Sell into the rally and stay invested.

A reader left me a comment recently:

"Many AK shares like CDG and APTT have gone up. I hope AK didn't dispose them."

Why would I sell them before?

I like being paid while I wait.

This is something I have said many times before.

Therefore, regular readers would find this quite familiar.






We buy undervalued income producing assets, receive dividends while waiting for Mr. Market to turn realistic.

We could even buy good income producing assets at fairer values, receive dividends while waiting for Mr. Market to turn optimistic.

When Mr. Market is greedy, the wait is over.






Having said this, regular readers would also be familiar with the phrase "trading around a core position".

Although I will sometimes sell into a market rally to lock in some gains, I always stay invested for income, retaining a core position.

I am an income investor at heart and more so now as a retiree but there is also no accounting for Mr. Market's moods which means staying invested is probably sensible.






Despite the fact that there are negative divergences aplenty, the bull might have legs and market euphoria could last longer.

Some readers who attended "Evening with AK and friends" might remember the way I explained what a negative divergence was.

An example is as the share price goes higher, trading volume dwindles.

Volume is the fuel that drives rallies.

If volume dwindles, the rally could be ending.






There are potential double tops as well.

We see this when the share price, having retreated from a high, tries to go higher but fails.

As prices retest recent highs, we want to see higher highs forming on the momentum oscillators such as the MACD.

If we see lower highs in such instances, we have a negative divergence.





Mr. Market's euphoria could be sputtering.

I have trimmed my investment portfolio by some 25% to 30% since my last blog post.

So, as you can see, it is not an overly big reduction.

I have sold into the rally but I am staying invested.






The rally is also a good opportunity to sell stocks which are more speculative like APTT.

APTT was really too cheap to ignore and regular readers know I was gobbling as its unit price plunged.

At one stage, it went under 13c a unit and, of course, I bought more.

The market rally has allowed me to book a gain on my investment in APTT which, I won't deny, is a pretty speculative position, whichever way we cut it.






A couple of stocks which received greater attention were SingTel and Wilmar, which I bought more of as their share prices plunged in the last one year or more.

Like APTT, they have paid me dividends while I waited.

I decided to reduce my positions in SingTel and Wilmar heavily because, to me, their charts show obvious negative divergences.

Could we see $3.00 to $3.10 a share for SingTel and Wilmar again in the next few months?

It is a rhetorical question, of course.






Certainly, we cannot predict but we can prepare.

There is no better way to be prepared than to have a full war chest.

AK's war chest says:

"Burp. Pardon me."

So, what do I do now?

I go back to being paid while waiting (and playing Neverwinter).

I am just talking to myself, of course.




Related posts:
1. Wilmar.
2. SingTel and CDG.
3. 2018 passive income and APTT.
4. Make investing easy with 3 things.

Recently published:
Ascendas Hospitality Trust.

Ascendas Hospitality Trust's investors getting a bad deal?

As a backgrounder, if you have not done so, you might want to read this blog:

Ascott Residence Trust and Ascendas Hospitality Trust to become one.

It was published on Wednesday, July 3rd, 2019.

The blog here is in reply to a reader's comment that it is a bad deal for AHT investors.




AK says...

While not fantastic, really, it isn't that bad a deal for AHT investors.

For every AHT unit, we will get almost 0.8 unit in the combined entity.

Priced at $1.30 per unit, the deal values AHT at almost $1.04 a unit.

AHT was trading at way below its NAV (of about $1.01) for too long.

See:
AHT Stock Fundamentals.




Also, priced at about $1.04 a unit, the yield of AHT would be about 5.76%.

At $1.30 a unit, the combined entity will provide us with a distribution yield of about 5.5% which is pretty close to this 5.76%.

After taking into consideration the cash payment of 5+ cents per unit which AHT investors will get (and this is close to one year's worth of income distribution), I believe that this is a fair deal.




We should not compare AHT with the new combined entity by looking at yield numbers only.

We might see the tree but not the forest.

I am willing to accept a slightly lower distribution yield from what I think should be a stronger and more resilient business entity.

The new business entity will also have a much lower level of concentration risk which was a negative about AHT.




Of course, if we are pretty sure we are able to secure a much higher yield in a similar investment with a similar risk profile elsewhere, we should move our money to where it will be treated better.

Or if we wish to lock in the capital gains, there is nothing wrong with taking profit by selling our units to Mr. Market either.

As I do not have an alternative investment in mind, I am quite happy to stay put. :)




Recently published:
2Q 2019 passive income.