5 Stock Actions for 5 Black Swans (五内如焚)

Posted on June 13, 2022 Written by

Over the past 2 years of pandemic, global stock markets have been experiencing roller-coaster rides, down and up and down … mainly due to these 5 black swans with high uncertainties in cyclic manner:

1) COVID19 Pandemic

2) Supply Chain Disruption

3) Interest Rate

4) Inflation

5) Russian-Ukraine War

Global stock markets experienced mini dotcom bubble with over 30%-50% major correction in technology stocks, especially in US Nasdaq and Hong Kong. Both long term investors and short term traders are worried of high inflation over 8%, interest rate hike (may exceed 3% in 1 year), Russia-Ukraine War (higher commodity prices), supply chain disruptions and endless COVID19 cases (over 2 years) which contribute to declining stock prices. These 5 black swans (五内如焚) may spread the fears in technology stocks to most sectors, resulting in a global financial crisis.

Instead of worrying about uncertain markets, a smart investor may consider strong dividend giant stocks with protection by defensive sector business, a natural way to hedge against high inflation with interest rate hike while collecting growing passive incomes in a steady way. A wise trader would make friend with price trend, waiting for uptrend to reenter again (avoiding Buy Low get Lower). It is possible to integrate long term investing with short term trading to enjoy the best of 2 worlds.

Crisis could be Opportunities if an investor or trader knows how to take 1 of 5 critical actions (Buy / Hold / Sell / Wait / Shorting) aligning to own personality. Let’s learn further from Dr Tee on how to take action in current stock markets with 5 black swans:

1) Buy

With over 90% global stocks (especially in US & Hong Kong) turned bearish, “Buy” action for investors could be more suitable for defensive dividend giant stocks, taking calculated risks of limited downside, no need to time the market.  A trader may still consider strong individual stocks from bullish sectors such as utilities, commodities, energy, etc, which still have potential to rise.

Most people wish to Buy Low Sell High but usually ending up do nothing when market is falling (fear of falling knife) and rising again (fear of “expensive” stocks).

Supply chain disruptions during pandemic becomes worse, especially for commodities (eg. agricultural products, crude oil and natural gas) during Russia-Ukraine War which is highly complicated (political, financial, humanistic, etc).  While commodity stocks still enjoy higher profits in near future, it is more suitable for shorter term traders as Ein55 Optimism level of commodity stocks are generally higher, may not be suitable for long term investing.

2) Hold

A short term trader may have sold the stocks when stock markets start to turn bearish a few months ago but a long term investor may have option to hold on to certain stocks with condition that it is a giant with strong and defensive businesses. 

During interest rate hike (to tame the high inflations), global bank stocks would have higher interest income due to higher Net Interest Margin (NIM).  However, banks profits could be reduced if the stock correction ends up as a global financial crisis (eg. stagflation or hyper-inflation over 10%), there could be less borrowing of money by corporate. At the same time, non-interest income (eg. investment funds, insurance, credit card, etc) is highly dependent on economy condition.

The Fed of US is taking the lead to increase interest rate (from 1%) which is an art to control the high inflation (over 8%) with amount of adjustment. If the interest rate is increased too fast (eg. over 1% each time), investors may become fearful, resulting in bearish stock market which could limit hiring and expansion of business, ending as global financial crisis eventually. If the interest rate is increased too slow (eg. minimal 0.25% each time), it could not bring down the high inflation (already last 40 years high).  The Fed could only do micro adjustment every few months (6 times each year) while giving “assurance” with more positive comments to cool down the inflation without spreading the fear too much.

Singapore stock market performs better than US stock market so far in Year 2022, mainly due to there are more banking and finance stocks (over 30%) than technology stock (only 1, Venture Corp) in 30 STI component stocks:

Ascendas Reit (SGX: A17U), CapitaLand Integrated Commercial Trust (CICT) (SGX: C38U), CapitaLand (SGX: C31), City Development (SGX: C09), ComfortDelGro (SGX: C52), DBS Bank (SGX: D05), Dairy Farm International (SGX: D01), Frasers Logistics & Commercial Trust (SGX: BUOU), Genting Singapore (SGX: G13), Hongkong Land (SGX: H78), Jardine Matheson Holdings JMH (SGX: J36), Jardine Cycle & Carriage (SGX: C07), Keppel Corp (SGX: BN4), Keppel DC Reit (SGX: AJBU), Mapletree Commercial Trust (SGX: N2IU), Mapletree Industrial Trust (SGX: ME8U), Mapletree Logistics Trust (SGX: M44U), OCBC Bank (SGX: O39), SATS (SGX: S58), Singapore Exchange (SGX) (SGX: S68), Singapore Airlines (SIA) (SGX: C6L), ST Engineering (SGX: S63), Sembcorp Industries (SGX: U96), Singtel (SGX: Z74), Thai Beverage (SGX: Y92), UOB Bank (SGX: U11), UOL (SGX: U14), Venture Corporation (SGX: V03), Wilmar International (SGX: F34), Yangzijiang Shipbuilding (YZJ) (SGX: BS6).

Similarly, there are more value stocks in Malaysia 30 KLCI index component stocks:

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 (Bursa: 7113) TOP GLOVE CORPORATION BHD.

3) Sell

Some investors may feel that it is too late to sell stocks after over 30% – 50% correction in stocks, especially in technology sector. In fact, short term traders and long term investors have different risk tolerance levels, criteria to sell could be different as well. For traders, it is important to follow a consistent trading system to buy and sell (eg. every few weeks or months), mainly based on Technical Analysis with trend-following. For investors, more considerations on longer term stock performance including business conditions (not just based on stock prices), selling of stocks is an option, not a must.

Some investors may also worry after selling a stock (especially a giant stock), hard to buy back again at the same prices, therefore prefer to hold.  If an investor could integrate trading mindset into investing, even if the current bearish stock market is only a major correction (eg. rebound when high inflation is tamed), it is never too late to buy back the same stocks (or stronger stocks) at the same selling price or even higher price (difference of selling and buying price is a premium of insurance to ensure a more bullish market).

Sell a stock (whether to take profits or minimizing losses) is not a mistake, even the stock may recover higher eventually.  When business or fundamental analysis is core (value investing), stock price analysis (allowing Buy Low or Sell High) would help to enhance the probability of success with higher potential return.  Partial consideration of only fundamental or technical is incomplete, there could be market traps in each method.

4) Wait

For investors or traders with no stock currently, some may want to wait for opportunities to buy low. Cash is king only when used at the right time in investment one day.  Cash deposit in banks forever could be wasted if too much cash (beyond emergency fund for family) with little return (current bank interest rate is still far below inflation, therefore cash is shrinking in value with time). 

For investors who could not any take action in stocks due to low risk tolerance level, may consider to invest in bank stocks (eg. getting 1% interest from cash deposit in OCBC vs over 4% dividend in OCBC stock), risk as stock investors could be lower (especially for lower price-to-book ratio stock) than cash depositor ($75k compensation if a Singapore bank go bankrupt).

“Wait” is an important action but window of opportunity may be widely opened while market is still chaotic or full with negative comments. It is easy to say “Be greedy when others are fearful” but it is possible to Buy Low get Lower as it is almost impossible to buy at the lowest point (similarly to sell at the highest point). 

So, probability investing (eg. LOFTP strategies – Level / Optimism / Fundamental / Technical / Personal Analysis) is a solution, taking action (from Wait to Buy) when signal has appeared for own personality.  As of now, mini bear (over 20% correction in indices) is confirmed but big bear (over 50% price correction) is still uncertain.

Waiting is meaningful only if an investor or trader could take action at certain point of time to buy stock again (eg. a portfolio of 10-20 giant stocks with strong businesses and recovery in share prices).

5) Shorting

“Shorting” is a higher probability of action in a bearish stock market with over 90% stocks correcting to lower prices, profiting from lower prices. However, it is more suitable for shorter trading and S.E.T. (Stop Loss / Entry / Target Prices) plan is required for trading because shorting could have infinite loss when a trader short sell a stock with rising price (sky is the limit for upward potential, eg. Tesla or iFAST have over 10X in share prices over the past few years).

Shorting may be conducted with CFD (Contract for Difference) platform but only selected stocks are available (many weak fundamental stocks may not be available in CFD). CFD may not be suitable for beginners, especially those who don’t have a trading plan.  Alternatively, an investor may considered inversed ETF (higher prices or more profits when actual index is falling) which could be traded under most stock exchanges.

Shorting is mainly reversed strategy (aiming for lower prices) of usual long strategy (aiming for higher prices), riding the bearish share prices, breaking each critical support to start the shorting. It may be against the personalities of some investors, therefore it is possible to “Wait”, no need to “Short” during a bear market.

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While 5 black swans above could be uncertain in nature (therefore it is called “black” swan) but they are actually secondary factors. The primary factors of stock market prices up and down are actually Greed and Fear, which could be reflected under LOFTP (Level / Optimism / Fundamental / Technical / Personal). Despite we could not have a crystal ball to see the future stock market, probability investing aligning to own personality would enhance the winning chances.

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There are over 2000 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.

Drop by Dr Tee free 4hr webinar (learning at comfort of home with Zoom) to learn how to position in global giant stocks during COVID-19 stock crisis with 10 unique stock investing strategies, knowing What to Buy, When to Buy/Sell.

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, you could ask on any global and local stocks including but not limited to 30 STI component stocks:

Ascendas Reit (SGX: A17U), CapitaLand (SGX: C31), CapitaLand Integrated Commercial Trust (SGX: C38U), City Development (SGX: C09), ComfortDelGro (SGX: C52), Dairy Farm International (SGX: D01), DBS Bank (SGX: D05), Frasers Logistics & Commercial Trust (SGX: BUOU), Genting Singapore (SGX: G13), Hongkong Land (SGX: H78), Jardine Cycle & Carriage (SGX: C07), Jardine Matheson Holdings JMH (SGX: J36), Keppel Corp (SGX: BN4), Keppel DC Reit (SGX: AJBU), Mapletree Commercial Trust (SGX: N2IU), Mapletree Industrial Trust (SGX: ME8U), Mapletree Logistics Trust (SGX: M44U), OCBC Bank (SGX: O39), SATS (SGX: S58), Sembcorp Industries (SGX: U96), Singapore Airlines (SGX: C6L), Singapore Exchange (SGX: S68), Singtel (SGX: Z74), ST Engineering (SGX: S63), Thai Beverage (SGX: Y92), UOB Bank (SGX: U11), UOL (SGX: U14), Venture Corporation (SGX: V03), Wilmar International (SGX: F34), YZJ Shipbldg SGD (SGX: BS6).

Dr Tee will cover over 20 case studies, Singapore giant stocks, eg. CapitaLand Integrated Commercial 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

View quick preview video below, Dr Tee will introduce 10 key stock investment strategies (股票投资十招) to be learned in 4hr free stock webinar:

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Filed Under: Fundamental Analysis, Macroeconomy, Market Cycle Investing, Stock Market, Technical Analysis Tagged: , ,

Little Black Swan – Wuhan Pneumonia Virus

Posted on February 4, 2020 Written by
black swan

Wuhan pneumonia is an emerging black swan, real impact to stock market depends on the final scale (last SARS crisis results in regional stock market crisis), need to monitor closely.

Short term impact on stock market is speculative: some healthcare (eg. glove manufacturer) stocks are rising in prices, while airline stocks suffer due to potential lower number of passengers with less traveling in an enclosed transportation. When this virus has similar scale as SARS, there is a potential to result in a regional stock crisis (eg. China / Asia) or even global financial crisis (if becoming a new form of global flu without an effective vaccine).

As mentioned earlier, in the final stage of bull market with over 75% optimism level, we are walking on a layer of thin ice, shorter term trading/investing is safer, ok to be “kiasi” (fearful of danger) for both daily lives (don’t go crowded place, staying healthy for stronger immune system) and stock investment.

Scale of “black swan” depends on severity of Coronavirus, eg duration and population of people infected (assuming fatality is around 2%). Currently it is still a mini bear for China stock market but having potential to grow into bigger bear if it escalates from health to social and even political issue.

Under the best case, it is likely a medical cure could be formulated within months, based on past knowhow on cousin of coronavirus, SARS. Under the worst case, it may evolve into a common global flu, when most people (survivor) has antibodies, the fatality rate may drop to a normal flu (eg. 0.05%).

The worst virus in mankind history was “Spanish Flu” in 1918 with 50 millions people die of 500 millions infected (about 10% fatality rate, close to SARS). Even so, it stopped eventually. Life will find a way. Virus also depends on human, won’t kill all the human. With advance in medical technology over the past 100 years, chances of overcoming Coronavirus is very high, just a matter of time, whether active or passive measures (eg. SARS just stopped after months of spreading). However, if human continues to make similar mistake, next crisis (or this crisis) may not be a just a financial crisis.

For smart investor, safer approach is to be a shorter term investor or trader when global stock market has been in high optimism > 75% while tested by various potential wolves (US-China trade war, US-Iran conflict, Coronavirus, etc) every few months. Learn to invest for opportunity from crisis: www.ein55.com

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

Inflation News: Good News is Bad News?

Posted on February 15, 2018 Written by

Inflation News

Inflation news is a relative indicator, having different impacts to different market conditions. Over the past decade, lagging economy (especially for Europe and Japan) hope to achieve higher inflation as it shows the expansion of economy with more spending.

 
At the same time, leading economy US has moderate inflation, ensure the QE (Quantitative Easing) in the past do not result in high inflation (more than 2.5%) which requires higher interest rate to suppress it, ending up hurting the economy with higher borrow cost.
 
Economy is not a single variable or 1-way model. It is a complex interaction of many ingredients: productivity (GDP), spending (inflation), interest rate (borrowing cost), stock, bond, political economy, forex, etc. It is almost impossible to reduce corporate tax from 35% to 21% and expect little spending or lower inflation. When 1 key parameter is adjusted higher/lower, a new equilibrium of market will be established based on new demand and supply, latest greed and fear, fighting of bull and bear.
 

In a bullish economy, it is natural to have higher inflation, then the inflation news could affect the stock market. The key is to know the limit: 2.5% will be a critical point for US inflation or CPI (Consumer Price Index), interest rate has to catch up more than 2%.  US inflation for Jan 2018 is 2.1%, still within the limit. At the same time, US 10 years bond yield over 3% is another critical point. In fact, after breaking 3% critical resistance for US bond yield, bond market may suffer significant correction, resulting in lower bond price with higher bond yield. As long as economy is still healthy, funds may be channeled from bonds to stocks, until next time when the unexpected black swan comes, the funds will be moved back from stocks to bonds. The market is near to the transitional points of bull to bear, stocks to bonds but the signal has not reached the critical level yet.

Inflation News: is it Good News or Bad News? The interpretation has to align with investing strategies. Learn further from Dr Tee on how to leverage on macroeconomy indicators including inflation news.

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

 

 


Filed Under: Bond Market, Market Outlook Tagged: , , ,

Walking on Thin Ice of Stock Market

Posted on February 8, 2018 Written by

Thin Ice of Stock
After the surprise dip of 666 points on 2 Feb 2018, Dow Jones Index dropped another 1175 points on 5 Feb 1018, there is total of about 7% correction over the last 2 trading days, strong enough to drive short term traders (who long) out of the game temporarily.  The thin ice of stock market is getting fragile.

Those algorithmic trading tools which follows the TA rules, when critical short-term support is broken, would rush to find the nearest exit to sell down with high volume recorded, adding to the power of market correction in a short time. There are over 70% stock trading in US is done by robot or algorithmic trading, mostly are trend follower, therefore when there is a flash crash, the robots will follow one another to exit from the stock market or even start the shorting process.

The 7% stock market correction is overdue, especially for US and Hong Kong stock markets which have been over-heated in the past few months. Macroeconomy and stock market are connected loosely, when the fear emotion is over (intra-day VIX was 50 but subsiding quickly), fundamental will have influence over the technical again, before the greed emotion takes over again.

There is nothing wrong for short to medium term traders to take profits of last few months as this was the exit strategy. After all, US was at very high Optimism (over 90%), any potential risk could be the next black swan, resulting in the global financial crisis. In year 2000, the dot com bubble was simply too large, price over value, therefore a high optimism stock index, itself can be a potential crisis because when most people are profiting from the bullish market, any shake would change the greed into fear, breaking the thin ice of stock market.

Trading in a high optimism stock market is as if walking on a layer of thin ice of stock market. Sometimes it could be a false alarm (wolf is coming), sometimes it could be a real crash of ice and stock market. Therefore a systematic and disciplined trading plan is needed.

Investors would want to wait for the global financial crisis to come ASAP to buy low for strong fundamental stocks. However, political economy could add more complexity and traders could buy low again in short term if it is only a regular correction. Therefore, patience is crucial for investors.

Allocation of funds (cash vs stock) is critical to manage the emotions for a trader and an investor. When one invests too much at high optimism, the self control is weak. It is fine to cut loss in a trading market when the future price trend is against the earlier assumption. The worst is a mismatch of personality with strategy, eg. entering as a short term trader for a quick return, ending up holding as a long term investor when stock market is confirmed a crash.

This Chinese saying is a good summary of strategy at high optimism stock market:
《詩》云：「战战兢兢，如临深渊，如履薄冰。」

Learn from Dr Tee to match the stock trading or investing strategy with own personality, mastering Walking on Thin Ice of Stock Market.

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Filed Under: Stock Market Tagged: , , ,

Which is the Real Black Swan? Learn to Profit from the next Global Financial Crisis

Posted on September 8, 2016 Written by

ein55-newsletter-no-039-image-black-swan
In the ancient time, Europeans thought that swans are all white in colour until one day, black swan was found in Australia, it became a surprised news.  Black swan event is a financial term used to describe an unexpected event which later evolved into global financial crisis.  There were people and company went bankrupt during the downfall of global stock market.  There were also people who took advantage to buy good business at low price, making many times of fortune in a short time when the crisis is over.

Every crisis is an opportunity. However, there are different scales of financial crisis, from Level-1 (company level, eg. Swiber or Noble), Level-2 (sector level, eg. Shipping Industry), Level-3 (country level, eg. Russia) to Level-4 (global financial crisis).  Level-1 crisis happened almost all the time, weak company could wind up the business when the earning, asset or cashflow is insufficient to pay for the debt. Level-2 crisis follows the unique sector market cycle, eg. Oil & Gas crisis, casino crisis, opportunity could be found every few months, suitable only for trading if it is not aligned with higher level of crisis.  Level-3 crisis could happen every year, eg. Euro Debt Crisis (2010-2012), US losing AAA credit rating (2011), China stock crisis (2015), Brexit crisis (2016), creating a good opportunity for both traders and investors.  However, none of them could be named as Black Swan event or Level-4 crisis (global financial crisis), similar to Dotcom Bubble (2001) and Subprime Crisis (2008).

The greatest investment opportunity requires the most fearful financial crisis in an in unexpected way.  Every year in a bull market, many “Dr Doom” will try to predict each event could become the next global financial crisis, but why it usually ended up just a smaller scale of regional crisis?  In fact, each of the yearly financial crisis could become the next global financial crisis but it requires greater fear to trigger.  Based on Ein55 Optimism Strategies (see chart below), global financial crisis will more likely to occur when world stock index is over 75% optimism, eg. in year 2000 (which triggered the dotcom bubble in 2001) and year 2007 (which triggered the subprime crisis in year 2008).  For other smaller scale crisis (Euro Debt, Brexit, US credit crisis, etc), world stock market was at mid optimism level (<60%), it was not greedy enough, therefore the global investors were also not fearful enough to escape at the same time when crisis happened.

In the past 20 years, world stock market has gone up 3.4 times in share prices (see chart below), a highly profitable investment option. World stock market index was at the critical 75% Optimism in year 2015, the global stock market correction has helped to cool down to moderate high level of 60% Optimism.  With US S&P500 index reaching historical high every few months, world stock market has been increasing in optimism level, risk is getting higher each day (40% upside, 60% downside) but not back to the critical level yet.  If there is still a last rally, global stock market could be speculated to a high optimism level, the black swan of the next global financial crisis will be likely to wait there.  We don’t have to guess what and when is the black swan event because it is unpredictable in nature, therefore it is called a black swan. However, Ein55 Optimism Strategies could help us to prepare for that golden opportunity in future.  As long as we are not too greedy, taking profit at high optimism (>75%), we could save enough capital, overcome our fear to buy low at low optimism (<25%) and hold until recovery of world economy, making profit from global financial crisis.

ein55-newsletter-no-039-image-world-stock-index

 

 

Filed Under: Macroeconomy, Market Cycle Investing, Stock Market Tagged: ,