Towards 2008

So that's it for 2007, we have come to an end. Taking stock, this is a very good year, a very bullish year in fact. STI continue to set new record to nearly 4,000 points. This is something we never seen before. During previous decades, the highest point STI can go was just slightly above 2,500. But today, we make history again and again. However, in July 2007, US subprime problem triggered a correction and subsequently, market became very volatile. We have, unfortunately, to live with it even in 2008. And in case you asked how I fare this year in stock investment, I did quite well. My uncompounded absolute returns is above 20%. This is simply using the money I won over the initial investment. Existing portfolio gain/loss is not considered. My portfolio actually suffers a 8% losses when SGX closed for the year. Even if we use "holding periods return" to measure, my gain is still well above 10%.

I wish to take this opportunity to wish all my friends and readers Happy New Year, good health and "show us the money!!!".

Seven Traits Of Great Investors

My all time favourite analyst, BT senior correspondence, CFA Charterholder Ms Teh Hooi Ling wrote another good article analysing traits of investment gurus. The article is so good that I ready have to paste it wholesale on my blog to share with you. In her article, Ms Teh listed down seven traits of greater investors which I share the same opinion. I had either previously in my article or through discussion with friends, highlighted about the same thing. For those who know me or had followed my blog should know what I mean. Quickly, I’ll summarise these seven traits and input my remarks.

1) Overcome greed and fear. I learned this from Warren Buffett and have emphasised over and over again in my blog.

2) Passion for investment. I often have friends/colleagues asking me why I am not tired of reading and analyzing stock (almost) everyday. Why I never breakdown? My answer is simply – by asking back “why didn’t you breakdown when you watch World Cup every midnight and then reporting to work in the morning?”

3) We must learn from our mistakes and make sure that we do not make the same mistake again. I didn’t emphasise this but I thought that is rather commonsense!

4) Commonsense is the least common human attribute. I pick up this quote from my ACCA lecturer Mr. Fred Keer, a very knowledgeable lecturer. And I use it many times in my blog. Let me illustrate how I use commonsense. A few years ago, there was a hot stock dealing with mobile phone repair. The company kept reporting profit growth and the share price kept moving up. I posted questions to my coursemate – “how come that company can continue to report profit growth when its trade (mobile phone repair) is simple and can be easily duplicated or has no barriers to entry? How come it can earn lucrative margin when it is purely an outsource company? Why didn’t its major client (Nokia) squeeze its margin?” My questions were basically a result of commonsense. What happen to the company later? I leave it to you to find out (or you can write to me for answer).

5) Believe in your study, analysis and philosophy. Do not compromise your principle. Do not follow the crowd. They always make mistake.

6) Good in math will not make you a successful investor. In every book written on Warren Buffet, you will find large portion on qualitative analysis.

7) And the most important one, which has always been a topic of discussion – can Warren Buffet be duplicated? I discussed it with my CFA coursemates before and we concluded that it couldn’t be duplicated. You can learn everything about ratio analysis, options, Black-scholes model, forward and futures etc. But there is one thing that you cannot learn – GUT FEEL.

Enjoy the article.

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Business Times - 17 Nov 2007

Reading this won't make you great

Mark Sellers, founder of a Chicago-based hedge fund, argues that the best investors are born with particular psychological traits that others can never learn

By TEH HOOI LING
SENIOR CORRESPONDENT

WHAT makes someone a great investor? It's something you have to be born with, said Mark Sellers, founder and managing member of Sellers Capital LLC, a long/short equity hedge fund based in Chicago.

Apparently, it's not about your IQ, the education you've had, the books you've read, or the experience you've accumulated. 'If it's experience, then all the great money managers would have their best years in their 60s and 70s and 80s, and we know that's not true,' he said in a speech to a class of Harvard MBA students.

Intelligence and learning are obviously necessary too, and are sources of competitive advantage for an investor, but there are structural assets some possess that cannot be copied or learnt by others. 'They have to do with psychology and psychology is hard wired into your brain. It's part of you. You can't do much to change it even if you read a lot of books on the subject,' said Mr Sellers.

He said that there are seven traits great investors share that are true sources of advantage because they cannot be learned. You are either born with them or you aren't.

The seven traits are:

One, the ability to buy stocks while others are panicking, and the ability to sell at a time when other investors are euphoric. 'Everyone thinks they can do this, but then when October 19, 1987, comes around and the market is crashing all around you, almost no one has the stomach to buy,' Mr Sellers said.

'When the year 1999 comes around and the market is going up almost every day, you can't bring yourself to sell, because if you do, you may fall behind your peers.

'The vast majority of the people who manage money have MBAs and high IQs and have read a lot of books. By late 1999, all these people knew with great certainty that stocks were overvalued, and yet they couldn't bring themselves to take money off the table because of the 'institutional imperative', as Buffett calls it.'

Two, the great investor has to be obsessive about playing the game and wanting to win. 'These people don't just enjoy investing; they live it. They wake up in the morning and the first thing they think about, while they're still half asleep, is a stock they have been researching, or one of the stocks they are thinking about selling, or what the greatest risk to their portfolio is and how they're going to neutralise that risk.

'They often have a hard time with personal relationships because, though they may truly enjoy other people, they don't always give them much time. Their head is always in the clouds, dreaming about stocks. Unfortunately, you can't learn to be obsessive about something. You either are, or you aren't. And if you aren't, you can't be the next Bruce Berkowitz.'

(Berkowitz was a managing director of Smith Barney and set up his fund Fairholme Capital Management in 1999. Since inception, Fairholme Fund has returned 18.7 per cent annually on average.)

The third trait of a great investor is the willingness to learn from past mistakes. 'The thing that is so hard for people and what sets some investors apart is an intense desire to learn from their own mistakes so they can avoid repeating them. Most people would much rather just move on and ignore the dumb things they've done in the past.

'I believe the term for this is 'repression'. But if you ignore mistakes without fully analysing them, you will undoubtedly make a similar mistake later in your career. And in fact, even if you do analyse them it's tough to avoid repeating the same mistakes.'

A fourth trait is an inherent sense of risk based on common sense. 'Most people know the story of Long Term Capital Management, where a team of 60 or 70 PhDs with sophisticated risk models failed to realise what, in retrospect, seemed obvious: they were dramatically overleveraged. They never stepped back and said to themselves, 'Hey, even though the computer says this is OK, does it really make sense in real life?'

'The ability to do this is not as prevalent among human beings as you might think. I believe the greatest risk control is common sense, but people fall into the habit of sleeping well at night because the computer says they should. They ignore common sense, a mistake I see repeated over and over in the investment world.'

Five, great investors have confidence in their own convictions and stick with them, even when facing criticism. 'Buffett never get into the dotcom mania, though he was being criticised publicly for ignoring technology stocks. He stuck to his guns when everyone else was abandoning the value investing ship and Barron's was publishing a picture of him on the cover with the headline 'What's Wrong, Warren?'. Of course, it worked out brilliantly for him and made Barron's look like a perfect contrary indicator.'

Mr Sellers said that he is amazed at how little conviction most investors have in the stocks they buy. 'Instead of putting 20 per cent of their portfolio into a stock, as the Kelly Formula might say to do, they'll put 2 per cent into it. Mathematically, using the Kelly Formula, it can be shown that a 2 per cent position is the equivalent of betting on a stock which has only a 51 per cent chance of going up, and a 49 per cent chance of going down. Why would you waste your time even making that bet?'

The Kelly Formula arose from the work of John Kelly at AT&T's Bell Labs in 1956. His original formulas dealt with the signal noise of long-distance telephone transmission. It was then adapted to calculate the optimal amount to bet on something in order to maximise the growth of one's money over the long term.

Six, it is important to have both sides of your brain working, not just the left side - the side that's good at maths and organisation. 'In business school, I met a lot of people who were incredibly smart. But those who were majoring in finance couldn't write worth a damn and had a hard time coming up with inventive ways to look at a problem,' said Mr Sellers.

'I was a little shocked at this. I later learned that some really smart people have only one side of their brains working, and that is enough to do very well in the world but not enough to be an entrepreneurial investor who thinks differently from the masses.

'On the other hand, if the right side of your brain is dominant, you probably loathe math and therefore you don't often find these people in the world of finance to begin with.'

So finance people tend to be very left-brain oriented - and Mr Sellers said that that is a problem. A great investor needs to have both sides turned on, he said. 'As an investor, you need to perform calculations and have a logical investment thesis. This is your left brain working. But you also need to be able to do things such as judging a management team from subtle cues they give off.

'You need to be able to step back and take a big picture view of certain situations rather than analysing them to death. You need to have a sense of humour and humility and common sense. And most important, I believe you need to be a good writer.'

He cited Warren Buffett as one of the best writers ever in the business world. 'It's not a coincidence that he's also one of the best investors of all time. If you can't write clearly, it is my opinion that you don't think very clearly,' Mr Sellers said.

And finally the most important, and rarest, trait of all: the ability to live through volatility without changing your investment thought process.

This, said Mr Sellers, is almost impossible for most people to do; when the chips are down they have a terrible time not selling their stocks at a loss. They have a really hard time getting themselves to average down or to put any money into stocks at all when the market is going down.

'People don't like short-term pain even if it would result in better long-term results, he said. Very few investors can handle the volatility required for high portfolio returns. They equate short-term volatility with risk.

'This is irrational; risk means that if you are wrong about a bet you make, you lose money. A swing up or down over a relatively short time period is not a loss and therefore not risk, unless you are prone to panicking at the bottom and locking in the loss.

'But most people just can't see it that way; their brains won't let them. Their panic instinct steps in and shuts down the normal brain function.'

得不到, 已失去

Economic Forecast - US Recession

I decided to publish analysts' economic forecast (just an excerpt) frequently on my blog so as to increase awareness, to help us to monitor the situation and to make adjustment along the way. My advise to all - be defensive. Keep more cash or cash equivalent. For those who are still bullish, all the best and good luck.

=========================

Business Times - 22 Dec 2007
SUB-PRIME WORRIES

Defaults to pick up next year on US recession risk: S&P

(NEW YORK) US corporate defaults will increase next year as the worst housing slump in 16 years threatens to send the world's largest economy into recession, according to Standard & Poor's (S&P).

The rating assessor expects high-yield, high-risk borrowers in the US to default on 3.4 per cent of their bonds outstanding by November, from a record low of almost one per cent, New York-based Diane Vazza, head of global fixed income research group said in a report dated on Thursday. Defaults will rise more noticeably in the later half of next year and in 2009.

'Our projections are based on a decidedly gloomy economic outlook for 2008, underpinned by expectations that the world's largest economy will falter on the cliff of recession,' Ms Vazza said in the report.

'The housing decline will have its biggest impact during this period, and orders data suggest slower capital spending. A serious risk confronts the US consumer, as households feel the pinch of lower home prices and higher energy costs.'

High-yield bonds are rated below Baa3 by Moody's and BBB- by Standard & Poor's.

The 15 largest US homebuilders have lost 56 per cent of their market value this year as home prices declined for the first time since the Great Depression, according to the National Association of Realtors in Chicago.

Finding The Cheese Or Focus On The Present?

Source Of Passive Income – Publishing Books

I trust that most of you would be familiar with Robert Kiyosaki’s “Rich Dad Poor Dad”. It is really a good book imparting knowledge on financial freedom. In fact, I first came to know and understand the term “passive income” from his book. From his cashflow quadrant, anything that give rise to constant stream of income without much time on it is a passive income. Writing and selling books is also a source of passive income. I had many friends who read a lot, frequently, but sometime indiscriminately helping the author to be rich. Should we be selective in buying books? The answer is definitely yes unless you have nothing better to do. To read a book, you must first spend money on it, and then spend time on it and finally a storage space. And every time when you pay for a book, you are helping the author to collect passive income; you are helping him to be rich!

No offence to those who write and sell books. But my point is that you shouldn’t buy a book for sake of buying it. For example, if you already know about investment, then no point keep buying more since they are about the same (change the soup but not the ingredients). Am I here to discourage you from reading? Definitely not! I am here to advise you to be selective and don’t help others to gain passive income unless that person really deserve the reward. Let me share with you how two books change my life. It’s a big joke of my life. While the author is certainly rich, I am still that poor. But I promise there is good lesson to earn.

The First Encounter – The Cheese

In 2002, I completed my ACCA (accounting) study. I was then an army regular earning very decent and stable income. I used to own a car then. As with most of my comrades, our promotion was quite smooth and prompt. It was a secured job (but not anymore today). However, like many others, we were not contented then. Many took up higher study and left after graduation – for green pastures. I too hope to be a professional accountant earning high income. Then someone recommended me to read a book titled “Who Moved My Cheese”. I can’t remember exactly the content now but it is about accepting change. It talks about rat in a maze enjoying its cheese but what if it finish that cheese? So one should move out to look for other cheese outside the maze, or something like that. Anyway, the moral of the story is to accept change and to take the challenge.

Back then; the SAF adopted a new system to retain qualified servicemen. They call it the Premium Plan. Only those who met certain criteria will be offered a lifetime career. In early 2002, I was offered and I accepted it. But after reading the book, and with encouragement from a few friends and colleagues, together with my newly acquired qualification, I tendered my resignation. I decided to find my cheese outside.

The Struggle

I left the service in 2003 in the midst of recession. The job market was tight and I was unable to join any accounting firm and became jobless for 9 months. Finally I join another company doing operational work. My accounting qualification was wasted. But I didn’t give up. I continued to search for my chance, took up higher study (again), tried to go into business with a friend but there was no result. While most of my ACCA coursemates were holding very senior appointments earning exceptionally high income, I am not even an Executive. I remember one coursemate got the post of Dy GM for Natsteel’s China business. And my operational job just ensures that my certificate will be useless and I’ll never climb.

When I was disheartened, my ex-manager gave me a book and insisted that I must read it. I didn’t read it immediately as I was not that keen initially. But when I read it, my mind opens up again. This book is Adman Khoo’s “Master Your Mind, Design Your Destiny”. The whole book was about having positive mindset to help you to overcome problems and to excel. I changed my mindset and it did make a different. That is a very good book.

The Present

Last week, my current boss lends me a book to read. The book titled “The Present”. Guess what? The same author who wrote “Who Moved My Cheese” wrote the book. Bascially, the book is about appreciating present and find ways to work it out no matter how discouraging it is. Let me quote a para in page 42 of the book:

“Focus on what is happening at the moment. Appreciate what is right about the situation, and build on it.”

Did you find something odd here? Five years ago, the author's book encouraged me to find my cheese outside - to change. But now, the book wants to me appreciate presence; appreciate what I have now!!! I was shocked and insulted. If not because of my boss, I would have torn the book into pieces. While the author continues to earn passive income, and I am one of the donors, his book got me into trouble (indirectly)!!!

What Have I learned?

We receive tonnes of information and advises from many sources – friends, colleagues, books, internet, pastors etc. But to make right decision, in my opinion, the very first thing that a person need is MATURITY and PATIENCE. I mean we just can’t always simply adopt new concepts other people shared indiscriminately. The intention may be good but may not be suitable for every reader. There is never right or wrong answer in each of these concepts. I am sure every book has its good purpose and will definitely benefit some readers but not all.

Do I blame the book? No, I made the decision and I shall bear the consequence. Certainly I am not that mature at that point in time (five years ago) and was rather impatient. Do I regret moving out (of SAF) to search for new cheese? Yes, to some extend but no point looking back. And what’s the lesson I learned so far?

1) Be selective in buying self-enrichment books. Do not help others to earn a passive income unnecessarily unless it justified. If you invest (pay) in a book, you must expect a POSITIVE RETURN, tangibly or intangibly.

2) When acquired new knowledge/teaching/concept, stay calm and think it over and over again. Consult some friends or seniors. Be patient.

3) Accept the fact that even if you apply a concept closely, it doesn’t mean that you will definitely get the same result. For some yes but not all. E.g. the author shares with you his secret to become millionaire. Do not expect that you will also become a millionaire if you apply exactly. Get real!

The Future

To be continue......if there is any.......

Is Koh Brothers Undervalued?

Clarification And Reminder

Firstly, to all my readers, I must emphasise here that although I am gloomy on the global economy, I had never, ever advise any friend to damp all equity immediately. We must be very clear here that we can only monitor the situation and make minor adjustments along the way until concrete evident emerged. For example, currently I feel that US economy is shaky or to put it correctly, uncertain, I will hold my stocks and limit any further investment regardless of the price movement. Some of my friends told me that it is stocks are cheap after correction and we may average down. The question is that it can be even cheaper. So how you define “low” in the first place? But of course if you are trading, then that is a different story.

Before global economy really goes into recession, there are definitely growth stories in certain industries or companies. Many of us know that this year, oil and oil-related companies are giving out 6 months bonuses to their employees. The US economy may be uncertain, but that does not change the fact that oil-rig providers like Keppel currently has more than $1 billion oil rig contracts on hand keeping their employees busy for next few years. What else do we have besides oil?

Koh Brothers – Under-priced

Another lucrative, billion-dollar project is the Integrated Resort. This is nothing new to Singaporeans. The whole IR project is expected to cost some $5 billions (can’t remember is in US$ or S$). As of 21 Dec 2007, as far as I know, the casino construction contract has yet to be awarded. So who will be awarded has always been my question. Discounting foreign conglomerates, locally, only those with substantial size (manpower, finance) and with good track records stands a chance. And in my opinion, the following companies may stand a chance especially if they join hand:

- Lam Chang
- Koh Brothers
- Ho Bee
- Lian Beng

Among these four companies, one of them, in my opinion, is mis-priced – Koh Brothers. As at 21 Dec 2007, Koh Brothers’ share was last done at $0.38. This price, in my opinion, is undervalued. The following points are my justification:

1) In a Business Times report dated 5 July 2007 (titled - Heeton expects bonanza from prime project), analyst assessed that Koh Brothers’ JV project with Heeton (The Lumos) would fetch Koh Brother approximately $0.24 a share net profit from the sale of the condo. The following is an excerpt of the article:

“Property group Heeton Holdings could recoup its entire initial investment in its exclusive The Lumos condo by selling just two penthouses and a few mid-sized units during this weekend's pre-invitation launch.

The company is confident that over a third of the 53 units at the prime Leonie Hill site will be snapped up at this Saturday's 'by-invitation-only' event for special guests.

'We have not issued any price list,' said Danny Low Yee Khim, the Sesdaq-listed company's executive director and chief financial controller. 'But I expect property agents will have indicative prices benchmarked against neighbouring properties in the vicinity. Some are apparently coming with blank cheques from their invited clients.'

Key among these 'neighbouring properties' is SC Global's Marq On Paterson Hill, which set a new record last week when a unit was sold for $5,100 per square foot (psf). And all 21 apartments in the first phase of that 66-unit luxury development - just down the road from Lumos - have been taken up at an average selling price of $4,137 psf.

Market watchers reckon units at The Lumos could fetch well over $3,000 psf. At this price, Heeton and Koh Bros (each has a 50 per cent stake in the project) stand to make some $220 million - or $110 million each - in profit.

This works out to about 50 cents per share for Heeton, and 24 cents per share for Koh Brothers.

The two firms bought the site - previously Hilton Towers - in April 2006 for $79.2 million, or about $880 psf per plot ratio, including a development charge of about $3.9 million. Coupled with construction cost, the total cost is said to be well under $1,200 psf…..”

2) In Jun 2007, Koh Brothers announced that it has formed a consortium with a few big players including Heeton and acquired prime freehold site at Newton road.

3) In Nov 2007, Koh Brother announced that it has acquired freehold sites at prime Bukit Timah road and another one at Changi road.

4) In Dec 2007, Koh Brothers was awarded a project from MOE for the construction of River Valley High school and hostel.

The Integrated Resort (Casino in Singapore) Contract

In my opinion, current price of $0.38 a share is under-priced with existing contracts plus those newly awarded particularly The Lumos condo. Assuming that the analysts are correct, at $0.38 a share, you are actually paying $0.14 for Koh Brother’s business. Let’s not drift too far away from my most interested topic – the IR project. Among the four companies that has the potential of tendering and carry the IR project, I chose Koh Brothers. Ok, may be I should say I bet that Koh Brothers might get it and since I believe that its price is undervalued, I had a safety margin.

In Dec 2007, Koh Brothers announced that it has formed a JV with Lian Beng to tender for the casino tower. Its share price surged to a high of $0.49 but subsequently retreated to $0.38. I hold on to it. I wanted to continue the game until I see the last card.

Koh Brothers 1H2007

In Koh Brothers’ interim report, gross profit grew by 42% to $14 million. However, property revaluation caused Koh Brothers’ interim profit to jump 2,225% to $30 million. As such, I am expecting better performance and more good news especially with existing and new projects awarded. I will do detail analysis of Koh Brothers financial report separately.

In my opinion, Koh Brothers’ current price of $0.38 is cheap. And I am not even talking about IR project here. The IR project will be a great catalyst. Therefore, I don’t think investors are not paying a lot for $0.38 a share and thus offering good safety margin. How much is the safety margin I don’t know. And don’t ask me what’s my expected price of Koh Brothers. This is because I don’t know and I never set price target; never in any of my article. At $0.38 a share, I call a buy on Koh Brothers.

The Selling Strategy

When To Sell?

If you read a book written by some experts covering buying strategies but never touched on selling strategy, your learning are not complete. A good investment gurus will definitely tells you (or teach you) on the importance of selling strategy. Yes, when to sell is just as important as when to buy. I am not an expert and certainly not a guru. But through years of reading and investment experience, I had developed my very own selling rules. So this is my own “when to sell” criteria:

1. When you need money. This should be self-explanatory. The first rule of investment is when you have spare cash that is not needed in the near future. If this assumption does not hold anymore, you should not invest; at least not in stocks.

2. When a counter has been heavily speculated, price surge aggressively not supported by any news. This is a common phenomenon whereby speculators switch their attention to a counter and trade aggressively. And usually you will see that particular company answering to the SGX’s queries with “we do not know any circumstances that could explain high trading volume”. Basically there is no change in the company’s fundamental. In this case, you should sell high and wait for Ms. Market to cool down. You can re-purchase again when the price retreated to a sensible level.

3. When the fundamental of the company you bought changed. This is really from the teaching of Warren Buffett. As a value investor, you invest in a company certainly due to a value in that company and that the price does not fully reflect that value. That’s why you buy its shares. But if the fundamental of that company changed, depending on the situation, usually you have to get out of the company ASAP. If Coca Cola no longer sell coke but hard disk, you got to get out immediately. A good example in Singapore context would be education provider – Informatics. For many years, Informatics enjoys reasonable growth and was well covered by analysts. It was investors’ favourite stock until the expose of its accounting scandal. The education provider’s brand was seriously damaged and student intake fell drastically. One of the mechanics in my company asked for my opinion in terms of investment and education (for his daughter) in this company. Objectively, I advised him to avoid this company whether it is for investment or education. The company’s brand name was the key reason for buying it. If the company losses its brand name, then you should sell immediately.

4. When the economy is on the downturn. If the generally economic, or the global economy is on the downturn (or recession), you must run like hell. With certain exception, if the economy is entering into a recession, you must make sure that you are one of the first to get out. I’ll discuss more on this point later.

5. When existing price fully valued a company. This means that the price reflects the value of a company. The obvious question would be what’s the value of a company, how to measure it. Well this is not easy and can be very academic. Generally people use discounting cashflow on dividends, free cashflow and other formula to assess a company’s value for whatever remaining life, today. This requires prediction of a company’s future growth and performance. It is a highly difficult task with many assumptions and even two analysts using the same formula may produce different answers. So usually I use other easy method that kill lesser brain cells. For example, I use PE ratio to determine if the company is over-priced. Another situation would be when you buy a company because of a catalyst, and when the price adjusted for that catalyst, generally you can sell it.

When The Economy Is On The Downturn

This is a more interesting topic and I like to talk more about it. My approach to investment is always to look at the generally economy, local and global. We like to invest long-term but not that kind like Warren Buffett because we are a bunch of poor little retail investors. So we must look at the business cycle. When the business cycle is on the recovery to its peak, generally, you will make money in most of the companies you purchased. Think about it again. You are sure to make money by mid-2007 if you buy in almost any company listed in SGX in 2005. You don’t need any analytical skill but just throw your dart on the list of listed companies. Even laggard stocks like the construction companies that hardly move until 2006, can create miracle. Most of them surged aggressively from end 2006 to mid-2007 ensuring that your average uncompounded annual returns is about 30% (I don’t have statistics here).

Now the same rule applies. If the economy is on the downturn, in the mid term, your portfolio will surfer a loss. Although a small group of companies can still outperform (I will cover in another write-up), the problem is that can you spot these and only these companies? Are you that good and lucky. I am afraid most of the time we are not. That is why if the economy is on the downturn, you really must run away from the equity.

“So what’s your opinion on the global economy now?”

Since November this year, or after the exposure of US subprime problem, I had been quite pessimistic about the generally economy. Together with rising oil prices, and that US is one of the highest consumers of oil; I think we have more bad news. It is extremely difficult to predict the future economy but if you ask me to place a bet with all my savings, I will bet that the US economy is on the downturn. This is simply the logic of probability. There is just more bad news than good ones. And we all know that if US economy goes down, she will drag everyone down especially Singapore (being an export country to mainly US and Europe). So if my assessment is true, which we will know very soon, then we are heading to a downturn or to put it clearly, a recession. When will that take place? God knows! But this is my assessment:

We had just passed the peak (or the tip) of the business cycle!

Conclusion

If you have been following my blog, you should recall that I mentioned that the stock market is a leading indicator of the economic movement. Yet it is highly difficult to predict the global economy. But we have to try. Based on what we know to-date, I am definitely not bullish. I believe that we had just crossed the peak and we must be prepared – for the worst. I had advised my friends to start looking at bonds which I had covered extensively in my blog. I don’t mean that you should damp everything away today and switch all your money to bonds. But certainly you should start getting defensive on equity and study the bond market. I am afraid that one of my selling rules has emerged. And I write this blog today to mark my analysis so that my judgment may be judged in the future.

STI Movement Nov 2007