Why saving money now is the best policy?

Why is it very important to raise cash in 2012?

"Because in the next 12 to 18 months, we can have so much discounted value in equities, bonds... dislocation that could be the best 18 to 20 months in our lives." - Steen Jakobsen, chief economist at Saxo Bank (Tan Teng Boo has the same view, 19/8 post)

His strategy: Have 60 - 70% in cash now, and wait for S&P to break 1,000. Then, over the following 6 to 12 months, invest 5% to 10% every month, once a month.

So what does that mean for now? Yes, go out there and raise lots of of cash, because the best investment opportunities are coming soon.

Reading Company Prospectus

 When reading a company's prospectus, read  

1. Chairman's statement

2. Review of operating and financial performance

3. Board of directors + senior management 

4. And of course...

     Balance Sheet/ Profit and Loss Statement

Profitability Ratio
Gross Profit Margin	Gross Profit/ Revenue
Net Profit Margin	Net Profit/ Revenue
Return on Equity	Net Profit/ Equity
Return on Asset	Net Profit/ Total Asset
Liquidity Ratio
Current Ratio	Current Assets/ Current Liabilities
Quick Ratio	(Cash+ Short Term Investments + Accounts Receivables) / Current Liabilities
Cash Ratio	Cash + Short Term Investments/ Current Liabilities
Solvency Ratio
Debt to Equity Ratio	Total  Debt/ Total Equity
Interest Coverage Ratio	EBIT/ Interest Expense
Solvency Ratio	Net Profit/ Total Debt

Cash Flow Statement

Cash flow from
Operating Activity	Is profit converted to cash?
Investing Activity	Is company too aggressive in investment?
Financing Activity	Is company borrowing to finance investments?

I am back to profitable for the year

After a harrowing past few months, where my portfolio was decimated by more than 50%, I am back to slightly profitable for the year. I intend to continue to hold out for the unfolding year end rally. Seems like these days, I have to short the market in order to maximise the opportunities out there.

New Year's Rally?

I think there will be one this year. Look at the chart below:

In a trendless market like now, RSI is a very good indicator of when to buy/sell. Coupled with news of integrated efforts of both China banks and EU to prop up the economy, the rally, is half way through by now.  
Going forward, my stance is to sell on rally, and buy on dips.


My portfolio now:

China Shares
	Bought (HK$)
Anhui Conch	24.80
ICBC	4.22
Yanzhou	19.50
Singapore Shares	(S$)
Noble	1.15
NOL	1.80
Sembcorp Ind	4.80

Can we buy stocks now?

For sure, if we were long-term investors, we would love to hold stocks for a very long time, since most of the time, stocks of good companies move in cycles, and tend to rebound after a fall. Kim Eng, in its "Recovery Portfolio" report has compiled a list of local blue chips (personally, I am looking at some of these counters) to buy once that inevitable fall in the stock market arrives.


Recommended Entry Price
Capitaland $1.97-$2.30
DBS $7.70-$10.20
Genting $1.00
Keppel Corp $5.60-$6.39
Noble $0.50-$1.25
SembMar $3.00-3.50
SIA $9.50
SGX $4.00-$5.85
Venture $4.42-$5.25

Since then, Noble has already dipped into the buying zone (Noble CEO Elman has bought 10m shares @1.19 today). However, I am still not buying yet, since I think market is still "rich", and is priming for a fall once this "fake rally" is over.

Inside the mind of a value hunter

Marc Lansounneur is regional head of investment at Soc Gen. In 2008, sensing an opporunity, he bought wines at bargain basement prices. He is now making gains many times over on these investments. Of late, he sees similar opportunities in stocks.
In fact, he reveals he has been buying more equities this year, given the recent global stock market slumpsince late July. He rated this opportunity as comparable to the 2008 opportunity in Bordeaux wines.

Why is he bullish? Equities present good yields, and valuations are extremely attractive, this despite the run-up in the past few weeks.

What is he bullish on? Asian, Chinese and US equities. He also sees bargain opportunities in gold if it falls to between $1500 and $1550.

Like to follow the rich? Then, this is not the time to be selling stocks. But buy them carefully and slowly.

Have stocks made a bottom?

Bullish case
Nikko's Asia chief investment officer Ng Soo Nam is positioning his regional equity fund for an upturn. This is because US economy will avoid a recession this year and continue to grow, albeit sluggishly. Also, European policymakers are likely to find a mid-term solution for the sovereign debt crisis. Once this happens, investor sentiment will improve, and battered Asian equities will rebound in a big way, and on the back of the region's robust economic growth and healthy corporate earnings. Three to five years from now, investors of Asian stocks will end up doing very well, he predicts. Who is Ng Soo Nam? He earned his reputation as one of Singapore's more talented fund managers after steering Schroeder Singapore Trust to become one of the best performing funds in th 1990s. He went on to cement his reputation following impressive stints with Mirae, and now Nikko.

Well-known American technical analyst Dan Wantrodski has turned decisively bullish. He noted the S&P500 forming a positive outside month on the monthly bar chart in Oct, and this indicated a significant reversal. A move above 1260 by end Oct would complete the formation (achieved on 27 Oct, but market has fallen back since). Such a break indicated a target of 1,370. Based on his research, the stock market is likely to do better for weeks, if not months.

Renowned local technician, Daryl Guppy also pointed to a plausible trend change in the Shanghai Stock Market. He outlined 3 reasons. The first was a close above the short-term downtrend line at 2380. The second is a move above 2452, which is the peak of the rebound betwen the valley lows that form a double bottom. The last is when the resistance of long-term GMMA turn support. This is likely taking place now.

Bearish case
PM Lee has warned that this financial crisis will be worse than 2008. Compared to the US financial crisis in 2008, this time, economies around the world are slowing at the same time. Then, Latin America and Asia were growing, so that helped the world economy. That is no longer the case.

Mark Hulbert, asserted that according to sentiment indicators, the rally we have seen in the past weeks is merely a bear market rally, not a new bull. This is because more scepticism is missing among investors and advisers.

Michael Lombardi also noted that in the long-term, the economy has severe structural problems. The Fed has kept the economy alive the past two to three years by aggressively increasing the money supply. This can’t go on forever.
At some point, the stock market will fall victim to higher interest rates brought about by rapid inflation and Phase III of the bear market will suddenly be upon us. For now, however, we are still in the throes of a bear market rally.

My own opinion
I view the S&P close above its 200 day EMA as a bullish sign. I believe in the days ahead, other stock indices will also move higher. However, I belong to the view that the Fed can't print money foever, and at some point, the stock market will fall victim to higher interest rates brought about by rapid inflation. Therefore, i am short-term bullish but long-term bearish on the stock market. Thus, I will be using the ongoing rise in the markets to get out of all my long positions. After that, I will be taking short positions in the markets.