Cash to Stock Ratio

Markets seem to be stabilising.

I have been in stocks for quite some time. I always wonder how much cash (or bond) I should hold relative to stocks.

A few books like "Random Walk the Wall Street" may recommend 40% bonds to 60% stocks ratio or 50-50, and rebalance every year.

I believe that the 60-40 or 50-50 ratio should be for older people. When you are young, you have cashflows from income and should take higher risk. Hence, when I start investing in stocks, my cash to stock ratio was like 10% cash (including emergency cash) to 90% stock.

Bloggers, who have been in the market for sometime, advocate having a warchest i.e. cash on standby. Some prefer a large warchest, so that you can take advantage of stock crash. A few think otherwise; they prefer a smaller warchest, as having a large warchest means losing out on the potential dividends.

I am thinking that when you are young, your warchest should be small given that you have income flows from work. When you are older or retired, your warchest should gradually be larger, so as to soften the impact of stock portfolio losses from market crash.

Currently, I am 1/3 cash (excluding CPF) to 2/3 stocks. This is an unintended outcome, as I did not really follow any fix cash-stock allocation.

Further Drop, Further Purchase

I bought into Singapore banks today -- UOB and OCBC.

Interestingly, this is my first purchase of UOB. I have not bought UOB before. Both banks, I believe, are yielding at 4% which is sufficient yield for me.

I also added to Religare Health Trust. It fall another 7 cents after purchase. Hope that it can fall more, so that I can get to buy more.

Given the large drops over the past few days, I feel that a technical rebound should be seen soon.

Looking at the 2011 drop, it started in late Jul and end in late Sep. After that, it went sideways till the end of year.

The current drop starts in mid Jul. If the current drop mirrors 2011 (it most likely won't), it may start to stabilised around mid Sep and probably go sideways for a few months.

Looking around the forums and blogsphere, the forums seems to have more dread. But the blogsphere  (including myself) seems un-fearful.. This implies that we have not reached the point of maximum pessimism and further drops is in order, I guess.

Market Correction

Market is correcting. STI (Strait Time Index) fell 15% from 3500 in Apr to 2970 on 22 Aug. HSI (Hang Seng Index) fell 20% (harder) from 28,000 in May to 22,400 currently.

No surprises that I am more interested in HK-listed stocks, since HSI has fallen more. Over the past week, I bought some HK stocks e.g. HSCEI ETF (02828). Yes, I am losing money over my purchase in the past week. But it is ok to lose money in a market correction. It is more likely that I will gain in the medium term of 3 years. Hopefully.

Despite the correction, year-to-date (ytd), I am still eking out a minimal gain of 0.3%. YTD, STI fell by around 10% while HSI fell by 5%. I fare much worse than the indices in 2011 correction. Probably it is because I have diversified into more stocks. Or, I am lucky to avoid the worst hit Oil & Gas stocks this time.

I still have bullets to spare. Looking at my cash in bank and my stock portfolio, I am 1/3 cash and 2/3 stock. My cash could have been higher, if I have followed the temptation to cash in some CWT when it was at $2.36. (Now, CWT is at $1.98.)

My strategy is to add to a few of the existing stocks if they fell 10% from my last purchase price. Each addition is not large  -- probably 1% of my stock portfolio.  The existing stocks I am looking to add include HSCEI ETF, Valuetronics,

I am also planning to initiate new stocks (e.g. Singapore bank stocks) if they fell further. If the correction turns heavier into a crash, I will start looking at REITs which may offer high yields then. I recall that First Reit fell to 40 cents in 2009, offering 15% yield then. However, I don't think I will see any 15% reit this time.

I don't feel that this market correction will turn into a crash like 2009. It is more likely to be similar to 2011 correction, especially since the US and Europe economies are improving.

Nonetheless, I will never know when the market will bottom.

Never lose money?

Many roads lead to Rome. I don't believe in "Never lose money".

I don't do much downside assessment, I don't aim for minimum losses. Losses to me is ok.

For me:

If the probable profit is much higher than probable loss, I buy. Else I don't buy.

If probable loss is higher than probable profit, I sell.

An interesting stock

Valuetronics is $0.385 today, with EPS of 7c and PE of 5.5.

Its gone ex-div recently. Dividend was 3.5c. Its cash after excluding div paid out is around $0.20.

PE ex cash will be at 2.7.

To me, Valuetronics is more interesting than oil-related counters such as Keppel, Sembcorp, Penguin which are trading at higher PE.

And of course, I bought some today.

Do not fight the Trend

I used to think that I can invest in turnarounds. That is, buy stocks that are beaten down and wait for the eventual recovery.

Recently, I think otherwise.

I find that it is quite difficult for companies to turnaround, especially in a down cycle. And I do not know when the down cycle ceases or when the down cycle will turn into an up cycle.

For example, oil related stocks. I bought Sembcorp and Pacific Radiance in end 2014 and early this year, thinking that oil price should recover in 3Q-4Q 2015.

I subsequently sold Pacific Radiance in late Feb 2015, after reading analyst reports that the down cycle will last quite some time. This is because even if oil price recover to $60-$80 in end 2015, the oil major will still tighten their budget and lower their expenditure. If most oil major lower expenditure, the pie for oil supporting companies will shrink, lowering both revenues and profit.

I did not sold Sembcorp then, thinking that its other non-oil businesses should cushion the impact of falling oil price. I was wrong. Its non-oil businesses did not help to cushion the impact of falling oil price in its 1Q 2015 earnings. I sold Sembcorp in May 2015.

Pacific Radiance was $0.745 in late Feb 2015. Now it is $0.405
Sembcorp was $4.35 in May 2015. Now it is $3.57.

I learnt that I should not fight the trend.

It is probably better for me to buy when the down trend turns up. By then, the stock price may have recovered to a certain extent.

I will not catch the bottom, but I also will not buy too early.

JSH

The STI has been down for a few days.

Saw Jardine Strategic (JSH) dropped to $31. JSH, with earnings per share of $3, will be quite interesting if it drops to $30 -- at 10 times PER.