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.


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