Where did I go wrong? A letter from a reader.

Hi AK,

This is JB here. I hope I am not too much to ask for your guidance and pointers. In terms of TA and FA , I am far from you and hope you can 'unknot' some of the questions I have in my mind for the last few years.
 

A little background of my stock investment journey.

 

 

I started off as an ignorant stock investor or so call punters in 2006 with some motivation from a friend that Mr market  is like Fortune God who gave out money every other days. In hindsight , it was the crazy euphoric market then. Subsequently, I attended a course that taught us about trend is your friend and when stock break resistance is a good sign. Buy high, sell higher. And when market drop, must cut loss. Again, I only cut after the stock has plunged like 50%. :(

 

 

Of course, this whole episode ended sadly with losses that pain me till today.

But I am not a gambler, I know I have to learn so i went back to books to learn. After reading numerous books, and looking at charts, I realised there were so much to learn about Mr Market than just the 2 day course. The course is just a tip of the ice berg. (felt so cheated)

Nevertheless, I learnt about FA and TA. First to use FA to choose the company to invest , then use TA to enter. That started part 2 of my stock investment journey in 2009. Looking back, I guess most stocks you buy then can make money if hold till today.

 

 

But sometime in nov2010, instead of diversifying into a few blue stocks, I thought if I can do some due diligence in FA, I can channel all funds and buy a good stock that is cheaper and hold. After some research then, I found this company China Taisan.

 

 

FA China Taisan in Nov 2010:

1) Continuous growth for the last 3years. with QoQ 10-25%. EPS also grow. P/E4 or less ,  dividend 2%

2) Textile industry start to rebound with asian games in guangzhou in the pipeline

3) Just had TDR listings , alot of cash

4) Managment buy in and company share buy back.

5) broker AM fraser indicated TP25cents

6) Singapore adviser to management- DR Felix Ong (who was the boss of Enporis )

 

 

I bought alot at 0.195 and continue to average down to 0.17 till the scandal for China Gaoxian happened. It affected the general sentiments.

Attended AGM meeting in April2011. They assured us company will be profitable for the year amid unforseen circumstances.

 

But the share got shot down further until i got to admit defeat that perhaps I have spotted the wrong one. Hence, I sold off at 0.10. I have loss money and my confidence too.

 

 

Even until today, given the same circumstances, I always ask myself what would  I do differently? Or are there some areas I need to improve myself.

 

From the checklists that I have mentioned above, Ak, are you able to help me identify where I go wrong?

 

 

Your insights are greatly appreciated.

Thank you.

Await your reply.

Warm regards,

JB

The next blog post will be my reply to JB: read it here.

Be cautious while climbing the S-REIT tree.

In the last few years, I have stayed positive on S-REITs and reaped the benefits. In a blog post just a few months ago, I said that I was no longer as positive about S-REITs but I had not turned negative on them either. 

Instead, I was quite simply cautious about S-REITs as investments for income. See: Never lose money in real estate or REITs?

To recapt, at that time, AIMS AMP Capital Industrial REIT was trading at $1.46 a unit and Sabana REIT was trading at $1.12 a unit. Fundamentally, if nothing has changed in the businesses of these REITs from then to now, if I was cautious then, I would still be cautious now. 

This is why I have not added to my long positions even as prices retreated from the highs of $1.88 for AIMS AMP Capital Industrial REIT and $1.385 for Sabana REIT.

I am still invested in the REITs because I would be hard pressed to find alternative investments that would give me the returns that they do. This reflects my thinking that in the shorter run, these REITs are still good investments for income.

However, there is no doubt in my mind that, just as the REITs enjoyed the good fortune of the real estate sector in recent years, they will also suffer the downturn that is sure to come. So, to add to my already sizeable investments in these REITs is not a good idea.

I revealed in my year end report for 2012 that I had started moving resources away from REITs into what I felt are undervalued stocks. I think regular readers know which few stocks I have been blogging about. 

Moving house is never fun and the transition I am making is also not fun because it means giving up on something that is more immediately satisfying (i.e. certain distribution income) for something that is less so (i.e. possible capital gains).

Nonetheless, this has been my plan for many months now and I am staying the course. While I do this, the dependable and regular income from S-REITs is a constant source of comfort. This income, however, cannot be relied upon indefinitely as the still benign conditions are showing signs of change.

Having said this, in the last few trading sessions, as the unit prices of S-REITs declined rapidly and in large magnitudes, short sellers had a ball of a time. Shorts will have to be covered and the decline in unit prices will come to a halt and rebounds are to be expected. 

So, it could provide trading opportunities for long only investors.

In all that we do, stay pragmatic and do not be overly optimistic or pessimistic. We want to continue loving something only if it is still worth the loving and keep in mind that money should go to where it is treated best.

With the spectre of rising interest rates as the U.S. housing market and economy recover, we should naturally be concerned about interest rates in Singapore because we know what higher interest rates will mean for REITs. 

So, even as we stay invested in S-REITs, think about how we should not throw caution to the winds.

S-REITs are no longer the low hanging fruits they once were and if we are not careful, we could end up with some pretty expensive buys and the recent price declines probably caught quite a few unwary investors. 

To expand on the analogy of low hanging fruits, we do not want to be stuck high up in a tree with no way of coming down.

Related posts:
1. Is this the start of a bear market? What to do?
2. 2012 full year passive income from S-REITs.
3. Do not love unless it is worth the loving.

Barclays tips accumulating S-REITs on dips
Friday, 31 May 2013

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