Monday, November 24, 2014

Commodity Exposure

I read this article in The Edge about how commodities are an outlier when every other asset class is at or near record levels.

The bear case on commodities is as follows :-

A) The correlation of commodities with stocks has been high, weakening the case for investment

B) Commodity investment is like buying insurance and inflation comes due to higher raw material cost, which is nowhere in sight. Gold has fallen over the last three years, silver as well, energy etf is at half of 2008 prices,  so in the recent past commodities are a failed investment story.

C) The world has too much supply and not enough demand, Europe is on the brink of recession,  Japan is in one, China is slowing, USA oil production has surged. Hence, inflation is not a problem,  the real risk is of deflation.

D) Institutions which invested in commodities are getting out, Harvard has cut its exposure to zero.

The bull case is that this is conventional wisdom and the Contrarian move would be to add commodities now to the portfolio.

First I have to identify a commodity etf which gives broad exposure.

As always,  I will review this in a year. This might be the ideal way to recycle the China etf gains.

Disclaimer :- 

I am not an investment professional.

I encourage you to do your own independent "due diligence" on any idea that I write about, because I could be and probably am wrong.

Nothing written here is an invitation to buy or sell any particular stock.

At most, I am handing out an educated guess as to what the markets may do.

The market will always find a new way to make a fool out of me (and maybe, even you!).

Even the best strategies of the past fail, sometimes spectacularly, when you least expect it.

I am not immune to that, so please understand that any past success of mine will probably be followed by failures

Wednesday, November 5, 2014

Keppel Land

This post is to look at the value of Keppel Land.

The current book value growth rate compounded over 2010-till date is 17%.

Let us assume this continues , but at 8.31% over 20 years.

In 20 years time, the book value will hit 22.3 in today's dollar terms.

However, 22.3 in 2034 is not worth the same amount today.

To arrive at a discounting rate, I have used 8.76%. 4% for risk-free CPF rate and 4.76% for long bond rate.

This shows that 22.3 in 2034 is worth 4.16 dollars / share today.

Now, the PTB has swung between 0.58 to 1.31.

Will we see a property developer trade at a premium? Over 20 years, I would imagine this will happen once or twice.

Hence, pessimistically, the share is worth 2.44 SGD and optimistically 5.48 SGD.

Next up is the dividend income.

The payout has been estimated between 12 to 20 cents on a random basis.

This in today's dollars is worth 1.52 SGD.

This essentially means that the value for Keppel Land is pessimistically 3.96 SGD and optimistically 7 SGD.

Essentially, Mr. Market has gone bonkers and is throwing their toys out of the pram.

So, Load up

Full Disclosure : I might initiate a half weight position in the next week or so.

Disclaimer :- 

I am not an investment professional.

I encourage you to do your own independent "due diligence" on any idea that I write about, because I could be and probably am wrong.

Nothing written here is an invitation to buy or sell any particular stock.

At most, I am handing out an educated guess as to what the markets may do.

The market will always find a new way to make a fool out of me (and maybe, even you!).

Even the best strategies of the past fail, sometimes spectacularly, when you least expect it.

I am not immune to that, so please understand that any past success of mine will probably be followed by failures 

Tuesday, November 4, 2014

Portfolio Sale - KT4 DXT China ETF

This is to outline the rationale behind a portfolio sale.

I had invested in DBXT CSI 300 ETF.

The ETF is traded as KT4 on SGX.

The one year chart at the time of entry was down-right ugly.



The spark for the trade was an article indicating that nobody in their right mind would invest in China as the country was going to go bust.

I know, sounds silly now, but that was the consensus opinion in June 2014.

In addition, for a while I have been meaning to move investments into ETF to make it start to run on auto-pilot and rebalance once in a while.

The investment thesis was that China will outperform other markets.

The trigger for the sale was to re-balance out of a performing asset into an under-performing ETF i.e. Europe ETF.

Take a look at the chart from June 18 till yesterday, which is when I exited the KT4 trade.




The return was around 18% on capital, after taking into account trading costs.

All in all a pleasant outcome.

This is not to say that all future trades will do as well.

What it does prove is that if you are brave (or foolish), you will (may) reap your reward (suffer).

Disclaimer :- 

I am not an investment professional.

I encourage you to do your own independent "due diligence" on any idea that I write about, because I could be and probably am wrong.

Nothing written here is an invitation to buy or sell any particular stock.

At most, I am handing out an educated guess as to what the markets may do.

The market will always find a new way to make a fool out of me (and maybe, even you!).

Even the best strategies of the past fail, sometimes spectacularly, when you least expect it.

I am not immune to that, so please understand that any past success of mine will probably be followed by failures

Sunday, November 2, 2014

Bond rates have nowhere to go but up

Conventional wisdom is that when interest rates go up, returns on bonds will fall or be negative.

Investors believe that when interest rates go up, bonds will go down

But, the reality is that the answer is more nuanced than that.

Take a look at this paper from Legg Mason.

http://www.leggmason.com/globalthoughtleadership/documents/white_paper/D15712-western-asset-rate-driven-bond-bear-markets-GTL-MIPX016079.pdf

In short, bonds can do just as well as expected in a rising interest rate environment.