16 October 2016
Dear Fellow Investor,
Reaction to news indicator
One of the most powerful of market indicators is the reaction to news
indicator. If price recovers or stabilizes on bad news it means the bad news is
already discounted in the price.
Daily chart of the Straits Times Index as of Friday 11 October 2016
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After 5 consecutive down days the STI washed out the
lows going back to June 2016 and then reversed to close higher. There was
follow through to the upside following the spring. This is the classic
reaction to news indicator. Price stabilized and then went up on bad news.
The bad news was the Friday 11 October reported
negative Singapore GDP numbers.
DBS Group
Research:
"GDP fell by 4.1 per cent quarter-on-quarter in
the third quarter, far more sharply than anticipated. Additionally, second
quarter growth was revised down. With these outcomes, (third quarter growth)
now stands at 0.6 per cent, the lowest since the global financial crisis of
2008/2009.
Based on the latest GDP numbers posted on
Friday Singapore is now in recession and GDP has hit the 2008/ 2009
recession lows.
Now is a good time to pick up quality issues in this
time of market fear, pessimism, doom and gloom and uncertainty. This also holds
true for Malaysian quality shares. Many great companies are trading at
value levels.
How do we protect and grow our capital ? It is
simple. We buy value at a discount and wait for the cycle to turn.
We are mindful to invest in companies generating
rising cash flow, low debt to equity and trade at historical low
valuations. This gives us a margin of safety and allows us to ride out the
volatility.
Our Singapore portfolios are heavily weighted
towards quality equities that produce dividend income as well as potential
capital gains. We have also included selective REITS that produce stabile and
rising income. Our cash position is on average 20 %
How has this worked? Since the beginning of 2016 the
STI is down 3.1 % while our average STI returns are 4.3 % in Sing
Dollars. This is in a challenging environment where SGD money market
rates are at 1 % and many retired Singapore citizens cannot survive on savings
income alone and are forced to work in low wage, menial part time jobs.
Those retirees who had the foresight to build
investment portfolios of high quality dividend shares/ Reits perhaps do
not need to work as the dividend income from their portfolios provide for their
living expenses. They can enjoy their retirement visiting the many world
class parks, museums and other attractions as well as great nearby Asian
destinations.
Invest well and grow your wealth,
Bill
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