.

In general, when oil price is volatile in short term (eg. up and down 20%-50%), these rollover cost or return may not be obvious. However, in May 2020 futures contract, there is a serious contango with low demand for oil price (due to global lockdown for Coronavirus, especially in US which affects WTI oil price) with over-supply of oil (global oil producers’ action to limit the production is not fast nor strong enough). Due to nearly full storage of oil in US, a buyer would have problem with high storage cost if buying in May. With tremendous sell by oil ETF for May 2020 futures contracts (rollover to buy later months futures contracts), oil price drops below $0 to negative $37, technically sellers are paying to buyers to collect the oil which is abnormal, never happened before.

This abnormality of negative oil price is a historical event, a combination both black swans of Coronavirus (low oil demand) and crude oil price war (high oil supply), breaking down near the worst time of US with severe Coronavirus condition in Apr 2020.  The nearby or front month futures contract now is Jun 2020, WTI oil price is back to a more normal of $21/barrel (usually within $5 difference with Brent oil price which is around $25). So, global consumers may be disappointed as gas station won’t give free petrol unless this negative price is over a longer period of time.

The same negative oil price may or may not happen before expiry date of June 2020 futures contract as oil investors have 1 more month to observe the changes in oil price demand and supply, especially the Coronavirus condition which affects the US economy when it be restarted. The production cut of global oil produces from May 2020 although limited, may help to a certain extent.

negative oil price

The global Coronavirus condition is improving with 5 days consistent downtrend in number of new daily cases. US has also shown a gradual downtrend in new daily Coronavirus cases over last 1 week which is an weak positive signal, if better results are seen by end of Apr 2020, more states in US would restart the economy. Most Americans drive, so when lockdown is stopped, US oil price (WTI) would recover naturally with more energy consumption. Trump may also consider to buy more unwanted US oil at low or negative prices to top up the national oil reserves. Europe countries have significantly lower number of new daily Coronavirus cases, lockdown may gradually be loosened, combined with more manufacturing activities in China, global demand for oil price would gradually pickup by summer. Singapore has a surge in number of Coronavirus cases over the past 1 week but mainly this is within foreign labour dormitories, risk of community infection is in fact lower with stricter partial lockdown.

Global consumers likely could continue to enjoy cheaper petrol prices but not free oil as the negative oil price is a rare product of 2 black swans of Coronavirus crisis and oil price war crisis. If oil prices are below $20/barrel over a longer period of time (eg. a few years), weaker oil producers countries would start to go bankrupt (see past example of Venezuela, even oil price was above $50 a few years ago), following by US shale oil producers (production cost is around $50/barrel), then Russia (production cost is around $20/barrel), finally only Saudi (despite production cost is $5/barrel, there is high national expenses, need much higher oil price to sustain the normal lifestyles).

So, what are the options for global oil investors? Oil ETF such as USO has reasonable correlation to WTI, eg. when oil price surged from $20 to $28 a few weeks ago, USO also went up by similar magnitude of 40% in short term. With yesterday negative oil price, USO is only partially affected as most contracts are already rollover to later months, USO is corrected by around 10%.  USO has some flexibility to rollover future contracts to 2 months later, instead of to nearby month (more volatile, negative oil price may have chance to happen again by 20 May 2020 before June 2020 futures contracts expire) but this would affect the tracking of WTI short term oil price (in exchange for smoother price movement). USO is not suitable for holding long time due to Contango effect, so for oil investors who see significant appreciation (eg. 20-50%) in future oil price in short to mid term (less than 1 year), may consider to take progressive profits as rollover cost is inherent to oil ETFs (similar to holding cost), hard to find other better way to invest in oil prices.

Oil investors may also consider indirect way of investing through energy ETF (eg. XLE, SPDR energy sector ETF) which invests in oil & gas stocks with reasonable correlation to oil prices but won’t be easily affected by such abnormality of negative oil price (XLE was only down by 3% yesterday with negative oil price).

A better oil investment option could be to focus in global oil & gas giant stocks (44 of them based on Dr Tee giant criteria), many are midstream oil 7 gas stocks, eg. storage or delivery of oil which is a more defensive business segment. Storage of oil is a consistent profitable business, some companies are strong in business despite oil & gas crisis over the past 5 years. Oil delivery business could be temporary affected due to lower demand of oil. These midstream oil & gas stocks could even pay consistent dividend, suitable for holding during low optimism of stock prices, waiting for recovery of oil price for potential capital gains indirectly.

Of course, one may do futures trading directly without oil ETF or oil & gas stocks. However, futures trading is speculative in nature for shorter term, may not be suitable for retail traders. Even Singapore oil trading company, Hin Leong, could go bankrupt after losing US$800M in oil futures trading. As a result, 3 major banks (DBS, OCBC, UOB) in Singapore would need to set aside provisions for this non-performing loan (NPL) but risks to these banks are lower than 5 years ago when more weak oil & gas companies were in trouble (eg. Swiber, Marco Polo Marine, etc).

Sharing above is for educational purpose. Readers have to make own decision after independent thinking, especially on risk tolerance level, always having the option not to consider any investment in crisis sectors with business seriously affected.

There are other sectors which business are relatively strong, eg. technology (especially internet related), consumer staples, healthcare, property, etc, many global giant stocks (over 1500) could be considered. Due to the uncertainty in Coronavirus condition (despite downtrends in last 5 days for world condition), stock investors may need to plan for capital allocation (investment in batches) with a portfolio of giant stocks supported by strong fundamental business, so that one could invest with a peace of mind, no need to worry of abnormality such as negative oil price.

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Drop by Dr Tee free 4hr investment course to learn how to position in global giant stocks of growing sectors with 3 value investing strategies (undervalue, growth, dividend stocks), knowing What to Buy, When to Buy/Sell.

Learn further from Dr Tee valuable 7hr Online Course, both English (How to Discover Giant Stocks) and Chinese (价值投资法: 探测强巨股) options, specially for learners who prefer to master stock investment strategies of over 100 global giant stocks at the comfort of home.

You are invited to join Dr Tee private investment forum (educational platform, no commercial is allowed) to learn more investment knowledge, interacting with over 9000 members.

Dr Tee Investment Course (Stock, Property, Commodity, Forex, Bond)

Filed Under: Commodity Market, Stock Market, Trading Tagged: , , , , , , , , ,

10 Ways to Sleep Soundly in Global Stock Crisis (高枕无忧)

Posted on April 20, 2020 Written by
Sleep Soundly in Global Stock Crisis

“Be Greedy when Others are Fearful” is a famous crisis stock investing shared by Warren Buffett but easy to say, difficult to implement? How “fearful” is fearful? If this statement could not be quantified, it is similar to say, “Buy Low Sell High”, how low is really low?

Here are 5 points shared by a senior Ein55 graduate, Grace, who has consistent positive results in stock investing and trading. I repost here for sharing with other Ein55 readers, adding my own views on 5 more good habits for stock investing, total 10 points to help Ein55 readers, able to sleep soundly during global stock crisis (高枕无忧).

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Grace: The feeling of greed and fear in us is very natural. If we have a plan, it will greatly help us to manage our emotions:

1. For medium term or long term investment, buy quality stocks.

2. Buy companies with substantial cash with no or little debt to ride through the crisis (ie, with the company’s cash, how long can the business last assuming that the company is required to shut down its operations).

3. Diversification of stocks in different sectors and in different countries to reduce the risk.

4. Investor must have holding power.

5. Investor must have patience and conviction.

If you understand the business of the company and have a proper plan for your investment strategy, you would not fear in investing in the company.

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Dr Tee agrees with all 5 points above by Grace, adding 5 more points below, total 10 points for Ein55 readers to start with the right path of stock investing and trading.

1) Select “giant stocks” (following Dr Tee criteria, not just on strong fundamental stocks). There are total over 1500 global giant stocks, one may just select 10-20 giant stocks which aligned with own personality.

2) Divide stocks into different categories (similar to a football team with defender, midfielder, striker). Dividend giant stocks (defenders) may be considered for contrarian investors which aim for lower prices, getting higher yield, suitable for holding during low optimism period with potential economic crisis ahead. For crisis / cyclic giant stocks (strikers), aligned with low optimism of stock but ensure limited crisis to business and sector.  For growth giant stocks (midfielder) or momentum stocks, consider uptrend stocks, using time to compound the return.

3) Don’t borrow money or leverage for investing stocks in longer term. For short term trading, possible to leverage but need to have S.E.T. (Stop loss / Entry / Take Profit) in trading plan with position sizing.

4) Average down with multiple entries for contrarian investor for a portfolio of stocks at low optimism, no need to guess where is the lowest point. Similarly, multiple exits (progressive profit taking in future) at higher optimism for capital gains, no need to guess where is the highest point.

5) Average up for trading when trend is becoming stronger but position sizing and shorter timeframes of trading with higher optimism.

The list may continue. Knowledge sharing is powerful as readers could learn from other people’s mistake (at zero cost to oneself) and leverage on other people’s proven method (which aligned with own personality) in shorten the learning curves to make profit in stocks.

Ein55 readers: Keep it up, you are not alone in this investing journey. Keep yourself active in learning investment. Your “Future You” will appreciate “Today You” for making a difference to take action in learning investment after reading this article.

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Drop by Dr Tee free 4hr investment course to learn how to position in global giant stocks of growing sectors with 3 value investing strategies (undervalue, growth, dividend stocks), knowing What to Buy, When to Buy/Sell.

Learn further from Dr Tee valuable 7hr Online Course, both English (How to Discover Giant Stocks) and Chinese (价值投资法: 探测强巨股) options, specially for learners who prefer to master stock investment strategies of over 100 global giant stocks at the comfort of home.

You are invited to join Dr Tee private investment forum (educational platform, no commercial is allowed) to learn more investment knowledge, interacting with over 9000 members.

Dr Tee Investment Course (Stock, Property, Commodity, Forex, Bond)
Filed Under: Personal Analysis, Stock Market, Value Investing Tagged: , ,

Dr Tee Video Education: V-shape Recovery Stock Strategies (股灾V型回弹:危机入市策略)

Posted on April 18, 2020 Written by
v-shape stock recovery

In this Dr Tee video education (V-shape Recovery Stock Strategies), you will learn:
1) V-shape recovery in global stock markets, comparing US, Singapore, Hong Kong & China.
2) Unlimited QE vs. weaker global economy
3) Technical Analysis of Coronavirus by country with stage of virus life cycle and estimated ending period.
4) Investment clock (When to Buy / Sell) with Optimism Strategies (long term / mid term / short term) for 5 global stock markets: World, US, Singapore, Hong Kong and China.
5) Integrated crisis stock investing strategy (dividend + growth) to profit from both possibilities of V-shape recovery or deeper economic crisis.

Here is English Version of Dr Tee Video Course (Chinese version is also available as Dr Tee is bilingual). Enjoy and give your comments for improvement. You may subscribe to Dr Tee Youtube channel (Ein Tee) for future Dr Tee video talks. Collect 2 extra bonuses below.

English Video: https://youtu.be/Y7BlIM3BKwc

在这Dr Tee 教育视频（股灾V型回弹: 危机入市策略），您可学习：
1） 比较全球股市股灾V型回弹程度：美国、新加坡、香港、中国。
2） 无限量化宽松对垒疲弱环球经济。
3） 各国新冠病毒技术分析：疫情周期，预估结束点。
4） 乐观指数显示投资时钟（短期、中期、长期）：全球、美国、新加坡、香港、中国。
5） 危机入市双面策略（股息股+成长股）： V型回弹或经济衰退。

这儿是 Dr Tee 华语视频 （英语视频也已完成，Dr Tee 双语皆行）。请欣赏鄙作，留言求进步。您可订阅 Dr Tee Youtube 频道(Ein Tee)，链接未来投资视频。得额外双红利。

Chinese Video (华语视频) ： https://youtu.be/rpZD3IG9OSs

This crisis investing strategy may be applied to 30 Singapore STI index component stocks (investor has to focus only on giant stocks for investing):
DBS Bank (SGX: D05), Singtel (SGX: Z74), OCBC Bank (SGX: O39), UOB Bank (SGX: U11), Wilmar International (SGX: F34), Jardine Matheson Holdings JMH (SGX: J36), Jardine Strategic Holdings JSH (SGX: J37), Thai Beverage (SGX: Y92), CapitaLand (SGX: C31), Ascendas Reit (SGX: A17U), Singapore Airlines (SGX: C6L), ST Engineering (SGX: S63), Keppel Corp (SGX: BN4), Singapore Exchange (SGX: S68), Hongkong Land (SGX: H78), Genting Singapore (SGX: G13), Mapletree Logistics Trust (SGX: M44U), Jardine Cycle & Carriage (SGX: C07), Mapletree Industrial Trust (SGX: ME8U), City Development (SGX: C09), CapitaLand Mall Trust (SGX: C38U), CapitaLand Commercial Trust (SGX: C61U), Mapletree Commercial Trust (SGX: N2IU), Dairy Farm International (SGX: D01), UOL (SGX: U14), Venture Corporation (SGX: V03), YZJ Shipbldg SGD (SGX: BS6), Sembcorp Industries (SGX: U96), SATS (SGX: S58), ComfortDelGro (SGX: C52).

This powerful strategy can be extended to global giant stocks including 30 Malaysia Bursa KLCI index component stocks (investor has to focus only on giant stocks for investing):
CIMB (Bursa: 1023) CIMB GROUP HOLDINGS BERHAD, DIALOG (Bursa: 7277) DIALOG GROUP BERHAD, DIGI (Bursa: 6947) DIGI.COM BERHAD, GENM (Bursa: 4715) GENTING MALAYSIA BERHAD, GENTING (Bursa: 3182) GENTING BERHAD, HAPSENG (Bursa: 3034) HAP SENG CONSOLIDATED BERHAD, HARTA (Bursa: 5168) HARTALEGA HOLDINGS BERHAD, HLBANK (Bursa: 5819) HONG LEONG BANK BERHAD, HLFG (Bursa: 1082) HONG LEONG FINANCIAL GROUP BERHAD, IHH (Bursa: 5225) IHH HEALTHCARE BERHAD, IOICORP (1961) IOI CORPORATION BERHAD, KLCC (Bursa: 5235SS) KLCC PROPERTY HOLDINGS BERHAD, KLK (Bursa: 2445) KUALA LUMPUR KEPONG BERHAD, MAXIS (Bursa: 6012) MAXIS BERHAD, MAYBANK (Bursa: 1155) MALAYAN BANKING BERHAD, MISC (Bursa: 3816) MISC BERHAD, NESTLE (Bursa: 4707) NESTLE MALAYSIA BERHAD, PBBANK (Bursa: 1295) PUBLIC BANK BERHAD, PCHEM (Bursa: 5183) PETRONAS CHEMICALS GROUP BERHAD, PETDAG (Bursa: 5681) PETRONAS DAGANGAN BHD, PETGAS (Bursa: 6033) PETRONAS GAS BERHAD, PMETAL (Bursa: 8869) PRESS METAL ALUMINIUM HOLDINGS BERHAD, PPB (Bursa: 4065) PPB GROUP BERHAD, RHBBANK (Bursa: 1066) RHB BANK BERHAD, SIME (Bursa: 4197) SIME DARBY BERHAD, SIMEPLT (Bursa: 5285) SIME DARBY PLANTATION BERHAD, TENAGA (Bursa: 5347) TENAGA NASIONAL BHD, TM (Bursa: 4863) TELEKOM MALAYSIA BERHAD, TOPGLOV (7113) TOP GLOVE CORPORATION BHD.

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There are over 1500 giant stocks in the world based on Dr Tee criteria, choice of 10 Dream Team giant stocks have to align with one’s unique personality, eg. for shorter term trading (eg. momentum or swing trading) or longer term investing (cyclic investing, undervalue investing or growth investing). Readers should not just “copy and paste” any stock (What to Buy, When to Buy/Sell) as successful action taking requires deeper consideration (LOFTP strategies – Level / Optimism / Fundamental / Technical / Personal Analysis) which you could learn further from Dr Tee Free 4-hr Webinar.

Zoom will be started 30 min before event, bonus talk (Q&A on any investment topics from readers) for early birds. There are many topics we will cover in this 4hr webinar, Dr Tee can have more time for Q&A if you could stay later after the webinar.

Dr Tee will cover over 20 case studies, Singapore giant stocks, eg. CapitaLand Mall Trust (SGX: C38U), Singapore Exchange (SGX: S68), Keppel Corp (SGX: BN4), Top Glove (SGX: BVA), Jardine Matheson Holdings JMH (SGX: J36), Vicom (SGX: WJP) and many others, Malaysia giant stocks, Hong Kong giant stocks and US giant stocks, both long term investing and short term trading.

There are limited tickets left for this 4hr free webinar, please ensure 100% you could join when register: www.ein55.com

Filed Under: Market Outlook, Stock Market, Technical Analysis Tagged: , , , , ,

VICOM Monopoly Cash Cow Stock (车运亨通)

Posted on April 14, 2020 Written by
VICOM Monopoly Stock V01 SGX

Vicom (SGX: V01) is an authorized vehicle inspection company in Singapore. Based on LTA (Land Transport Authority) regulation, all vehicles / cars in Singapore have to go for inspection every 1-2 years. Due to this legal requirement, yearly or even monthly cash flow of Vicom is stable and predictable (车运亨通) as number of cars in Singapore is also regulated.

It is a strong economic moat to own this car inspection license because there are only 2 companies (duopoly) in Singapore: 7 centers operated by Vicom (including 2 by JIC which is also owned by Vicom) and 3 centers owned by STA. So, Vicom has 70% monopoly of vehicle inspection business in Singapore. Inspection fee is regulated by LTA, so no difference which company to go, therefore the company has more locations would have more businesses as most drivers would choose the nearest center from home.

Despite LTA announced 0% car growth rate since Year 2018, due to high level of car COE (Certificate of Entitlement to own a car in Singapore) price, more car owners choose to renew the car COE, therefore more old cars which need annual car inspection, helping to compensate for the difference in 0% car growth.  As a result, Vicom earning and cashflow are growing gradually or stable (flat), aligning to vehicle growth in Singapore.

During the 10 minutes car inspection (very efficient flow, saving time for drivers and also quick cash generator for Vicom), from one end to another end (retest may be required if fail the test), $64.20 would flow from car owner’s pocket to Vicom financial account. When this number is multiplied with 70% of all vehicles in Singapore due for inspection, it is tremendous amount of cash. The Capex (difference of Operating Cashflow and Free Cash flow) is limited, only in Year 2018, due to investment in new Bukit Batok inspection center, there was less free cash flow in that year. Vicom also has non-vehicle testing division (SETSCO) but business is not as predictable as vehicle inspection business.

Vicom has been very generous in dividend payment, even it is not a REIT but having similar policy to pay 90% of profits as dividend back to shareholders (only difference is Vicom has the right to change this policy as dividend amount is not regulated by law as for a REIT). In fact, since Year 2017 to 2019, Vicom has “over” paid 120% of its profits as dividend (possible as having retained earnings from the past few decades of business). Current dividend yield of Vicom is about 5%.

Parent company, Comfortdelgro (SGX: C52), has about 2/3 ownership of Vicom, therefore could enjoy 2/3 of stable cash generated by Vicom through dividend payment. Despite taxi business of Comfortdelgro has been in crisis for several years with new challenger of Grab Taxi (disruptive technology) and also during Coronavirus infection period in year 2020 (less passengers), Vicom has been serving as cash cow for Comfortdelgro, providing stability to its business. 

Due to consistent dividend payment with a very stable business (protected by LTA car inspection requirement), Vicom has been a favourite for some dividend stock investors. Due to more demand than supply (for the cash cow with stable dividend payment), Vicom share price has been growing for decades, after share price adjustment, growing from about $0.40/share to $8/share over the past 20 years, going up by 20 times!  It means if initial investment capital was $1000, it would become $20,000 (excluding 4-6% yearly dividend yield for 20 years).

Vicom Monopoly Stock V01 SGX

However, past success records in both business and share prices do not guarantee future performance as stock market is forward looking. Therefore, even an investor may be interested in Vicom for investing from now, has to learn to “inspect” giant stock, only a giant stock (applying Dr Tee’s giant stock criteria) in certified after yearly review, then an investor could continue to hold, even may not need to sell in future stock crisis. In short, Vicom inspects Singapore cars to make money and investor has to inspect global giant stocks to remain profitable.

So, despite slower growth in business but due to it stability and predictability, Vicom is also a growth stock, suitable for long term investing.  A smart investor would apply Dr Tee’s Optimism Strategies to acquire Vicom at low optimism < 25% (currently is about 15% Optimism), suitable for both dividend investing (moderate 4-6% dividend yield record over the past decade, a strong consideration during crisis time) and growth investing (buy low optimism & hold long term for capital gains).

Assuming the worst case scenario that Coronavirus may affect the world / Singapore for more than 1 year (before a vaccine is developed), with over 50% people lockdown at home for over 1 year, resulting in Great Depression for a few years, number of cars in Singapore are unlikely to drop even by 10% base on natural demand and supply (unless it is required by LTA). However, during global financial crisis, it is possible for Singapore car COE price to drop (historical low was $1, could be as high as nearly $100,000) to support the current number of cars. A smart investor may also apply Optimism Strategies to buy Singapore car with low optimism COE during global financial crisis (current COE price of about S$30,000 is only moderate optimism level, not yet a good time for car shopper but $1 historical low COE price may not happen again due to open bidding system).

So, some readers may be tempted to invest in Vicom right away (sharing in this article is for educational purpose, please make your own analysis, in case anyone may think Vicom could go bankrupt one day if LTA may announce that Singapore vehicles no longer need inspection anymore). During the recent global stock crisis in Mar 2020, Vicom share price fell by about 20% (more defensive compared to 30 STI blue chip stocks fell by about 30%), currently recovering more than half of the correction. An investor has to consider both risks and rewards with strategies aligned to own unique personality, not simply a buy after reading this article.

If a smart investor wants to have a complete 100% monopoly of car inspection business (buy a stock means in partnership with company doing business together), then may also consider STA which controls remaining 30% of car inspection in Singapore.  STA could be invested partially through parent company, ST Engineering (SGX: S63), another dividend giant stock in Singapore. Comparing with Vicom, ST Engineering is equally strong for dividend investing but much slower for growth investing (car inspection is not the only business nor main business for ST Engineering).

Similarly, parent company of Vicom, Comfortdelgro, is also a giant dividend stock (dividend yield is 6.5% but a question mark if this is sustainable this year when fewer people take taxi for 6-12 months) but slower growth than Vicom. Comfortdelgro has another subsidiary, SBS Transit (SGX: S61), which is only a marginal dividend giant stock with bus and MRT businesses, not as strong as Vicom.  Vicom has the characteristic of midfielder with 2 main investing goals of passive incomes (dividend) and capital gains.

Vicom is a small size stock, but it is a giant, much better than most 30 STI index component stocks including Comfortdelgro (investor has to focus only on giant stocks for investing):
DBS Bank (SGX: D05), Singtel (SGX: Z74), OCBC Bank (SGX: O39), UOB Bank (SGX: U11), Wilmar International (SGX: F34), Jardine Matheson Holdings JMH (SGX: J36), Jardine Strategic Holdings JSH (SGX: J37), Thai Beverage (SGX: Y92), CapitaLand (SGX: C31), Ascendas Reit (SGX: A17U), Singapore Airlines (SGX: C6L), ST Engineering (SGX: S63), Keppel Corp (SGX: BN4), Singapore Exchange (SGX: S68), Hongkong Land (SGX: H78), Genting Singapore (SGX: G13), Mapletree Logistics Trust (SGX: M44U), Jardine Cycle & Carriage (SGX: C07), Mapletree Industrial Trust (SGX: ME8U), City Development (SGX: C09), CapitaLand Mall Trust (SGX: C38U), CapitaLand Commercial Trust (SGX: C61U), Mapletree Commercial Trust (SGX: N2IU), Dairy Farm International (SGX: D01), UOL (SGX: U14), Venture Corporation (SGX: V03), YZJ Shipbldg SGD (SGX: BS6), Sembcorp Industries (SGX: U96), SATS (SGX: S58), ComfortDelGro (SGX: C52).

“Crisis is Opportunity” if a company business is stable or growing while the share prices fall significantly due to market fear. Monopoly stock in a stable or growing sector with empowerment by local authority would give unfair advantage to a business. There are over 1500 global giant stocks, some are stronger growth than Vicom and/or better dividend yield than Vicom. “What to Buy” does not mean “Now to Buy”, positioning on a giant stock requires comprehensive LOFTP (Levels 1-4, Optimism 0-100%, Fundamental, Technical and Personal Analysis) strategies.

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Drop by Dr Tee free 4hr investment course to learn how to position in global giant stocks of growing sectors with 3 value investing strategies (undervalue, growth, dividend stocks), knowing What to Buy, When to Buy/Sell.

Learn further from Dr Tee valuable 7hr Online Course, both English (How to Discover Giant Stocks) and Chinese (价值投资法: 探测强巨股) options, specially for learners who prefer to master stock investment strategies of over 100 global giant stocks at the comfort of home.

You are invited to join Dr Tee private investment forum (educational platform, no commercial is allowed) to learn more investment knowledge, interacting with over 9000 members.

Dr Tee Investment Course (Stock, Property, Commodity, Forex, Bond)

Filed Under: Market Optimism, Stock Market Tagged: , , , , , ,

7 Jardine King of Singapore Stocks (狮城股王)

Posted on April 10, 2020 Written by
Jardine Group SGX Jardine Matheson J36 Jardine Strategic Holding J36 Jardine Cycle & Carriage C07 Astra Asii Mandarin Oriental Hotel M04 Hongkong Land H78 Dairy Farm D01 Singapore Stocks Creative Technology C76 Berkshire BRK NYSE Sheng Siong OV8

Jardine Group is not just a company, it is a giant group with nearly 200 years of business history (started in 1832, then controlled by Keswick family for many generations till now).  Jardine group of companies cover many industries, eg. engineering, automotive, properties, hotel, supermarkets, etc.

Jardine group has 7 giant stocks (Jardine Matheson, Jardine Strategic, Jardine Cycle & Carriage, Astra, Hongkong Land, Dairy Farm, Mandarin Oriental Hotel), all are falling to very low optimism (mostly with optimism <10%) over the past 2 months of global stock crisis.  Since 5 of Jardine giant stocks (except Mandarin Oriental Hotel and Astra International – listed in Indonesia) are 30 STI component stocks (contributing to about 15% weightage), it has the strongest influence to Singapore stock exchange, more than individual stock of 3 major banks (DBS, OCBC, UOB) and Singtel.

There are 30 STI index component stocks including 5 Jardine stocks (investor has to focus only on giant stocks for investing):
DBS Bank (SGX: D05), Singtel (SGX: Z74), OCBC Bank (SGX: O39), UOB Bank (SGX: U11), Wilmar International (SGX: F34), Jardine Matheson Holdings JMH (SGX: J36), Jardine Strategic Holdings JSH (SGX: J37), Thai Beverage (SGX: Y92), CapitaLand (SGX: C31), Ascendas Reit (SGX: A17U), Singapore Airlines (SGX: C6L), ST Engineering (SGX: S63), Keppel Corp (SGX: BN4), Singapore Exchange (SGX: S68), Hongkong Land (SGX: H78), Genting Singapore (SGX: G13), Mapletree Logistics Trust (SGX: M44U), Jardine Cycle & Carriage (SGX: C07), Mapletree Industrial Trust (SGX: ME8U), City Development (SGX: C09), CapitaLand Mall Trust (SGX: C38U), CapitaLand Commercial Trust (SGX: C61U), Mapletree Commercial Trust (SGX: N2IU), Dairy Farm International (SGX: D01), UOL (SGX: U14), Venture Corporation (SGX: V03), YZJ Shipbldg SGD (SGX: BS6), Sembcorp Industries (SGX: U96), SATS (SGX: S58), ComfortDelGro (SGX: C52).

6 Jardine stocks listed in Singapore Stock Exchange are secondary listing (primary listing in London Stock Exchange) and traded in USD (currently at high optimism vs SGD). USD usually performs better in bear market (safe haven), weaker during bull market, the longer term forex disadvantage of USD/SGD (about -2%/year USD depreciation) could be compensated by higher growth of 10+%/year of Jardine stock prices.

So, let’s learn to position in 7 Jardine stocks, all are giant stocks based on Dr Tee criteria but each Jardine stock has different characteristic, which may be considered for different personality of investors.

1) Jardine Matheson Holding – JMH (SGX: J36)

2) Jardine Strategic Holding – JSH (SGX: J37)

Jardine Matheson Holding, JMH is “King” of Singapore stocks (狮城股王), the highest share price in Singapore stock market history. JMH share price was peak around US$70/share a few months ago, before falling by 30% during Coronavirus crisis to about US$50/share. It is costly to invest even with minimum of 100 shares per lot (price in USD) = $50 x 1.43 (USD/SGD) x 100 = S$7150.

Highest stock price may not be always a giant stock, although most of the time, high stock prices are giant stocks, higher prices due to growing business over the decades. For example, world’s most expensive stock, Berkshire Hathaway (NYSE: BRK) managed by Warren Buffett, 1 share alone could be US$344,000 (nearly S$500k, could buy a 5-room HDB flat), currently selling at discount of US$290,000 (for details of Berkshire stock, refer to free eBook by Dr Tee on global Top 10 stocks).

The former Singapore stock king was Creative Technology (SGX: C76) with over S$60/share peak stock price recorded in year 2000 dotcom bubble. After the burst of technology bubble, not only stock price in crisis, Creative Technology also lost the giant stock title, company is no longer growing, share prices declining for 20 years till as low as $1/share. Therefore, long term investing requires monitoring of business fundamental, otherwise buy low may get lower over time, suffering huge capital loss. A common mistake for beginner in stock investing is usually buy a famous brand of stock at historical low price or 5-10 years low, assuming the price may recover in future which may not because future business is the key.

Similarly, during Coronavirus crisis, some sectors are badly affected (eg, airlines, F&B, hotel, etc), an investor needs to review whether the business with losses (more than 90% drop in revenue) could last with cash or net asset available. After the crisis is over, could the business recover quickly?

Jardine Strategic Holding, JSH is sibling of JMH, both are owning each other, a special cross-holding structure which could prevent hostile takeover. See another article of this topic: https://www.ein55.com/2017/03/jardine-group-uob-group-cross-holding-stock-network/

Both JMH and JSH stock performance are very close in longer term (eg over 10 years). Investing in either JMH or JSH is as if investing in Jardine fund of stocks with most the Jardine businesses. JMH has average of 1% higher dividend yield than JSH but JSH has average of about 1% higher yearly growth in share price than JMH, so effect is about the same. More details of JMH in earlier article: https://www.ein55.com/2016/04/choose-stocks-grow-30-times-price/


Both JMH and JSH are considered cyclic growth stocks, need to position with optimism less than 25%, best during global stock crisis or global financial crisis. Due to cyclic nature of these 2 stocks with minimal dividend for protection, it is more suitable for investing during recovery phase of stock crisis, avoid buying low get lower. When positioned right at significant low optimism in a severe global stock crisis, JMH and/or JSH may be considered for longer term holding due to high growth but need to monitor its cyclic businesses to certify that they are giant stocks (based on Dr Tee criteria) as this title of giant stock is not forever, eg. Creative Technology lost this title about 20 years ago.

“Buy Low” could only have chance to “Sell High” in longer term with condition that it is a giant stock. If not, “Buy Low” may become “Lower” in prices.

3) Jardine Cycle & Carriage – JCC (SGX: C07)

4) Astra International (IDX: ASii)

Jardine Cycle & Carriage, JCC is only a subsidiary of JSH but itself is already a giant automotive stock (familiar car brands:  Mercedes-Benz, Toyota, Honda and Kia). JCC also owns Indonesian automotive giant stock, Astra International (listed in Indonesia Stock Exchange).

JMH owns JSH, JSH owns JCC, JCC owns Astra. So, it is as if 4 levels of stock connection but stock performances are close. JMH and JSH could be considered together (either one). Similarly, JCC and Astra may be considered together through JCC (if easier to invest in Singapore stock than Indonesian stock, Astra).

JCC is a dividend growth giant stock (not for Astra), suitable for investing during low optimism stock market, protected by nearly 6% dividend yield (assuming car business drops during crisis, 50% cut in dividend still has about 3% dividend yield left, more than 1% bank interest rate for cash). When crisis is over, likely the growing business will justify for normal distribution of dividend. However, since it is not a REIT (by law needs to distribute 90% taxable income to shareholders as dividend), the company has the right to choose not to give dividend. Over the past 10 years, JCC has record of giving around 3% dividend yield, current high dividend yield of nearly 6% is mainly due to price dropped by about 50% over the past few months of global stock crisis, therefore dividend yield is doubled from 3 to 6%.

If one believes the Coronavirus crisis or any future crisis are unlikely to stop people from buying cars more than 1 year (eg. could not get out of home for 1 year to view the cars in showroom), then crisis in JCC stock prices could be an opportunity. However, for Q1-Q2/2020 with less shoppers due to global lockdown, there could be temporary drop in business which may be justified by 50% discount in share price.

5) Hongkong Land (SGX: H78)

Hongkong Land is a well-known property stock, owning grade-A commercial properties in both Hong Kong central and Singapore marina area. There are quite a few past articles by Dr Tee on Hongkong Land (https://www.ein55.com/tag/hongkong-land/), mainly an undervalue property stock. However, over the past few years, buy low may get lower as Hongkong Land is not only following Jardine group, also affected by Level 2 property sector (Hong Kong / Singapore) and Level 3 stock property, as well as political economy (eg. over 100 days of Hong Kong protesters last year before Coronavirus crisis).

Among all the 7 Jardine giant stocks, Hongkong Land is the “safest” due to property asset selling at over 70% discount (price to book ratio, PB, is less than 0.3). The high dividend yield of 5% (eg from property rental) is a bonus for long term investor of Hongkong Land, providing passive income (even if 5% dividend yield is cut by half for next 12 months, still suitable as defender), no issue even if “crisis” of any form (protester, virus, etc) may last more than 5 years. During Coronavirus crisis, tenants of property could lose money due to less shoppers but landlord (Hongkong Land) still could collect stable rental.

Mid-term risk of Hongkong Land could be high property valuation in Hong Kong may not be sustainable if the average 20 years property cycle of Hong Kong falls from high optimism. So far Coronavirus only affects global stock markets and badly affect business of certain sectors, but not yet on property sector. Even so, long term outlook for Hong Kong and Singapore property sectors are steady gradual growth as a country surrounded by sea with limited land but nearly unlimited future population (both has the top 10 highest population density in the world with growing economy for decades) would support the growing property prices in decades to come.

In short, investing in Hongkong Land stock is an investment in Singapore and Hong Kong countries through as integrated stock and property markets.

6) Mandarin Oriental Hotel (SGX: M04)

Mandarin Oriental Hotel is not only a hotel in Singapore, it has many hotels globally. During Coronavirus crisis, hotel (hospitality sector) is badly affected. So, investor needs to monitor Q1 and Q2/2020 results of Mandarin Oriental Hotel before making decision.

Mandarin Oriental Hotel is a marginal giant stock, the weakest among 7 Jardine stocks. Even before Coronavirus crisis, business fundamental has been declining. Despite 60% discount in hotel asset with PB of 0.4, Mandarin Oriental Hotel is not as valuable as Hongkong Land.

For short term or mid-term cyclic trading strategy, this stock may be considered if there is a strong reversal in price trend, especially when Coronavirus condition may improve but risk is relatively higher than other 6 Jardine stocks.


7) Dairy Farm International (SGX: D01)

Dairy Farm is famous of its supermarket and consumer business (Wellcome, Cold Storage, Seven Eleven, IDEA, etc) in Hong Kong, Singapore and regional countries. During Coronavirus period, supermarket business should perform better (see how crowded when lockdown was announced) as is a consumer staples business, people still need to eat and drink, if they could not go out from home.

However, before Coronavirus crisis, Dairy Farm only has average business performance. It even sells some its seven eleven stores. It has stable dividend payment record, about 4% yield currently, possible to position as midfielder role. Competitor supermarket stock, Sheng Siong (SGX: OV8) performs better than Dairy Farm for business and stock prices. Sheng Siong has recovered the “losses” in stock prices as business is doing too good during Coronavirus period. Sheng Siong is only a young giant stock but does well in the current global stock crisis, having potential to be a true giant stock in future with more proven record.

Therefore, not all sectors are affected by the same crisis. Investor may explore stocks with stable businesses, leveraging on market fear to ask for over 20% discount in those growth stocks. Crisis is Opportunity when stock prices fall due to fear but business is still strong. Crisis is crisis when stock prices fall mainly due to weaker business.

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In summary, all 7 Jardine stocks are giant stocks at low optimism. However, the stock prices have been bearish for a few years, undervalue asset becomes more undervalue each year. Therefore, these Jardine stocks may not possible for traders without strong holding power as buy low may get lower in short term to medium term, unless there is a clear reversal in stock prices to uptrend again.

For long term investors who apply undervalue investing may consider Hongkong Land and Jardine Cycle & carriage stocks which pay over 5% dividend yield (but assume this amount may be cut by 50%). For very conservative investor, Hongkong Land with over 70% discount in asset value (PB < 0.3) is another strong consideration, even if Hongkong Land could not survive the unlikely Great Depression (<5% chance it may happen), investors may not lose the capital due to high safety of margin.

Strategies for investing in Jardine group is similar as other giant stocks at low optimism, multiple entries, eg 1, 3 or 5 “bullets” of capital, first entry at low optimism < 25%, subsequently optional entries could be either downtrend (5-10% lower, average down for investing) counter-trend investing or uptrend (5-10% higher, average high for trading) follow-trend trading if optimism is still less than 25%. It is fine if only 1 “bullet” (1 entry) is triggered (eg. stock market has V-shape recovery), future may follow short term or mid term trading for actions, to be reviewed again.

Sharing above for 7 Jardine stocks are for educational purpose (almost spend 1 day of Dr Tee valuable time writing this long article, hope it is an useful reference for readers). Please make your own decision with independent thinking. If you could read until this sentence, implying you have the determination to learn and apply stock investing.

==================================

Drop by Dr Tee free 4hr investment course to learn how to position in global giant stocks of growing sectors with 3 value investing strategies (undervalue, growth, dividend stocks), knowing What to Buy, When to Buy/Sell.

Learn further from Dr Tee valuable 7hr Online Course, both English (How to Discover Giant Stocks) and Chinese (价值投资法: 探测强巨股) options, specially for learners who prefer to master stock investment strategies of over 100 global giant stocks at the comfort of home.

You are invited to join Dr Tee private investment forum (educational platform, no commercial is allowed) to learn more investment knowledge, interacting with over 9000 member.

Dr Tee Investment Course (Stock, Property, Commodity, Forex, Bond)
Filed Under: Stock Market Tagged: , , , , , , , , , , , , , , , , , , , , , ,

Stock: To Buy or NOT to Buy Now? 左右为难

Posted on April 9, 2020 Written by
Stock To Buy US Singapore

Some Ein55 forum members may not take any action in stock market for 5-10 years which I can understand is to wait for global stock crisis. The current global stock crisis worth attention for long term or even life-time investors.

Global stock market experienced a mini roller coaster ride, major correction of 20-30% in 1 month, recovering about 10-20% in last 2 weeks, leading for US, following by China and Germany (Europe), lagging for Hong Kong and Singapore),So, for current global stock market, “To Buy or NOT to Buy Now” is $1 Million worth of question to many people, especially this could be 5-10 years opportunity, may not come back easily if missed. When positioned right, one could save 5-10 years of waiting time. When positioned wrong, one could lose more (buy low get lower). It is a dilemma when one is standing at a junction of the investing path (左右为难), especially for those who have not done any new entry yet on stock, not sure whether to take the risk or miss it totally.

I just worry that some readers may aim for very low (eg. STI to drop to 0% optimism or S&P 500 to drop to 25% optimism) which is Level 4 stock crisis. What if it never comes eventually (eg. Coronavirus may fade away by summer, V-shape recovery in global stocks and monthly economy).

If one only has 1 bullet for investment, I assume it is trend-following and we just observe the first signal (1 day above 20 days moving average of stock index prices for at least STI and S&P 500, likely for most global stock indices). Next signal may be another 10% higher stock price with 1 day above 50 days moving average of stock prices. Will the readers give up the opportunity because of worry this is technical rebound before falling to another bigger crisis?

To be frank, current “global stock crisis” is only Level 3.5 crisis, which is similar to Euro Debt Crisis or Asian Financial Crisis, a regional crisis affecting half of the world, but not yet for US (only a major correction from high optimism to mid optimism of fair price).

Since we don’t know the scale of crisis (depending on condition of Coronavirus), if one does not follow the price trend (eg bear to bull reversal), insisting to aim for the lowest point (eg. STI below 2000 points or S&P 500 below 1500 points), else no entry, may miss the opportunity if it is just a major correction.

Stock market US Europe Singapore Hong Kong China

Based on Coronavirus world / Singapore condition, Apr 2020 is likely the most severe, double the cases every 7 days (see my earlier article, “predicting” Singapore would double from 1000 to 2000 cases by this weekend, which is coming soon with record daily new high of 287 infected cases today). However, we have a few key references, proving that Coronavirus could fade away in about 4 months if proper lockdown and isolation at home is implemented for 1-2 months.

China – successful model (full cycle completed)

Korea – runner up, cycle nearly completed

Europe / Iran – 3rd place, downtrend for over 7 days

World (US, SG, Asia ex China and Korea) – last phase, some see early signal of 1-2 days downtrend but not stable.

If Coronavirus does not discriminate the country (assuming all follows similar way of 100% isolation at home), then there is a good chance to see positive results as China and Korea, even we don’t know the future. This is similar to stock investing, when we follow certain strategies, even we don’t know the future, the chances of winning are high but one need to take calculated risks (tolerance level is different for each person, some could not take even 1% “loss” for 1 day, regretting immediately after entry).

To compromise in between the fear of missing out (miss the chance if does not invest if the worst is already over) and fear of losing in greater crisis to come (buy low get lower), Ein55 readers may consider multiple entries as described in a few earlier articles.

Here are the summary of steps in 1 possible strategy for current stock market (sharing for educational purpose, please make your own decision):

1) What to Buy

Focus in global giant stocks, prefer 50% portfolio having at least >3-5% dividend yield as protection, in case if it crisis get worse from Level 3.5 (regional / 50% world) to Level 4 (global financial crisis) or even Level 5 (Great Depression, affecting world economy for 2-5 years, similar in scale as 1929 Great Depression), then investors could average down (but trend-following traders need to cut loss following the exit plan).

There are over 1500 global giant stocks (based on Dr Tee unique criteria of Giant Detector). Long term value investor (especially for contrarian investor) may focus more on dividend giant stocks, about 100 in the world. Trend-following traders or investors may focus on growth stocks (may not have dividend). Some could compromise in midfielder stocks on growth dividend giant stocks, having the best of 2 worlds, could invest (for dividend during winter low optimism market) and trade (for capital gains during spring with higher optimism market).

2) Capital Allocation – Multiple Entries

Set a few multiple entries point, decide how many bullets to trigger, could be (1 x 100%), (2 x 50%), (3 x 33%), (5 x 20%), (10 x 10%), etc.

If only 1 stock at 1 time due to limited capital, then reader may consider index ETF (allow diversification, eg S&P 500 ETF, Hang Seng Index ETF, MSCI World ETF or STI ETF, etc), not perfect but safer than only buy any individual stock.

3) First Entry

Trigger the first bullet when see the first signal acceptable to own criteria, eg. counter-trend (eg. when price is below 25% optimism or even coming to 0% optimism) or follow-trend (eg. when see higher high and higher low, or price is above 20 days moving average as a few days ago).

The beauty of trigger the first bullet is one would not worry of missing the boat (eg 1/5 capital may be positioned), even if stock market recovers without returning to lower prices than the first entry, at least the investor still has 1/5 gift from heaven, better than empty handed. Traders may average up to follow the trend after 1/5 is winning and signal becomes clearer, Coronavirus becomes weaker while global QE or stimulus plans could be more (nearly everyone will get Ang Pao or relief fund from local government).

When the first entry is position, an investor would have a reference to compare for next entry, either X% lower to buy more for value investor, or Y% higher to buy more for trend-following traders. X% and Y% could be aligned to own personality, eg 5 or 10%.

4) Remaining Entries (Conditional)

For remaining bullets, one may trigger based on strategies, either counter-trend (every 5-10% lower in prices from first entry, trigger second entry) which is more for investing, or follow-trend (eg. every 5-10% higher in prices from first entry, trigger second entry) which is more for trading.

For trading, needs to have S.E.T. in plan, including cut loss when down by X%, eg 5 or 10% (to protect yourself in case it is just a technical rebound over the past few 2 weeks, still can preserve capital to buy in next reversal signal after the second dip). For investing, lower prices is blessing in disguise as price is lower each time with higher dividend yield, therefore stronger holding power.

5) Hold (Monitor)

Review portfolio regularly, not just to check stock prices, also ensure business fundamental is within expected level (eg. for sectors directly affected by Coronavirus, likely will make a huge loss, may not consider even if they are still giant stocks based on current prices and FA till now which may not have Q1 FA yet).

6) Sell (Exit)

For exit strategies, it is a good problem to have as you probably have make money by then one day, worry if the profits may disappear one day if not sold on time or hoping for higher upside with more capital gains.

You could learn further from Dr Tee in future 6-day Ein55 course, currently focusing more on potential entries and risk management.

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To a country government, probably need to spend 20% of yearly GDP in supporting economy (eg. pay for partial salary) 6-12 months but they could save 1-2 years of GDP (if falling to global financial crisis) or 3-5 years of GDP (if falling to Great Depression). When US stock market falls in last 1 month of crash, about US$12 Trillions was evaporated. So, QE of US$2 Trillions by Trump to save $12 Trillions of people’s wealth hidden in stock market is definitely a good deal (not to mention property market’s wealth which is not affected yet).

When S&P 500 is back to above 3000 points, STI is above 3000 points, global stock markets are back to 90% of original stock level, then global people would continue the bull market, win-win for all parties. Political economy has to consider popular support based on both stock market and economy. S&P 500 is report card of Trump, he only has time until summer (Jun – Aug) to show the report card above 3000 points again (possible as S&P 500 fells from 3300+ points to 2200+ points by 1/3, recovering to 2800 points today, only less than 10% upside away).

There is no need to worry if current stock market rally is dead cat bounce (Technical Rebound) or true recovery (worst is over, boat sailing off without return). Readers may just focus on what are known (intrinsic value vs price, optimism level, business fundamental, Coronavirus trend and successful experiences, government QE, etc – within 55 Ein55 investing styles) today to make a decision with calculated risks within tolerance limit (eg diversification over a portfolio of giant stocks, protected by dividend payment during potential long winter, position sizing, trend-following or simply cut loss when exceed the acceptable loss limit, etc).

I am not asking Ein55 readers to buy stocks now (sharing here is for education purpose, please make your own decision). I am urging all to use the free time at home this month to review your stocks, then taking the right actions (buy, hold, sell, wait, shorting) with strategies aligned to your personality. At least there is no regret when crisis is either over or becoming Level 4 or Level 5 crisis in future as you have planned for them. Even your decision is to do nothing now, it is also fine as you have given yourself a chance by reading until here.

==================================

Drop by Dr Tee free 4hr investment course to learn how to position in global giant stocks with 10 unique stock investing strategies, knowing What to Buy, When to Buy/Sell.

Learn further from Dr Tee valuable 7hr Online Course, both English (How to Discover Giant Stocks) and Chinese (价值投资法: 探测强巨股) options, specially for learners who prefer to master stock investment strategies of over 100 global giant stocks at the comfort of home.

You are invited to join Dr Tee private investment forum (educational platform, no commercial is allowed) to learn more investment knowledge, interacting with over 9000 member.

Dr Tee Investment Course (Stock, Property, Commodity, Forex, Bond)
Filed Under: Market Outlook, Stock Market, Technical Analysis, Value Investing Tagged: , , , , , , , ,

4 Known and Unknown Stock Strategies (知之为知之)

Posted on April 9, 2020 Written by
4 Known and Unknown Stock Strategies

These 4 principles of “known/unknown” (知之为知之，不知为不知) could be applied in stock investing strategies to enhance the probability of success, no need to worry about future known.

1) Known Knowns

– This could be safer way of investing, focusing in known giant stocks with consistent growing business, protected by strong economic moat. Even the stock price could be high, it has higher chances to go higher in future.

In fact, why focus in fortune-telling, guessing the future stock prices or future business? There are lots of known facts which could be useful to make a decision. To avoid another unknown (eg. fake financial data), one could apply diversification over a portfolio of 10-20 giant stocks to minimize such unsystematic risks.

2) Unknown Knowns

– This is area of improvement for all stock investors, eg sharing knowledge in Ein55 forum, allowing us to know the knowns which are not known to oneself, learning from other people’s successes or mistakes (eg recent sharing of GIC / Temasek / Warren Buffett investment experience).

There are potential red flags, risk of business, which one could learn to minimize the risk (eg. high debt, negative free cash flow, etc), may avoid crisis such as Hyflux stock and bond investment with these known facts even more than 5 years before the company crisis.

Company such as Muddy Waters and Iceberg are supporters to find these unknown knowns, providing opportunity for shorting for potential profits by converting the unknown knowns to known knowns later to the general public.

One could convert “unknown knowns” to “known knowns”, strengthen own probability of success, eg. learning one new strategy or giant stock each week in this forum.

3) Known Unknowns

– This could be Coronavirus crisis (only after the breakout), weak global economic performance, high debt, etc, usually reported widely by analysts, stirring great fear in stock market. These are known risks but no one knows the ending, eg when Coronavirus may end.

For uncertain future, a better way is to apply probability investing with optimism strategy, eg buying giant stock at low optimism < 25%, applying multiple entries to fight against unknown future crisis.

Risk of known unknown is investor may be too fearful, dare not take the action of catch the falling knife, also missing the surge when crisis is fading, totally miss the investing opportunity, gift given by crisis.

4) Unknown Unknowns

– Good examples are black swans which no one knows before that and catch most people by surprise after happening, eg. Asian Financial Crisis in 1997 (Forex Crisis), Dotcom bubble (Technology Crisis) in 2000, Gulf War (Political Crisis) and SARS (Virus crisis) in 2003, Subprime Crisis (Property Crisis), Coronavirus Crisis (2020), and future black swan (we don’t know what and when will come, therefore called unknown unknowns).

It is meaningless to worry about sky would fall down (staying at home each day) as one would not able to take any action in stock investing, missing the opportunities. One has to learn to take calculated risks despite the unknown unknowns.

4 Known and Unknown Stock Strategies

For future unknowns in systematic risks at regional or global level and unsystematic risks at business level (eg. management integrity, truthful financial report, etc), both could be minimized with LOFTP Strategies:

L = Levels 1-4 (stock, sector, country, world)

O = Optimism 0-100%

F = Fundamental (Strong / Weak)

T = Technical (Up / Flat / Down)

P = Personal (types of personality)

When we take care of downside in future uncertainties (known unknowns or unknown unknowns), upside in share prices will take care of itself (known knowns and unknown knowns in global giant stocks).

==================================

Drop by Dr Tee free 4hr investment course to learn how to position in global giant stocks with 10 unique stock investing strategies, knowing What to Buy, When to Buy/Sell.

Learn further from Dr Tee valuable 7hr Online Course, both English (How to Discover Giant Stocks) and Chinese (价值投资法: 探测强巨股) options, specially for learners who prefer to master stock investment strategies of over 100 global giant stocks at the comfort of home.

You are invited to join Dr Tee private investment forum (educational platform, no commercial is allowed) to learn more investment knowledge, interacting with over 9000 member.

Dr Tee Investment Course (Stock, Property, Commodity, Forex, Bond)

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