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COVID-19, ComfortDelgro and the new normal.

Monday, June 1, 2020

This blog is my reply to a reader's question on ComfortDelgro.

My reply:

All types of public transportation businesses are under immense pressure from the crisis created by the COVID-19 pandemic.

The worst hit sub sector is, of course, the airlines as they are heavily leveraged and have enormous CAPEX and OPEX.

The airlines can also be considered less essential compared to land transport businesses.

So, I am reasonably comfortable with holding on to my investment in ComfortDelgro which isn't bleeding as compared to an airline like SIA, for example.

After all, ComfortDelgro is operating essential public transportation businesses and, of course, also VICOM.

Having said this, until a safe and effective vaccine for COVID-19 becomes widely available, we will not see such businesses recovering to pre COVID-19 levels anytime soon as people should be avoiding crowded places as much as possible.






It follows that although ComfortDelgro remains in my portfolio as an investment for income, realistically, I should be prepared for a reduction in income generated from this investment.

If we add to our investment in ComfortDelgro as an investor for income, we have to keep this high probability possibility in mind.

As for whether the current price is a reasonable one to invest in ComfortDelgro, as you probably know, I have avoided answering such questions for a long time now.

What I would say is that, as investors, whether we think a stock price is reasonable or not should logically be guided by what we can reasonably ascertain in terms of its earnings visibility.

For investors for income, the willingness of a business to distribute a part of its earnings to its shareholders is also a pertinent consideration.

See this blog on my past assumptions which led to me investing in ComfortDelgro, for example:

An incomplete analysis of ComfortDelgro.






At the start of the COVID-19 crisis, I expected things to progress very much like it did during the SARS (i.e. Severe Acute Respiratory Syndrome) crisis in 2003 but, as things turned out, it didn't.

The situation we are in now is surely much worse than the SARS crisis ever was.

Just look at the billions of dollars our government has dished out to rescue workers and businesses so far.

In comparison, the SARS crisis was significantly less costly a crisis.

The crisis caused by the COVID-19 pandemic is global and it also simply refuses to go away.





I don't know how long it will take before we see things going back to the old normal.

Honestly, I doubt that anyone really has the answer except for Donald Trump.

However, it is reasonable to assume that the longer we have to wait for a safe and effective vaccine to become widely available, the longer the new normal we have now will stay.

The longer the new normal stays, the more it becomes entrenched.

Working from home and less going out for any reason will surely reduce the need for public transportation in all forms.

The Singapore government has even said that anyone who can work from home should continue to work from home even after Circuit Breaker restrictions are lifted.

That is ominous.






I am much more cautious during this crisis compared to the Global Financial Crisis (GFC) because the damage to many businesses is surely more devastating and the deleterious effects could be long lasting this time.

Since I am less sanguine about ComfortDelgro's earnings now than I was just a few months before, I might add to my investment only when its stock trades at its NAV or a discount to its NAV because that provides me with a greater margin of safety.

This is a real possibility and would mean we could see ComfortDelgro's stock price at a lower low than what was formed on 23 March 2020.





Looking at the charts, the weakness in ComfortDelgro's stock price is stark.

The 50 days moving average is still declining.

The MACD, a momentum oscillator, is still in negative territory and has just formed a bearish crossover.

The downtrend is very much intact and there is no sign of a trend reversal.

Of course, like I always say, technical analysis (TA) is about probability and not certainty.

Have a plan, your own plan.

In the meantime, do the responsible thing and help to keep everyone safe.

We are #SGUnited.





Related posts:
1. Investing in ComfortDelgro and locking in gains.
2. Buffett thinks it is going to get worse.

20 comments:

Elaine said...

Hi AK

Thank you so much for sharing your thoughts and insights.

Indeed, for the govt to dish out $100 billion in such a period of time is very telling. I get more worried each time a new package is released.

"The Singapore government has even said that anyone who can work from home should continue to work from home even after Circuit Breaker restrictions are lifted.
That is ominous"
-- I am very puzzled why retail reits, commercial reits etc are soaring higher. Similar to ComfortDelgro, they are reliant on the opening of the economy. Maybe many of the investors are optimistic about the reopening, however if that is the case, shouldn't they be chasing after ComfortDelgro too?

AK71 said...

Hi Elaine,

I remind myself from time to time that I shouldn't try to explain other people's behaviour.

As Warren Buffett famously said, a rising tide lifts all boats.

Of course, he also said that when the tide goes out, those who were swimming naked will be caught.

To swim naked, one must not be shy.

AK is very shy. ;p

Unknown said...

AK!

HHAHAHAHAHAH, i super like that sentence "nobody knows the answer except Donald trump" Ahhahahahah, Burnt...

I also cannot breath... sigh

Sillyinvestor

AK71 said...

Hi Mike,

Good to read a comment from you, as usual.

Hope all is well with you. :)

It is very unfortunate that the USA has to deal with violent protests in cities across the country as they are just emerging from the lockdown.

Having said this, I have always found it ironic that the American leadership should be so critical of countries like China when racial inequality is so entrenched in their own country.

November 2020 is going to be an important month not just for the USA but also for the entire world.

PassPACES Medical said...

Hi, I am Goh HK, I have given up investing in an individual stock and instead investing in an index fund ( ETFs) because I find it gives me less headache. I am sleeping better because I do not bother anymore about any company news and price fluctuation.
What do you think AK?

Unknown said...

Sometimes we do out think and out do the market. In fact if u were to ask someone why he have to wear mask? He would said that he scare he got fine, I try asking a few and only one said he dont want to get virus. LOL. And got even my domestic servant said that, Sir, wait kana fine 300$.LOL. And one of my client over the phone even told me, it is easier to get fine then get virus. People are really sick of the circuit breaker. I think if u lift them totally, tomorrow all mall and eartery will have long queeue. Just look at the American,, all rush for the beach at Florida, forgotten there is virus still on going. Even stock market soar as if there are no virus, Well. we follow market, I do not expect market to follow me, So profit from them till they got infected by virus and wake up then we sell to them and run road. LOL

victor

AK71 said...

Hi Goh HK,

ETFs are valid options for investors.

Of course, there are many ETFs available too.

Peace of mind is priceless.

So, do whatever works for us.

Reference:
OCBC Blue Chip Investment Plan.

AK71 said...

Hi Victor,

We should all have a plan, our own plan.

It is good that you seem to have one. :)

JH said...

"nobody knows the answer except Donald trump"

We will know in Nov :)

AK71 said...

Hi JH,

I don't usually care about the race to the White House.

I care this time because I feel so strongly that Donald Trump as President is not just embarrassing the USA, he is also damaging the world in more ways than one.

AK71 said...

"Moody’s Analytics Chief Economist Mark Zandi says investors are too optimistic about a quick economic rebound from the coronavirus pandemic.

"He explains what policymakers should do to boost the recovery and discusses longer-term changes in the economy."

Watch the video:
Why A V-Shaped Recovery Is Unlikely: Mark Zandi.

AK71 said...

"Megan Greene, Harvard Kennedy School, discusses the impact lingering fears over the coronavirus could have on consumer spending."

Watch the video:
The economics of Covid-19 fear.

jo said...

Hi AK71

Any thoughts on singtel? seems to be beaten down too much but yet would likely stay relevant to us with regards to 5G and IOT. Also, its cash reserves still quite solid.

AK71 said...

Hi jo,

I am concerned that the challenging environment might be persistent which means dividends might not recover anytime soon.

As investments for income, I have been looking elsewhere instead of SingTel (or ComfortDelgro).

References:
1. Buying DBS, OCBC, UOB and cheering for IREIT Global.
2. AIMS APAC REIT investment is larger now.

csky said...

I find it shocking how the bull is still raging in the stock market. Seems like a tremendous test of patience for value investors in Warren Buffet's camp. So tempted to just give up and follow the tide pushed up by QE, least the tide never goes down. :(

AK71 said...

Hi csky,

Oh, I am very sure that there are many people who have joined the FOMO (fear of missing out) camp. ;)

There is plenty of optimism that we are going back to the pre-COVID 19 days with countries emerging from lockdowns.

We should ask if countries are emerging from lockdowns into the old normal or a new normal?

I say we should stay pragmatic and not be overly optimistic nor overly pessimistic.

So, I have stayed invested and have added to some of my investments in the last few weeks.

Since I am still substantially invested, I am quite happy to have the FOMO camp push stock prices higher but I am not joining the camp. :)

Unknown said...

Stock keep going up with negative news bombarded... Roit.
, unemployment, bankruptcy, virus cases not coming down, negative gdp...

U said before... If market keep going up even with bad news... This mean the worse is behind us... So can deploy warchest already... Lol

AK71 said...

Hi Unknown,

You said:

"U said before... If market keep going up even with bad news... This mean the worse is behind us... So can deploy warchest already... Lol"

I didn't say that.

These were my exact words:

"OK, this might not be perfect but if you have absolutely "no time" to learn TA, just take note of the news and stock prices.

"If stock prices stop declining and simply move sideways even as we are bombarded with bad news, possibly, the worst is behind us.

"Indeed, if stock prices keep moving higher even as we are bombarded with bad news, prices might have truly bottomed.

"TA is about probability and not certainty, I always say."


You left out important modifiers in my statement. ;)

Without actual TA, this observation provides an incomplete picture.

For example, stock prices which are moving sideways but are still trading under a declining moving average, they could continue to decline after some time.

So, if you want to take a chance, please remember that you are taking a chance.

What I said before was that TA is about probability and not certainty.

In the blog, I also said:

"Without looking at charts and just taking note of news and stock prices will make it even more so."

Reference:
COVID-19 defeated by Mr. Market in 2021.

Nobody said...

Hi AK,

With the market and share price going up, could you share any other stocks that we could consider buying? Have you bought any shares recently besides banks and AIM? Thanks

AK71 said...

Hi Nobody,

Don't ask me what my plan is.

Have a plan, your own plan. ;)

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