Tough time to invest but good time to buy

Tough time to invest but good time to buy


Tough time to invest but good time to buy
By Dennis Chan
'O judgment! Thou art fled to brutish beasts and men have lost their reason!'
This outburst from Mark Antony in Shakespeare's Julius Caesar crossed my mind unbidden when I received a burst of SMS messages while on a business trip to Tokyo last October.
The messages were stock alerts that my online broker sends out automatically when prices hit a preset level. Before I left for Tokyo, I had set the alerts at some ridiculously low levels. Or so I thought.
But on that Oct28 morning, it was mayhem at the stock market.
Investors were throwing their shares at whatever prices the buyers were asking.
A quick scan of my messages had my heart in my mouth: Keppel Corp had fallen to $3.35, Sembcorp Marine had slipped to $1.15 and City Developments was languishing at $5.30. Mixed with the fear was a stirring of greed as I debated whether to pick up more SembMarine shares.
As I had acquired some at $1.57 apiece only two weeks before, averaging down seemed like a good idea. So I called my remisier to queue at $1.10, which I considered to be a strong support level.
This was because $1.10 is the price at which Sembcorp Industries tried unsuccessfully to privatise the ship and rig builder in 2002.
My rationale wasn't entirely logical as the takeover offer was no longer comparable to the current price, given that in 2007 the company issued bonus shares to shareholders.
Alas, the shares did not fall below $1.15, and the moment was gone. What was not lost on me, however, was the irony of the situation.
This selldown was led by big institutional investors, judging by the heavy trading volume and sharp reverses in blue chips.
In the old days before the sub-prime crisis blew up, small investors were regularly scorned by financial whiz-kids for their herd mentality and lack of investment discipline. But these days, it is the professional investors who seem to behave like lemmings.
Discussing the market meltdown over lunch the next day with Professor Shumpei Takemori, who teaches economics at Keio University, I wondered aloud what it was that prompted rational, sophisticated investors to dump good assets at fire-sale prices.
'You mentioned good assets, and there is your answer,' he said.
'If you are a fund manager needing to raise cash to meet redemption calls, you can only sell your good assets. There are no buyers for toxic assets.'
I didn't know it then, but Oct28 turned out to be a pivotal day, when the Straits Times Index hit its trough for 2008 in intra-day trading. The rebound that came was sharp and swift. After diving to a low of 1,460, the index rebounded to close the day at 1,666.49, up 66.21 points.
When I got back to Singapore the following week, SembMarine had recrossed the $2 mark.
Ordinarily, I'm an old-fashioned investor who acquires shares for the long haul. But in these volatile times, I've become more tactical.
I sold my SembMarine shares that week at $2.12, one of the rare instances last year that I got my timing right. Punching on my calculator, I worked out a return of 35per cent in a matter of weeks.
Feeling a little triumphant, I shared this experience with Serena, my bank relationship manager, in rejecting her suggestion that I invest in a regular savings plan that could yield a compounded annual return of 5per cent over 12 years.
'No way am I going to repeat the mistake I made in 1998,' I thought.
Back then, at the height of the Asian economic crisis when fears of job and investment losses were as pervasive as today, I had allowed myself to be persuaded into investing in a capital-protected fund.
It seemed like a good idea at the time, as equities had crashed and there were reports of investors losing their shirts in the stock market.
In reality, it was the wrong time to invest in capital-protected funds for their bond-like returns when equities were poised for a major rebound. The right thing to do was to acquire shares on the cheap.
Various studies have shown that the best times to invest and reap abnormal profits are during crises.
So I told Serena, somewhat pompously: 'The stock market has bombed out; some shares are down 90per cent from their peaks. These are extraordinary times for making extraordinary profits. I won't be satisfied if I can't achieve 30 to 50per cent returns.' I have yet to live up to my bravado. Since our conversation, I'm making about 1per cent or so, as most of my investible funds remained parked in fixed deposits and savings.
Notwithstanding the commonly held belief that equities tend to lead the real economy by about six months, I feel the market is a tad too optimistic at current levels in the face of worsening economic conditions. Experts say recovery could come in the second half of the year. The sceptic in me reckons that what may arrive instead is a false dawn before a real recovery takes hold.
Meanwhile, I'm still in the mood for buying. But not stocks and shares.
One thing seems certain: Consumer goods are getting less expensive these days, and are likely to become even cheaper in the months ahead. As manufacturers grapple with high inventory and warehouses along the supply chain are stuck with slow-moving goods, the pressure on retailers to discount the prices of their wares can only increase.
During a recent Chinese New Year shopping spree, I was pleasantly surprised to find that I could get a brand new 42-inch Panasonic plasma TV for $699. I figure this would have cost me $1,699 or more during the boom years. I also bought quality spectacles for a fraction of their usual prices at a sale.
As an added bonus, I got to redeem a giant abalone gift set by chalking up the spending on my OCBC Bank credit card.
At this juncture, you may be wondering if I'm veering off tangent in this column by switching topic from investing to spending.
But really, spending and investing are two sides of a coin.
Why do we invest if it's not to delay gratification to a future time when our purchasing power has increased?
I would argue that a dollar of spending goes a longer way during a downturn and that now is the time to open our wallets for the things we may have long denied ourselves. Hence, my New Year resolutions are to spend modestly but to keep sufficient reserves to catch the upturn when it arrives, if I'm lucky.
That is why on the first day of the Chinese New Year, I wore new clothes and glasses, and wielded a brand new Nokia handset.
This is to - as Singaporeans are fond of saying - 'double confirm' that I will be blessed with good fortune for the rest of the year.
This article was first published in The Straits Times on February 01, 2009.
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