Wednesday, 10 July 2013

Model Portfolio - Start Date 10/7/2013

By Smoking Gun

Disclaimer: This is a mock portfolio and all trades referred in the the context of this mock portfolio are purely hypothetical based on actual prices observed during actual trading. This mock portfolio only serves merely to demonstrate the methods in my stock picking and trading strategy and does not represent a solicitation or recommendation to buy and sell any security or financial instrument. The content on this site is provided as general information only and should not be taken as investment advice. The ideas expressed are solely my opinions. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.

My Trading Journal
I started this blog to record my thoughts and ideas on trading stocks. There are many blogs and forums on Singapore equities and some of them are really informative and insightful. I don't intend to go that route with my blog due to my time commitments, although once a while, I intend write at length on certain subjects. However, readers can have an objective assessment of my methods of stock picking and trading philosophy by assessing the performance this mock trading journal. The starting position is $1m and the inception date is 9/7/13

I have only two simple trading rules for this portfolio which are as follows;
1. Maximum Exposure into any given stock at any time - 10% of portfolio
2. Minimum Stock Positions as % of Portfolio - No minimum

At 4.40 pm, 10/7/13, I bought 130,000 shares of Hiap Hoe at 0.74 for a total gross trade value of 96,200 which is within my 10% single stock exposure limit rule. Hiap Hoe fulfilled all the criteria on the system and so enforced our conviction to buy.

First thing we look for is the reading on the M Index as compared to the previous five days (bottom right hand side table). Hiap Hoe's latest M reading is at 463.10 compared to 64.61, 27.66 and 16.07 for the previous 3 days which represents a significant leap in trading activity for the stock. (100 being normal trading volume for any given stock). The next thing we look at is whether the jump in M is accompanied by a positive price action, as this implies that there is a surge of buying interest in the stock due to the bidding up of prices and volume buildup. Conversely, we ignore those high-M stocks with negative price action. In this regard, Hiap Hoe is up by 3c, so it confirms the first criteria.

To support our trading decision, we look at the other indicators to provide further validation. The MFI and BrH has to be trending up over the last five days. So for Hiap Hoe, again no problem there as well as the other indicators look very healthy with nice steady rise. We will look at the MFI for signals to sell, normally if it drops 3 points from the high watermark point, we will exit the positions. In this regard, the high watermark is 54.58 as of today. This means if the MFI drops to less than 51.58 we will exit the position even at a loss. If the MFI climbs to say 56 tomorrow, then the exit signal will be triggered when MFI is at less than 53 and so on.

I will try to update the values of the Mock Portfolio on a daily basis although I may not be able to give full commentaries due to other commitments. However, feedback is welcome and appreciated.

Singapore Market Overvalued?
I was attending an investment seminar organized by a private bank a week ago, and the key takeaways from their experts were;
1. The expected tapering of US QE has moved significantly forward to 2014 as compared to 2015
2. Bond yields and interest rates are expected to trend upwards
3. All asset classes to experience headwinds, equities will still outperform in Japan and Europe and places where monetary policy remains easy.
4. Gold prices set for rebound.
5. Singapore equity market is very richly valued as compared to peers and risk sudden outflows in capital due to several factors i.e. rise in US interest rates, China economic woes worsening etc. At 16X prospective earnings, Singapore looks fully valued

Name P/E P/B Est P/E Est P/B
HANG SENG INDEX 9.47 1.31 18.46 2.67
KARACHI 100 INDEX 9.44 1.76 17.74 1.52
Straits Times Index STI 12.95 1.41 16.54 2.22
CSI 300 INDEX 11.05 1.53 16 1.77
S&P/ASX 200 INDEX 19.55 1.89 14.79 2.84
NZX 50 Gross Index 20.15 1.87 14.47 1.59
HO CHI MINH STOCK INDEX 13.62 1.76 14.17 1.34
SRI LANKA COLOMBO ALL SH 12.21 1.69 13.56 1.75
KOSPI INDEX 26.86 1.07 13.55 2.1
TAIWAN TAIEX INDEX 22.14 1.7 13.35 2.18
FTSE Bursa Malaysia KLCI 16.92 2.34 11.92 2.04
STOCK EXCH OF THAI INDEX 16.6 2.3 11.33 2.01
NIKKEI 225 26.05 1.55 9.97 1.07
NSE CNX NIFTY INDEX 16.21 2.52 9.72 1.22
JAKARTA COMPOSITE INDEX 17.93 2.81 9.52 1.4
PSEi - PHILIPPINE SE IDX 18.82 2.81 8 1.66
Name P/E P/B Est P/E Est P/B
CAC 40 INDEX 15.62 1.23 14.66 2.26
DAX INDEX 15 1.43 13.56 1.75
FTSE 100 INDEX 16.14 1.8 11.79 1.17
STXE 600 € Pr 18.51 1.62 11.75 1.66
S&P 500 INDEX 15.75 2.38 9.73 1.22
Source: Bloomberg

Given this challenging environment, stock picking becomes even more critical for investing/trading success.