Archives for posts with tag: STI

Updated one day late! (check the stats out here)
But still representative of the overall picture of the markets.

Markets have climbed a little in the last week of September. I’m lucky that I stuck to my plan and committed some capital to the STI ETF a couple weeks back.

Anyway, Q3 is over and we’re heading into Q4. Sentiments are kinda pessimistic around the world with all the trade spats going on but markets don’t seem to care that much.

 

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airport bank board business

LOL. I didn’t mean to choose a pic of such an exotic exchange.

 

We’re heading deep into the 3rd quarter of the year. The STI’s been largely directionless while U.S. markets have continued to hit new highs. Nothing surprising here as markets outside of the U.S have been weak since the start of the year. It also reminds me of a post by Ben Carlson on how U.S. markets and World Markets don’t exactly have a one-to-one correlation. In fact, the correlation can sometimes be negative. A good reminder of why we need to be diversified beyond our home markets.

Having said that, it does mean that other markets are cheap relative to the U.S. If that’s the case, then where should you put your money?

I think the answer’s fairly obvious.

Check out the PE10 stats here.

Following a reader’s comments on the STI PE10 data, I’ve decided to make it available for download. If you go to the site, you’ll now notice that I’ve added a “Download Data” button in the ‘Background’ section.

dwnloadData.JPG

Have fun with the PE10 data. It’s something I’ve compiled every month for the last 5-6 (?) years.

There are five pieces of data in the file:

(1) the STI close,
(2) the PE  ratio,
(3) the date,
(4) the implied earnings, and
(5) the average 10-year earnings.

(1), (2) and (3) are self-explanatory. You may find some discrepancies with actual data as there were certain months that I failed to update the data in time and therefore had to extrapolate the data, or I updated a day or two later than I was supposed to. However, for all intents and purposes, it should reflect the PE10 fairly accurately.

(4) and (5) are calculated based on (1) and (2). In order to get an average of the past 10 years’ earnings, I need the current earnings. This is where the “implied earnings” is easily calculated by taking (2) divided by (1). With (4), you can then calculate (5). The PE10 which is not in the file is then simply (1) divided by (5).

Some people may prefer to use an exponential moving average of 10-year earnings or you want to adjust earnings for inflation like Shiller does. Feel free to use the data as long as it’s not for commercial purposes.

If you find anything wrong with it, feel free to let me know.

 

 

In case you haven’t heard about it, I have an STI PE10 site that will track the STI PE10 and generate some simple statistics.

And I’ve updated it! It now displays a chart showing the STI’s PE10 versus its closing price all the way back till 2003.

stiPE10chart

Here’s what you’ll see on the site. Generated the chart using chart.js

STIpe10ScreenCap

It’s not much but I’m proud to say that it works and I made it from scratch (with a lot of dependencies and googling)

 

Finally, I got down to creating a page for the Straits Times Index’s PE10. Right now, it’s very simple. it just displays the latest month’s PE10 as well as the historical average and median values.

I’ve picked up coding for some years now but my progress was and still is, slow. However, it looks like I learned enough python and javascript to create a page where I can share the STI’s PE10. The page will be updated monthly.

What I did is really hacky because:

  1. I have to manually key in the STI closing price and PE.
  2. Run a python script locally to process the latest entry, calculate the PE10 and output to a json file.
  3. Upload the json file to the server for the page to retrieve the data, do some calculations for the average & median, and display it.

At some point, I hope to add a chart to the page so you can track how the PE10 has changed over the years and the subsequent capital gains based on a certain year’s PE10 ratio.

You can check out the page here or from the list of resources on my blog.

If you have any tips on how I can improve the page, please let me know in the comments below.

STIjul18.JPG

Markets have been hit. Are you worried?

 

So, in February I wrote this:

I’m not out of the markets because I believe timing it is a futile exercise but I moved more money to cash/bonds as valuations got higher. In fact, I stopped buying anything after Feb last year.

This week, no thanks to the government increasing the Additional Buyer Stamp Duty (ABSD) on the sale of property, the markets fell roughly 2% on Friday alone. The STI is now down some 268 points or roughly 8% from the start of the year. From the highs of 3,577 reached in April, the market is now down 11.7% which puts us firmly in correction territory.

As mentioned in my February post, I stopped buying into the markets since February of 2017 as things were getting expensive and I basically enjoyed the ride up. I also started trimming some positions towards the end of 2017 as markets climbed. Selling UMS at what was nearly the peak for it netted some accounts a nice profit.

In case, you’re thinking that I made out nicely, I haven’t.

A couple of stupid decisions, like not selling Venture at its peak (I actually placed the order to sell it at $28 but it didn’t get filled) and not selling Starhub at all (this could be one for the history books) meant that my portfolio has been hammered somewhat. Not knowing when to sell has been one of my weak points and still continues to haunt me.

However, what I’m much better at is knowing when to buy. Thankfully, I’m (relatively) young and therefore being a net buyer is still the right way to go. By all the measures that I’m tracking (e.g. CAPE for the STI, difference between PE10 yields and the 10 year government bond, and some trend indicators), it appears that a buying opportunity is starting to appear.

A word of caution. Things are NOT dirt cheap based on valuations. We have seen cheaper valuations in late ’08-09 as well as ’16-early ’17. What many people don’t realise is that the market was much cheaper in early ’17 compared to mid ’10-’11 despite them being roughly at the same levels. This is because earnings had risen from 2011 to 2017 while prices barely rose.

This is the mistake that my senior colleague made. He was anchored on the price of the market and therefore, a level of 3,000 looked expensive to him in early 2017. This caused him to basically miss out on the upswing in markets in 2017.

If you think things are going to be as bad as they were in 2009, then based on current normalised earnings, the STI should bottom out somewhere around the 2,700 level. Expecting the STI to hit 1,500 as it did in the depths of the Global Financial Crisis is expecting the market to be hit CAPEs of 6x! That’s probably even lower than levels during the Asian Financial Crisis.

 

What do you all think? Let me know in the comments below.

So, equity markets around the world were hit pretty bad on Monday and Tuesday. Even the cryptocurrencies were hit pretty bad*. As I write this, the STI is down about 6.5% from its most recent peak.

However, a colleague of mine who’s been on the sidelines, and totally missed the upward march in the stock market, got really excited. His worry will be that markets don’t go down far enough for him to get completely in.

I’m not out of the markets because I believe timing it is a futile exercise but I moved more money to cash/bonds as valuations got higher. In fact, I stopped buying anything after Feb last year.

Key point now is: What would you do if the markets really present a buying opportunity?

For me, the plan would be something like this:

  1. Split the money you have to invest** into 10 portions.
  2. When the market goes down 10%, invest 1 portion into whatever’s on your watchlist. To keep things simple, I’ll assume it’s the STI ETF.***
  3. If it goes down another 10% (relative the peak), invest 2 portions.
  4. If it goes down another 10% (relative to the peak), invest 3 portions.
  5. If it goes down another 10% (relative to the peak), invest 4 portions. By this time, that sum of money you had will be fully invested.

You could swap the 10% down criteria for months. i.e. Wait 2-3 months instead of seeing whether it goes down 10%. Either way, I don’t think you’ll do very badly in the long run by following such a plan.

My main point is: You need a plan to get through a fall in the markets. Some people panic or they don’t have deep pockets and are forced to sell. This is the kind of opportunity for long-term investors to get in and have their money compound at 10% per year. If you get in when markets are expensive, it’s pretty likely you’ll end up compounding at a rate lower than the average rates.****

Plus, most bear markets don’t go down more than 50%. The times that it did, the run-up in valuations were much more extreme. Even the S&P 500’s CAPE ratio is half that of the dot-com bubble. This time, you don’t hear stories of the financial system being over-leveraged or major players being over-extended. For Singapore, you could even argue that markets were not richly valued by a long shot before Monday. Personally, my money is on a correction or a bear that is extremely short-lived.

Notes:

*My joke is that cryptos fell because some colleagues and I had to give a presentation to other colleagues. When you have civil servants interested in something, you know it’s time is up.

**This sum should be something you don’t have any urgent need for. You shouldn’t be using money that you need to use to pay the bills or something that you’ll need in the foreseeable future. If you struggle to pay the bills, you shouldn’t even be investing. Get your spending in order first.

***For most people, stock picking isn’t something they should be doing anyway.

****If average rates of return for the STI are 8% a year (which they have been), then buying at low valuations should help you compound above that rate (e.g. 10-12% p.a.) while buying at high valuations will cause you to compound at a rate much lower (e.g. 4-6% p.a.).

STI Close: 3,529.82
PE10: 14.38x

The run-up in the STI has really caused valuations to jump quite a bit. With the PE10 at 14.38x, the earnings yield is now below 7%. Furthermore, a spike in the 10-yr bond means that difference in yield between the PE10 and 10-yr Singapore Bond has fallen significantly below 5% for the first time since August 2015.

Given the pullback in US and EU markets on Friday, I suspect we’ll see a much weaker STI on Monday. Anyway, at this level, things aren’t looking attractive. I’ll consider loading up on more equities if the STI goes down to 3,200 or less.

Meanwhile, sit tight and hang on for the ride!

So, a day after I wrote a report about SPH’s business, the company releases its results for FY2017.

As expected, results are better than last year, all thanks to the divestment of the online classified business which netted them a gain of about $150 million. No one really cared much about that though because, as highlighted by SPH in their press release, their operating revenue was down about $108 million, or 13%, from a year ago.

The difficult thing for SPH now is the fallout from their retrenchment exercise. It’s bad press (pun totally intended!), especially for the new CEO that hasn’t come in with that great a reputation.

While SPH hasn’t slashed the dividend by much, their payout ratio looks terrible. Of course, that little ^ mark matters. Their payout ratio is calculated based on recurring earnings. What does that mean? Only earnings from media and property (and now possibly the education and healthcare) part of the business are counted? If so, that leaves quite a bit of earnings from the investment side and this payout ratio can be considered pretty conservative. After all, with an investment fund of $1.1 billion*, you can get more than pocket change (relative to SPH’s core businesses) in interest and returns. Anyhow, I don’t have enough information to make a conclusion.

 

sph_payoutratio2017

Are SPH’s dividends sustainable?

In short, I don’t think SPH’s results are anything out of the ordinary. Mr. Market apparently thinks the same way which is why there has been hardly any reaction to the release of the results. That’s it from me. This will probably be the last post in a long while on SPH unless something interesting develops.

*See their latest (FY2017) presentation slides, page 13.

 

Full disclosure: I own SPH stock.

Disclaimer: The report is meant to present a factual representation of the company’s business and is not a projection of how the stock will do. It is not meant to be an inducement to buy or sell the stock. As far as possible, I have tried to ensure that there are no errors. Any errors are my own. Please seek advice from an investment professional should you choose to use this information as part of your decision-making process on whether to invest in the stock or not.

 

So, I came across a report on SPH* that did a horrible valuation analysis on SPH. The main problem with the report is that they valued SPH on the basis that it was not a going concern, calculating it’s NAV and then taking a discount from there.

The report (more like blog post actually) also made simple factual errors like including Seletar Mall in SPH REIT…

So, I did my own analysis of SPH. You can download it for FREE. Leave me your comments and let me know how I can do better. (SPH (T39) report 10 Oct 17)

For those that don’t want to read through the entire thing, I’m listing some of the main points below.

Negatives:

  • The traditional media business is declining fast.
  • SPH is taking on more debt in order to fund other lines of business.
  • Other lines of business are not a sure bet.
  • New CEO not from industry nor has a good track record.

Positives:

  • Market’s current pricing of SPH seems to expect the worst.
  • Media arm’s decline seems to be bottoming.
  • Debt levels are still sustainable.

Neutral:

  • Management is trying its best to diversify away from the media business

 

*I’m not even going to link to it because it’s so bad and they are obviously trying to get you to buy something from them