Singaporeans opt for pricey homes, says report

Overseas S’poreans should look at home growth post—crisis & return

CHICAGO: Prime Minister Lee Hsien Loong hopes that Singaporeans based overseas will realise the country’s developments and economic growth particularly after the financial crisis and return home soon.

He was speaking to some 150 Singaporeans who are studying and working in Chicago. Mr Lee was wrapping up his trip to the US, where he had also visited Washington DC.

Mr Lee told Singaporeans in Chicago that Singapore is on a stable platform to transform itself, illustrating that with a slideshow of the country’s latest additions such as Ion Orchard and The Pinnacle@Duxton.

“…..A snapshot of what Singapore is, some of the ’happening’ things which have been going on (which hopefully) give you a feel of what Singapore is like and some nostalgia, homesickness so that you’ll come back and visit (soon),” said Mr Lee.

“I think a lot of the (Singapore) story also has to do with the Singaporeans who are overseas who are studying, working, (they are) part of our community, part of our family. So (do) keep in touch with home, keep in touch with each other,” he added.

Mr Lee later mingled with the crowd of Singaporeans and they were glad they had a rare chance to talk to the Prime Minister.

In fact, some said Mr Lee gave them a sense of optimism about Singapore’s future, while others felt that the Prime Minister could come up with more programmes to help Singaporeans based overseas to better integrate when they return home.

Ricky Tay, a manager of Audit and Enterprise Risk Services at Deloitte and Touche, has been in Chicago for six years. He said, “The Prime Minister has painted a very positive picture and the upside for Singapore is tremendous. I think a lot of students and professionals living overseas will consider returning to Singapore to look for opportunities.”

Chong Siew Gan, a consultant who has been living in Chicago for 10 years, said, “For older Singaporeans who have families here, I think we want more than just a professional job, buildings, shopping and F1 (racing). We need to grow and to have a better quality of life.”

Hatim Thaker, a student, said, “I’m getting a very different perspective here in the US and not being trained in Singapore like everybody else. It gives me a very unique angle, through which I can contribute and participate, as the Prime Minister said, (in) Singapore activities.”

Aktar Thaker, a property investor, said, “It’s quite obvious to me that he (PM Lee) is trying his best to ask fellow Singaporeans to return home and contribute to the country, which is the right thing for him to do but as individuals, it’s also important for us to do the right thing for ourselves.”

Prime Minister Lee also met the president of the University of Chicago, Robert Zimmer, before leaving Chicago after a two—day visit.

Government releases four residential sites in one go

The government has released four more residential sites for sale, which can accommodate more than 1,200 private home units.

The Urban Redevelopment Authority (URA) said yesterday that the potential land supply from the government’s land sales programme, as well as the supply from projects in the pipeline will be “more than sufficient to meet the demand for private housing”.

“The government will continue to monitor the property market closely,” it said. “If necessary, more supply can be injected via the second half 2010 government land sales programme to ensure that property prices are in line with economic fundamentals.”

Private home prices increased 7.4 percent in Q4 2009, following the 15.8 percent growth in the third quarter. Prices of private residential properties for the whole of 2009 rose by 1.8 percent.

Many analysts have said that the URA price index, which will be released in April, will likely show an increase in the Q1 2010 result, as more higher-value projects were sold in the current quarter of the year.

URA said that it is releasing three residential sites for sale located in Simei Street 3, Stirling Road and Boon Lay Way. URA last released three land sites for sale at one go in January 2000.

In addition to this, the Housing & Development Board (HDB) also plans to put a residential site in Tampines Road up for sale in the next two weeks. HDB is releasing the site as it was triggered by a bid from unknown developer.

Analysts said that the government’s “very rare” move of releasing four sites simultaneously was designed to emphasize its often-repeated point that the supply of land and homes in the country is more than enough to meet the demands.

The upcoming releases from the four land sites could also help reduce prices of private homes.

Colin Tan, research and consultancy director of Chesterton Suntec International, said that HDB and URA are coordinating their efforts and pushing out development sites quickly.

“This should stem the overly aggressive bids we have seen in recent weeks and also stem future price escalations from the supply side. Because if developers pay too much for their sites, their initial selling prices may be higher to recover the land cost,” said Mr. Tan.

URA’s three land sites can accommodate up to 1,180 private home units. The sites are “well-distributed across the island, namely in the west, east and central regions, to provide developers and home-buyers with more choice,” the agency said.

Two of the three land sites released by the URA yesterday, the one in Simei Street 3 and Boon Lay, were being offered through a confirmed list. The third site at Stirling Road was put into a reserved list, meaning it has to be triggered for sale before it will be launched.

Chua Chor Hoon, head of DTZ’s South-east Asia research team, said that the two sites on the confirmed list were both attractive. She estimates that the site in Boon Lay Way could fetch a price of $330-$390 psf of potential gross floor area, while the site at Simei could go for about $360-$410 psf of potential gross floor area.

HDB’s Tampines site could also receive strong interest. The land parcel will be put up for tender after a developer bid at least $6.5 million.

Updates from URA shows that the government has already sold four residential sites since January this year. These sites can potentially accommodate a total of 1,710 housing units.

Two more private residential sites – one in Upper Serangoon Road and another in Sembawang Road – will be put on sale next month through the confirmed list.

Mass market private homes established a positive start to the recovery of the property market last year, which was spurred by stable demand and priced-to-sell projects in the early part of the year.

Home buyers, dominated by HDB upgraders, were responsible for the overcrowding in showflats during that period. The increasing numbers of units appearing on the market and the large number of crowds gathering at property launches stunned most market watchers.

The strong sales of new mass market homes saw the prices of new launches slowly climbing up over the past few months. The transacted prices of new homes increased to between $750 per square foot (psf) and $1,000 psf in November from between $500psf and $700 psf in July 2009.

The number of mass market transactions exceeding the $1,000 psf mark also increased, with 392 transactions last year, compared to 75 in 2008. The highest price recorded for mass market homes were for units in Centro Residences in Ang Mo Kio, at $1,289 psf.

Although mass market private home prices have increased, a large number of developments are also offering a new mixture of products to keep the prices at an affordable level.

The demand for smaller units such as studio type, one room plus study, two bedroom, and two room plus study, within the central area appears to have brought down the mass market sector.

Unlike the mid-tier and high-end segment, mass market homes are typically larger in sizes as buyers frequently purchase them for their own occupancy rather than for investment. Thus, only 10 to 20 percent of units in the mass market development have smaller sizes.

However, more mass market projects are now offering smaller units. For example, 43 percent of Hundred Trees and 59 percent of Optima @ Tanah Merah are allocated to smaller type units. Buyers seem to have had a good response, and good take-up rates have been seen in both projects.

And as the Singapore government transforms the country into an attractive satellite island, more investors are now starting to invest in mass market private homes in the region.

For instance, the renovation of the Jurong Lake District contributed to the increase of property transactions in the western part of the country. The expansion of Bedok Town Centre, the rejuvenation of Changi Business Park and Tampines Regional Centre, and the building of the fourth university also increased the developments in the eastern suburbs such as The Gale, Optima @ Tanah Merah, Livia, Oasis @ Elias, Ferraria Park Condominium and Waterfront Waves.
 
As more and more places undergo rejuvenation and expansion, mass market homes will become more attractive in the near future.

Increased buying spurred sales of developers in July 2009 to an amazing 2,772 units. The figure is more than three times the monthly average sales of 700 to 900 units for the last 10 years.

If the monthly average of more than 1,400 units sold did not make policymakers sit up, the robust sales certainly caught the attention of everyone.

A few attributed the result to pent-up demand, while the government believed it was due to speculations. In September, it announced measures to “temper the exuberance in the market and pre-empt any speculative bubble from forming.”

Developers were disappointed, assuming the measures were a death knell for the fragile private housing market. As the measures were not aimed at investors, instead for pure speculative plays, the effect was more psychological than real.

It is hard to tell if the measures had really worked. Sales in the succeeding months fell, but they would have fallen anyway, with or without the measures.

Many have forecasted even fewer sales with the coming year-end holiday period. However, November’s figures showed a solid 600 units sold. Considering it was a ’slow’ month, sales received good response despite rising prices.

The actual price increase in Q4 2009 will probably exceed the 7.3 percent estimate last month.

There is no reason why buying will not continue, as it is not the speculators who are buying but the investors, rendering the cooling measures of little impact.

Chinese investors in particular are leading the charge. Many have benefited from the real estate boom in China, and their funds are now flowing into Hong Kong and spilling over to Singapore.

Buying will likely continue unless there are other channels for this massive liquidity. Buying will only falter when authorities start to step in to limit the risks arising from the increased exposure of the banking sector in the property sector.

There are only two possible scenarios for this year: sharp correction or continued healthy growth

In some recent editorial I have referred to methodology and making sure whatever system you use is well founded and has been successfully tested. I would like to elaborate a little more on this.

Firstly let’s look at methodology. Basically these fall into four categories. The first is Fundamental and even though I don’t personally use this approach nevertheless it is used by the vast majority of investors - retail and institutional.

The next three are technical. The first are what I would call trend following indicators; the second range trading indicators and the third are what I would call pattern recognition such as Elliott Wave and Gann.

I personally use Elliott and have so for the last 15 years. Perhaps conservative at times but it does not lose you money in my view. If you are going to use technical’s then it is important to have at least a basic understanding of each of the three so you can make an informed decision. No approach is the Holy Grail. Yet I see many would-be successful investors waste effort searching for the easy route to riches. It does not exist. It is like the ‘Long March’ it is one step at a time. But with experience under your belt there are short cuts.

The reason I mention this is that I also see many study one approach, try it and give up as it does not bring the instant riches. And they then spend a fortune studying the next system.

But I also see others who are too mite minded to properly invest in education.

I will also say here that it does not matter which system you use as long as you use it with an applied approach and with discipline. They all work. I would say you could choose any approach and apply it in this way and you will succeed.

The other key point is that you must apply it in a measured way. That is, you try your new found knowledge steadily. Many investors jump in head first after a training seminar. You apply your learning in small easy comfortable steps at first using a small trading kitty.

The sleep test is important here but to mix my metaphors - you must at some point fully immerse yourself after putting your toe in the water.

It reminds me of that old adage ’slowly slowly catchee monkey’.

WOULD YOU BE interested to invest in a company which has never suffered a loss in its twenty two years of operation, and in fact, has registered a compound annual growth rate (CAGR) of 20% for its revenue from 2002 to 2008?

Techcomp Holdings (www.techcomp.com.hk) is one such company. It was listed on SGX Main Board in 2004.

Techcomp is a manufacturer and distributor of highly advanced scientific instruments, analytical instruments, life science equipment and laboratory instruments. These are used in laboratories for a multitude of industries such as pharmaceuticals, biotechnology, medicine, food and beverage etc.

Growth drivers from multiple fronts

Techcomp is expected to benefit from both organic and inorganic growth. For organic growth, Techcomp has commenced mass production of biological safety cabinets for NuAire. NuAire is expected to benefit positively from the strong demand of such products arising from the H1N1.

This is expected to contribute to Techcomp’s FY09 profits.For inorganic growth, Techcomp has made the following strategic business decisions whose benefits should start to accrue this FY09.

Firstly, its 50-50 joint venture (JV) with Bibby Scientific in 2008 is gaining traction. Techcomp’s existing manufacturing facilities in China would be used to produce scientific equipment products under Bibby’s existing established brands for the local and overseas market

In addition, the JV will post a maiden contribution to Techcomp’s FY09 profits.

Secondly, Techcomp has acquired a 75% stake in a French company, HCC SAS (HCC) in July 09. This allows Techcomp to acquire complimentary technology and leverage on the brand equity of HCC’s subsidiaries.

This acquisition is expected to be earnings accretive for FY09 results.

Going forward, management is confident of enhancing the value of HCC by reducing HCC production costs (leveraging on Techcomp’s manufacturing facilities in China), and combining HCC’s complimentary products and distribution network to Techcomp’s products and thus, able to offer customers a broader product offering

Both the acquisition of HCC and the JV with Bibby Scientific would enable Techcomp to gain a foothold in the European market and would bode well for Techcomp over the long term.

During the early part of 2008, Techcomp was covered by as many as six brokerage houses.

Unfortunately, interest in Techcomp soon faded and currently there are no analysts covering this company.

Thus, the investment community is still not familiar with Techcomp yet.

However, I believe investors who understand and believe Techcomp’s prospects now can purchase it with a huge margin of safety. Broadway (which I covered in my earlier article on Jan 4) is a case in point with regard to this aspect.

Illiquidity is a problem for Techcomp. Over the latest 3-month period, there is only one trading day where volume crosses more than 300,000 shares traded.

Techcomp is not traded for some of the days. Thus, investors have to consider this carefully as they may not be able to enter or exit Techcomp easily

With reference to table above, Techcomp is trading at a substantial discount to the smaller peers based on FY09F PE (needless to compare it against the larger peers as the discount gap is colossal).

Taking a conservative stance, I pegged Techcomp at approximately 7.3x FY10F earnings, vis-à-vis the minimum PE of Techno Medica, which trades at 9.0x FY09F earnings (note: average PE for the smaller peers is in excess of 40x).

This would translate to a price of around S$0.56, representing an approximate 51% upside since its close of S$0.37 on last Fri.

Healthway Medical

Market darling Healthway was up another cent (5.7%) overnight on top volume, continuing its steady rise from 13 cents just last week.  That’s a 42% gain in just one week!

At 18.5 cents, the stock still has upside of 51%, based on DMG’s 28-cent target issued on Mon (4 Jan).

Healthway currently operates the largest private network of medical centres in Singapore, providing primary care, dentistry and specialist services, but has clear plans to expand in China all the way to 2015.

By 2013, it plans to double the total number of its clinics in Singapore and China to 120.

The integrated healthcare player is proposing a rights issue to fund its investment in medical centers in China. 

Net proceeds of about S$19.8 million will be raised from a rights issue at 7.5 cents per share on the basis of one new share for 5 shares held.

Well we know humans are living things and we know animals are and of course plants are too. But are markets really living things?

Most of you will have heard the expression ‘markets have memories’ and I am inclined to believe so. Because markets are made up of ‘humans’ and ‘humans’ have memories. And you may ask ‘what about the Instos?’ Well at times investors may have other adjectives for them but yes they are human too and their views are a part of the mass of opinion.

So if we as individuals have memories, can we collectively have a memory? Well I do not see why not and whilst many of you may not put too much store in that I am inclined to think the market memory is made up of collective human memories and this is a major subliminal driver of markets.

Our individual memories take many different forms. Some of us are painfully rational others can be totally subjective. Some of us have short memories – we forgive and forget easily. Some just never forget even the smallest of misdemeanours. I am sure we all can recall examples at both extremes. And of course there are a myriad of variations in between. We may also have biases about certain stocks because of past experiences – good and bad. We may have biases about types of markets and instruments and so on.

Our memories are multi dimensional and what may be important to you may not be important to me. Our memories can maintain a bias and sometimes I think to myself when it comes to trading I need to erase certain files in my memory or even defrag the brain or even format the memory space.

Of course that is really what technical analysis should be. It is supposed to strip away – lay bare if you like all our biases, subjectivities and emotions. And when I talk about emotions I include all within the range from ecstasy through to anger. And as an analysts and a writer I am aiming to provide each week something of value in all I do. And in this process I am on the receiving end of emails that cover the full range of emotions. That is part and parcel of a job that I enjoy enormously. In fact it is not a job and there is a blur between my job and fun. I digress. But I see your emotions in your emails. I am not talking about anyone in particular and please keep those emails coming! But there are very few emails that don’t show some degree of emotion. Some of it is well controlled some out of control!

It is not for me to see your emotions but. It is for you to see them, analyse them, understand them, and manage them. Because, unless you can do that I am not sure you can be a great investor.

Technical analysis can be like reformatting the disk, purging the soul – but only if we allow it to be. But many won’t allow the ‘technical’ process to be purely objective. They allow internal feelings and external information to interfere. We can all be guilty of seeing what we want to see sometimes – even unwittingly

I know pretty much all of the sins of investing. I am human. And you name it I have made all the mistakes at some point – including allowing emotion to get in the way.

Memory biases – whether short or long term – can create market mismatches and this is where the shrewd market players can take advantage of those who are allowing biases to rule their day.

A few days ago, a reporter asked me if I was losing money in real estate. My reply was, “No, I’m making money.”
Confused, he asked, “How can you be making money during the subprime disaster?” I explained that since the real estate market took a downturn, there were more people renting rather than buying, which is great for my apartment business. I also informed him that I’m raising rents since demand for affordable apartments is so high. When someone moves out, I increase the rent and new tenants line up, which means my cash flow is increasing.

 
He then asked, “Are you looking for new investments?”

 
A shocked look came over his face when I said, “I’ve been investing heavily in the stock market since August 2007. I’ve moved several million dollars into the market.”

 
“The stock market?” he stammered. “Stocks are crashing. Why are you in the stock market? Besides, I thought you were a real estate investor?”

 
Ignorance Isn’t Bliss

As Warren Buffett has said, it’s important for society to have accurate and informed sources of information. While I agree, I sometimes wonder about the intelligence of many financial journalists, both in print and the electronic media.

 
For example, lately on financial TV stations, the reporters have been talking about the run-up in gold and asking, “Is it time to invest in gold and gold stocks?” What a ridiculous question. Now isn’t the time to be investing in gold or gold stocks — that time was 10 years ago, when gold was below $300 an ounce. Investors should’ve taken substantial positions when gold was cheap. For reporters to be talking about gold today is no different than them reporting on the hot real estate market in 2005, just before the top blew off.

 
I had dinner with a friend of a friend the other night and he was telling me about the Rothschild formula for investing. According to him, this involves not participating in the first 20 percent or the last 20 percent of an investment run-up. Instead, it’s investing in the middle 60 percent, when risks are low and the direction of the price is determined. As the asset value approaches what appears to be the last 20 percent, you sell and move on to another asset class.

 
As we all know, most amateurs (and, possibly, many reporters) only participate in the last 20 percent.

 
Take Notes

I wondered if the reporter who asked why I was investing millions in stocks was an investor himself. I did my best to explain to him that there are two things professionals invest for: 1) Capital gains, and 2) Cash flow.

 
I said, “The amateurs who come in at the top 20 percent of a market are generally investing only for capital gains. In the last real estate boom, the ‘flippers’ who got no-document, zero-down loans paid very high prices, and hoped for a greater fool than them to take the property off their hands.

 
“These are some of the people being faced with forecloses today. They’re the investors who make the news — not the investors who are making money.”

 
The reporter then asked me, “So what do you invest for?”

 
My reply? “Both. If I can, I want both capital gains and cash flow.”

 
I went on to explain that I was investing millions in stocks that were paying a high dividend — cash flow — and also had their prices battered down by the market crash, a loss of capital gains.

 
Spelling It Out

He wasn’t the brightest reporter, since he had trouble with the idea of investing for both cash flow and capital gains. After about an hour of explanation, he finally began to understand that I’m not just a real estate investor — I’m someone who invests for capital gains at a great price, or cash flow at a great price, regardless of the asset class. If the deal is right, it doesn’t matter if it’s in real estate, commodities, a business, or paper assets.

 
Here’s an example of capital gains for a great price: Back in the 1990s, every time I had some extra cash I would buy some gold or silver. Although I didn’t receive any cash flow from gold or silver I knew I was purchasing the metals at a great price, and that someday those prices would rise again.

 
An example of buying for cash flow at a great price is when I buy a stock that pays a dividend. I wait until the stock market dips and then buy, which is what I’m currently doing. One of the better companies I’ve been buying is a bulk cargo shipping company that’s hauling U.S. grains to India. The more the dollar drops in value, the more grains we export. Every time the market drops, I buy more of this stock at a great price, because I love the cash flow from dividends.

 
Finally, an example of buying both capital gains and cash flow at a great price is when I find an apartment building at a bargain, and then increase the rents. By doing so, I increase the cash flow and the property value, which translates into capital gains.

 
Leave It to the Pros

When I watch professional football, I love listening to John Madden because I know he knows what he’s talking about. He’s been both down in the trenches and in front of the bench as a coach. He knows the game. By that token, one financial reporter I respect is Bloomberg’s Kathleen Hayes. She’s a savvy reporter who knows what she’s talking about. I wonder about some of the other financial reporters.

 
The problem with much of the financial news in print and on the web, radio, and television is that it comes from journalists who may not be investors. When I listen to most journalists whine and cry about the subprime mess, the slowdown in the economy, and the volatile stock market, I can all but tell that they’re not really investors. None of these events really has much impact on professional investors, who follow market trends and are familiar with the underlying fundamentals of the assets they investing in.

 
So the next time you hear a reporter ask, “Is this the time to be getting into stocks, bonds, real estate, gold, silver, or oil?” remember that it’s probably the time to be looking elsewhere. And keep in mind the Rothschild formula of investing. You never want to be too early — and you also never want to be too late.

The fundamentals of fundamental analysis

When it comes down to a choice between technicals and fundamentals, technicals usually win out. Perhaps the main reason for this is because technicals are often easier to understand. Moreover, technical indicators are applicable to any traded asset, as long as there is price and volume information, and the interpretation is always the same. A moving average cross over is interpreted in the same way for oil or for a listed IT company.

Contrast this with fundamentals. No two companies on the planet are exactly the same, so even though business types, accounting principles and reporting styles may be similar for any two stocks, the interpretation of the data will depend on many other intangible and qualitative factors. The art with fundamental analysis is about contextualizing the data, and being able to make effective comparisons between different assets.

Beyond this, investors also have to be comfortable with a broad lexicon of specialist terms as well as a raft of accounting concepts and principles. Last but not least, fundamental analysis has traditionally required a lot more work, and this can act to put a lot of people off.

This is unfortunate, as those investors who ignore the fundamentals will always miss out on a true understanding of the investment quality of a potential asset. As such, we will address the basics of fundamental analysis and show you how you can gain a wealth of valuable investment knowledge quickly and easily using one of the most powerful analysis tools available.

To begin with, we need to remind ourselves of what a listed company is. In essence, it’s just a business like any other. There are overheads to pay, debts to service, staff to manage, competitors to deal with, and revenue to manage. So while there are differences of scale, a large multinational conglomerate is in many ways similar to your local hamburger shop.

If you were to purchase a local business, what would you like to know? Obviously things such as earnings history, margins, competitive environment, product/service quality and costs would be must have information. And that’s exactly the same if we are dealing with a local business or the largest listed company in the world. So in terms of the type of information we want, it is relatively intuitive.

The next hurdle is knowing where to look for the information, and knowing how to interpret it. In this regard, an application such as ValueGain is extremely valuable. All the useful data is found at the click of a button, moreover the more relevant fundamental items are presented in ratio format.

Ratios are extremely useful as they allow us to understand the relationship between different fundamental aspects of a business. Take the Price Earnings ratio as an example. Knowing the earnings of a company doesn’t really tell us much, but knowing the relationship between earnings and share price is a different matter all together. All of a sudden we can compare a wide range of companies, regardless of their value.

So don’t unnecessarily complicate the picture. Listed companies are just businesses and face the same challenges that any business faces. Focus on the key areas of earnings, debt and cash flow, and you will be in a much better position to understand the true nature of the company. To ignore these things is to invite disaster, to incorporate them into your analysis is to improve your odds for success.

A Question of Timing

This is exactly the same thing with stock markets. If you understand and anticipate the price action, if you know when you have to wait (hold) and you have to attack (place a trade), then you’re a potential winner. It’s a question of timing. Market timing. It doesn’t guarantee victory, of course. But it can put you in exactly the right position to profit, time after time.

I quickly found that technical analysis for market timing purpose would be my best friend when I started my career in the investment industry. I have been using technical analysis and chartist indicators for almost ten years now. I’m absolutely certain my gruelling cycling slogs through Pan, Jurancon, Gan and Coteaux de Lasseube gave me an edge in analysing the markets. In fact I’m surprised I’ve not heard the analogy before, as I know many traders who are avid cyclists.

I’ve profitably used my ‘Slipstream’ timing technique both as a trader for hedge funds and as an analyst for the Swarm Trader . The key is to detect what is the priority and what is of secondary importance when you trade.

The priority is to track what the crowd does. The rumours, the news, the statistics and all other pieces of data that constantly arrive on your screens are of secondary importance. These will be translated into price development regardless of what you make of them.

If you know how to “read” what the crowd does, then you can anticipate what the crowd will do. This relies only on the analysis of the price action. Indeed, you “read” the behaviour of the crowd through indicators and chart patterns.

To summarize: If you read this information correctly, you can position yourself in a slipstream - or ‘profit pocket’ - of an imminent price move. Professional cyclists call it “cheating the wind”. Here you could call it “cheating the market. Find the “bubble” in the price action and let the investors in front of you do all the work.

This is a remarkable way to detect perfect buying points in Australia’s top 200 stocks. It can help you make great profits in a short period of time off a blue chip stock. In some cases, the kind of gains many small cap gamblers would be envious of.

Of course, we’ve yet to cover the most important part: how do you know when a slipstream move is forming? Below, I’ll ‘lift the bonnet’ on my system, and give you a step-by-step look at how I integrate technical indications and chartist patterns to pick optimal trading points for ASX 200 stocks.

How Charts Can Position You in the Leading Pack

It looked like Mark Cavendish was simply going through the motions when he won Stage 10 of the Tour de France in July. He got a perfect lead-out from his Columbia-HTC squad. It propelled with great force the 24-year-old through two tight right-hand turns in the closing kilometre and safely on to the ramp of the 250m finishing straight.

Then, he exited the ‘Slipstream’ and his power took him away from his pursuers. Cavendish paid tribute to the way his team-mates had nursed him through three days in the Pyrenees: “I had eight guys trying to help me conserve my energy,” he said. This is the whole idea behind Slipstream trading, which we’ve covered above.

Let the rider - or stock buyer - in front of you cope with the headwinds. If you get into his “slipstream” you do less work. The less work you do riding in the “slipstream” the more energy you have later when you pick the right time to make an attacking move. Riding in the slipstream is a good strategy. Making the right “move” is the tactical aspect.

Taking this approach can help you, as an investor in large cap Australian stocks, answer many questions you may well have found yourself asking this year: When should you buy when a stock is riding a bull trend and is constantly rising? Should you at all? How do you avoid buying on tops? When should you take profits when a stock has had a surge? How do you avoid selling on lows?

With Slipstream Trading, ‘Safe’ Stocks can be Profitable Too

If you’re a forward-looking investor, the current markets throw up multiple dilemmas - is it time to start buying back the stocks you sold? Are some stocks you own still vulnerable? Is this volatility throwing up profit opportunities that are passing you by? Should you get into banking stocks now… or never?

The speculators are going ballistic. Half of them are making a killing, the other half are losing their shirts. But what should the large cap investor do when there is so much “noise” in the markets? My best answer is - if you want your ASX 200 holdings to be winning investments over time - is to trade in the ‘Slipstream’ of big price moves.

This is easier said than done. That’s why erasing emotions during the investment/trading process is so important. It’s very difficult to accept being wrong (losing trade) when you feel that your thinking was right.

To avoid this, the best answer is to track the charts, and only that. It is assumed that the market players have all the information available. Therefore the price reflects everything: the data, the fundamentals, the expectations, the emotions, the risk appetite etc. And that’s why I like the ‘Slipstream’ metaphor.

Tracking efficiently both price and volume actions will give you the possibility to “launch” your market attacks at the propitious moment. Exactly like the cyclist I used to be in my early 20’s, when I was riding up and down the hills and valleys of the Pyrenees.

An Individual Sport, Practiced Collectively

One maxim says that “cycling is an individual sport practiced collectively”. It means that alone, you are nothing, whatever your skills. This is exactly the same in the financial world: you cannot possibly win if all the other competitors are against you.

And I believe this is especially the case when trading the biggest companies on the stock market - ones with market capitalisations over $800 million. Because here there are a heck of a lot of other investors trading the same stock, meaning more chances to ride in the ‘Slipstream’ of price moves.

See, in cycling, you have to take advantage of the peloton to be able to win a race. This means being able to identify and assess the strengths and the weaknesses of the peloton. You don’t need to analyse the weather conditions, the distance or the slopes (the fundamentals) because the other racers have analysed them too. You won’t make the difference here.

However, you will be able to win if you are able to analyse, understand and anticipate the behaviour (the price action) of the peloton. It is them you are racing against. If you are able to identify when you have to wait in the middle of the pack or when it’s time to attack, then it means you’re a potential winner.

singapore stock market ,singapore stock market news,singapore shares

ARMSTRONG, kim eng maintain HOLD

CSC HOLDINGS, cimb maintain NEUTRAL $0.22($0.17)

HI-P, csfb assuming coverage OUTPERFORM with target price $0.9($0.59)EPS
for FY09/10 raised by 5% and 3%
HI-P, dbs maintain BUY with target price $0.76($0.79) EPS for FY09/10
lowered by 6.7% and raised by18.2%

HONG KONG LAND, jpm maintain NEUTRAL with target price $3.20

LIPPO-MAPLETREE INDONESIA TRUST, ocbc upgrade to BUY from HOLD with target
price $0.5($0.24)

ROTARY, ocbc maintain BUY with target price $1.26($0.81)

SEMBMARINE, cimb maintain OUTPERFORM with target price $3.48($3.38) EPS for
FY09-11 raised by 1-8%

SEMBCORP MARINE, cl maintain OUTPERFORM with target price $3.25
SEMBMARINE, csfb maintain UNDERPERFORM with target price $2.50($0.95)
SEMBMARINE, daiwa maintain UNDERPERFORM with target price $2.06 ($1.59)
SEMBMARINE, db maintain BUY with target price $3.80
SEMBMARINE, dbs maintain BUY with target price $3.70($3.25) EPS for FY09/10
raised by 4.7% and 5.3%
SEMBCORP MARINE, gs maintain SELL with target price $1.15($1)
SEMBMARINE, jpm maintain OVERWEIGHT with target price $3.75($3.15) EPS for
FY 09/10 raised by 4.7% and 7.9%
SEMBMARINE, kim eng maintain HOLD with target price $2.91
SEMBMARINE, ms maintain UNDERWEIGHT with target price $2.40
SEMBMARINE, ocbc upgrade to BUY from HOLD with target price $3.67($2.65)
SEMBMARINE, ssb upgrade to BUY from HOLD with target price $3.85($3)
SEMBMARINE, ubs maintain BUY with target price $3.15
SEMBMARINE, uob maintain HOLD with target price $2.60

SIA, mac downgrade to UNDERPERFORM from OUTPERFORM with target price $11.20

SMRT, nom maintain BUY with target price $1.96

ST ENGINEERING, cl maintain BUY with target price $3.07
ST ENGINEERING, csfb maintain UNDERPERFORM with target price $2.37
ST ENGINEERING, db maintain BUY with target price $3
ST ENGINEERING, dmg maintain BUY with target price $2.83
ST ENGINEERING, jpm maintain UNDERWEIGHT with target price $2.05($1.80)
ST ENGINEERING, kim eng maintain HOLD with target price $2.70
ST ENGINEERING, nom maintain NEUTRAL with target price $2.72
ST ENGINEERING, ocbc maintain HOLD with target price $2.46
ST ENGINEERING, ssb maintain BUY with target price $3($2.55)
ST ENGINEERING, ubs maintain BUY with target price $2.72
ST ENGINEERING, uob upgrade to HOLD from SELL with target price $2.40
($2.04)

STRAITS ASIA, csfb maintain UNDERPERFORM with target price $1.05
STRAITS ASIA, dbs maintain BUY with target price $2.41($2.26) EPS for
FY09/10 lowered by 30.3% and raised by 6%
STRAITS ASIA, ubs maintain BUY with target price $2.50
STRAITS ASIA, ocbc maintain BUY with target price $2.38

YANLORD, uob maintain BUY with target price $2.99

Heads or Tails

At a recent trivia night the host offered free drinks to the person who could outlast everyone in a game of heads or tails. Everyone was asked to stand up and place their hands either on their head or on the backside. The host would flip a coin; those that guessed correctly would go on to the next round, the others were eliminated. As it turned out, a winner was selected from about 100 people in about 8 flips of the coin.

From a probability standpoint, the winner had managed to achieve a rather remarkable feat – the odds of guessing correctly 8 times in a row are 1 in 256 (or a 0.39% chance). However not a single person at the event was that impressed, and why should they be? After all, at each toss of the coin there was a mix of expectations, and it was inevitable that someone would be proven right. At the end of the day the winner just got lucky. Very few people would consider the winner to have been successful because of skill or intelligence.

Contrast this situation with those that make economic forecasts. At any given point in time there will be a wide range of forecasts, each provided by well respected experts and supported by solid arguments. Presently, economic forecasters are broadly divided into two camps: those that feel that the worst is over, and those that feel that this is simply the calm before the storm. Within each group there will be those that provide quite specific forecasts in terms of figures and dates.

As with the coin tossing game, we will discover that only a small minority of players will be shown to be right. Once again, it is inevitable. The problem is that the market takes this as ‘proof’ that these soothsayers have the uncanny ability to accurately predict the future, and they will do the usual round of interviews and presentations to adoring crowds who are eager to discover what the next premonition will be.

If you need evidence of this just consider the success of those economists who are reputed to have predicted the credit crisis and resulting GFC. Most were all but unknown prior to the event, and most will be forgotten within a few years. Furthermore, many that did ‘predict’ the correction were calling for it to happen many years prior to the actual event. The fact is that if you continually call for a correction after a prolonged bull market, it’s only a matter of time before you are proven right.

I don’t mean to belittle economists, after all the industry demands forecasts and they simply do the best they can at what is an amazingly difficult task. Rather, I want to caution investors to always take forecasts with a grain of salt and not to confuse them for immutable facts. Also, just because a certain economist got it right last time, does not mean they have any greater likelihood in being correct the next time (a view that is supported by contemporary research findings).

The ‘heads or tails’ phenomenon is in fact something that is exploited by con artists. Consider this well known con: a person sets up a stock market advisory service and purchases a large database of contact details, let’s say 100,000 people. To half you send a free report recommending you buy a stock because it is about to go up. To the other half you send the opposite advise, that is that the stock is about to go down. Regardless of what the stock actually does, you are guaranteed to be right in the eyes of 50,000 people. To these 50,000 you do the same thing a second time, that is, send 25,000 people a bullish call, and the other 25,000 a bearish call. The process is repeated a number of times.

You can see what’s going to happen here. After 10 rounds of this you will be left with about 100 people who have received a newsletter which accurately predicted the stock market 10 times in a row. At this stage, you request a high fee for your newsletter, and you will find that most will pay anything to continue to receive this amazingly accurate advice. Let’s face it, even those that saw a correct prediction most of the time, say 7 out of 10 times, will most likely consider your newsletter to be worth many times its weight in gold. The beauty of this con is that you are guaranteed to impress a large number of people, regardless of what the market actually does!

The reality is that for any predictive ability to validated, we should demand rigorous empirical evidence. In other words, you need to be able to verify whether or not chance alone can account for the observed accuracy of the forecasts. Unfortunately, the market rarely demands such validation. But let’s just be pragmatic about it all. Forecasts are useful in broad terms if we treat them as simply a gauge of general market expectations. They also force us to consider possible scenarios and allow us to put in place some contingency planning. The main thing to remember is that forecasts are just guesses, albeit educated ones. Those that treat them as fact will more often than not be disappointed.

Discipline

Discipline is the last of my series on the ‘Seven Deadly Sins of Trading’. But it is by far the most important of all.

It is also the most difficult skill to acquire. Some investors may be born with an ample level of this skill but for many it is not something that just comes naturally.

In fact many investors do not see that it is anything that they need to work on. They assume one just works with the level of discipline that comes naturally or that one learns on the job.

I rarely hear of investors actually writing down what they mean by discipline, how it works and what actions this entails.

Let us look at what words we associate with discipline and how they relate to investing.

Discipline means:

Order		having a systematic approach – structure
Self control		putting oneself on the front foot – dictating to the markets and not the reverse
Will power		the strength to stick to a goal or a decision or a path
Commit		the ability to pledge to the task started

The word discipline often has a negative connotation but that does not have to be and in fact none of the above are words that could have a negative implication – they enhance – they empower!

In many ways some of the definitions overlap – but what is important is to find the words that ring true to you and to define in writing how they will be translated into reality when investing.

The term discipline also overlaps with many words we have used in prior articles – exiting, entry, stop losses, methodology. They all point to the same end goal of having a structured approach that has logic and rules.

If discipline is not something that comes naturally to you I would go so far as to say don’t put any serious money into investing until you have clearly defined this aspect. And if you don’t know how to develop discipline in investing you can always set little discipline exercises for yourself in other pursuits in life. Many people who have had weaknesses in life actually later becomes ‘experts’ by confronting their demons! e.g., Spiderman was once scared of heights!!

You can become a highly disciplined investor if you put your mind to it – and you will reap greater rewards as a result.