This post is made deliberately after STI had a significant spike after the first 90% effective vaccine was announced but it is not meant to suggest that I was right all along. If you are a patron of this blog, I have been writing about investment philosophy and perspectives much more than actual investment and trading tips. Essentially, the point I am trying to make is that we should all stick to the basics of investing and that is to find opportunities where there seems to be none. In today’s post, I will share with you how I spot these opportunities and the accompanying perspectives that I had to remain objective during the past months.
There are no sure win markets
All markets go through its own cycles but the only difference is the duration of each micro or macrocycle. This means that we can count on the fact that markets do not only move in a singular direction over time. That said, we can always use the example of the US miraculous rally after the 2009 Financial Crisis to argue that some cycles are “never-ending” even though it did crash in 2020 due to the COVID-19 pandemic. As for STI, the reason why it has received a ton of flak in recent years is that its performance relative to the US has been dismal and non-progressive. In fact, STI is arguably one of the worst-performing indexes for developed countries, that is why investors have turned their backs on the index and moved on to greener pastures. However, the migration of funds from STI has presented many opportunities for investors as the stock prices continue to tank due to trade-related uncertainty and travel bans. At the start of this year, I wrote a post on how I would invest in 2020 and I mentioned that I will take the opportunity to accumulate all quality blue chips which I feel are undervalued at the moment. This strategy has helped me build my portfolio rather successfully at a significant discount.
Understanding companies’ fundamentals and taking a long term view
Buy what you really understand, understanding price moments and volatility is only part of the skill required to be a trader and investor. During the past 6 months, technical analysis almost constantly failed to provide reliable information. however, we can still rely on the major support lines which are drawn on the monthly chart to have a sense of how oversold is that particular counter. That is what I relied on, in addition to the backers of that particular company. With both information, I can comfortably accumulate and make occasional trades since there was no “end date” to the pandemic during those times. Despite making frequent trade, I also constantly keep track of my holdings to ensure that I still have a significant stake in the company to prepare for the upturn.
Dinosaur companies can evolve over time
Throughout those months of extreme pessimism when talking about blue chips in STI, many people were referring to some STI constituents as dinosaur companies. Their comments suggest that those companies are still operating based on traditional business frameworks and are not able to evolve and adapt to the future economy. To that I say that there is some truth in the fact that larger companies in Singapore are prone to stagnation however, we must take into account incentives giving by industry leaders and governments that might trigger a significant change in these large businesses. In addition to that, large companies in Singapore are also known to acquire businesses in emerging markets to boost their reach and diversify their business. Taking all these factors into consideration, it will easier to spot companies that are undervalued and have the potential for growth.
Closing Thoughts
Investing in companies you believe in might sometimes be against the collective consensus of the investment community. However, there is no need to pay too much attention to subjective comments instead, try your best to stay objective and plan ahead to secure a decent amount of profits when the upturn comes.
