Saturday, April 4, 2009

Query about DCA and other Investment Stuff

Query about Dollar Cost Averaging and other investmentsHi SGdividends,

Greeting to you and your team, thanks for having such interesting blog to enlighten rookie like myself.

Been following your blog for the past couple months, decide to write to you as i wish to hear more about DCA, currently i'm buying STI ETF via poems SBP at $200 mthly.Appreciate if you can give me more views on such, i'm not sure if i am doing the right thing, however the admin charge of $10.70 is definitely expensive.

On top of STI ETF, i'm looking to get some penny stocks but only have limited capital. 3-4k Myself is a passive investor and since i'm young, time is to my advantage. I'm willing to buy and hold.

Due to the recent bull rally, i can't help thinking if i really miss out the bottom. Rather than waiting and waiting for the uncertainty bottom, i got to be a little pro-active.

I have shortlisted a couple of stocks, hope to hear from your views if you are comfortable.
Bio-treat
Boustead
Cambridge
Celestial
Epure
FJBen
FSL trust
Gen int
Hyflux water trust
Mercator lines
Midas
RafflesEdu

Your comment is purely taken as suggestion and hold no responsible or liable to whatever that may arise.

( a reader)
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Hi Dude,

Based on the above, if you are only buying 1 counter ( STI ETF 100) at $200 monthly, then it should not be $10.70 charge. It should be $6.42, since your investment fall into the category of less than $1000 and less than or equal to 2 counters.If that’s the case, your “sales” charge is 3.21% monthly. The most optimal amount via SBL is $1000 monthly which comes up to 0.64% “ sales” charge in this category. So if you wanna do DCA , $1000per month is good if you have the necessary cash inflow monthly. For POEMS SBL using DCA, the next optimum is $5300. ( but don’t think most people can afford a monthly DCA of $5300 right and one can already buy a lot.)Having said that, think if $200 is all you can spare a month, then your current situation of investing $200 is the cheapest option available in the market now and you should continue doing it since STI is still pretty attractive. You should stop your DCA when you see yield curves getting flat.( See our post on "how to predict a recession" under the how to links. Scroll below for the link under Related Articles.)

Just to let you know, our strategy now ( or rather for the past 5 months since) is to buy blue-chips which are collectively included in the portfolios of Fund Managers.(See our posts on "A Peek into Fund Manager's Holdings". Scroll below for the link under Related Articles.) We reasoned that funds faced much liquidation which contributed to the plunge. If and when they buy back, they will buy back such blue-chips again….since they generally have a set criteria of what kind of counters they are allowed to buy. Anyway, we don’t know the bottom and we should just plonk in some money every month.

Just a short comment with some links on the following counters from a “fundamental” perspective, not “technical” perspective, we rather you see for yourself and decide =). It’s your money…not ours. You might also want to check out their debt profile.

Bio-treat
Cashflow
Just feel that there are too many competitors doing waste treatment but they claim to have this BMS technology, don’t know what the heck is that..
Boustead
Cash Flow
You might want to hop over to this blog to look at the in-depth write up by MusicWhiz
Cambridge
Purely a dividend play.

Celestial ( Thanks La Papillion for pointing the mistake)
Check out Convertible Bonds warning
It’s a soybean , food and beverage maker which means its exposed to commodity prices as a raw material. As a fundamental investor, this is a huge risk as people are bullish on commodity prices in the long term. Might face profit margin reduction. For example Jim Rogers bullishness.
Epure
Check out their Cashflow
Another wastewater treatment!!
FJBen
Check out their Cashflow
The cashflow don’t look good. The FREE cash flow looks abysmal.
FSL trust
Check out Market Uncle
Gen int
No comments.
Hyflux water trust
Check out Market Uncle
Mercator lines
Check out their Cashflow
The cashflow don’t look good. The FREE cash flow looks abysmal. Fundamentally weak, personal opinion. Some people may reason that it would be a good idea to buy into cyclical stocks since the upturn will enhance the capital appreciation of such cyclical companies since it has a high beta. It’s your call…but we don’t buy into this reasoning
Midas
Check out their Cashflow
Recently (around 30 march 2009), many financial analysts such as Kim Eng (target : S$0.68)and DMG ( target: S$0.73) say it’s a buy. Reasons being:
1) One of the four entities with a licence to assemble/produce Metro train cars in China.
2) Direct beneficiary of the China stimulus package. Approximately RMB2t is budgeted by the Ministry of Railways (MOR) for expansion of China’s existing railway system between FY09 and FY12, mostly for intercity train systems.
The company has granted share options:
Exercise price of options granted: S$0.517 per share and insiders who have accepted them are:
1)Chan Soo Sen
2)Raymond Tong Wei Min
3)Chew Chin Hua
Validity period of the options: 9 February 2009 to 8 February 2014 which means they can exercise it anytime between. ( that’s how we interpret it).
You might one to look at the insider trades at Midas Website
Raffles Educations
No comments.

SGDividends Motto" Take us with a very very small pinch of salt"
Caveat Emptor
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Important: The objective of the articles in this blog is to set you thinking about the company before you invest your hard-earned money. Do not invest solely based on this article. Unlike House or Instituitional Analysts who have to maintain relations with corporations due to investment banking relations, generating commissions,e.t.c, SGDividends say things as it is, factually. Unlike Analyst who have to be "uptight" and "cheem", we make it simplified and cheapskate. -The Vigilante Investor, SGDividends Team

13 comments:

  1. Hi SgDividends,
    Could you further explain "You should stop your DCA when you see yeld curves flat."
    I started POEMS SBP because as a newbie in investments, one has to be cautious to start small. From my observation it is still worthwhile to average down the price of the stock because of the volatility of the market.

    ReplyDelete
  2. If yield curves are rising, its signals that the economy will just get better in the coming years and you can DCA currently....When its flat or inverted, it means at present, its overvalued and it is very like to go down in the coming years.

    See what we mean in this link,
    http://sgdividends.blogspot.com/search/label/Predict%20Recessions

    We are effectively market timing the economy IN GENERAL when we say this.

    ReplyDelete
  3. Basically we meant, we can DCA during bad times like from even last year April 2008 one could have started to DCA already......and average down though the plunge in Oct/Nov 2008....to now....one can even continue to DCA now....since the yield curve is still increasing...maybe in let's say 4-5 years time ( don't know..maybe 10 years time???we dont know) when the yield curve starts getting flat...stop DCA-ing....maybe you can start selling your accumulated DCA-ed stocks since at or around that time...the market is around the peak.....

    SGDividends

    ReplyDelete
  4. Thanks for your explanation! Because of my inadequate knowledge in investments, I opted for STI ETF as the stock to accumulate with POEMS brokerage firm. I place $200 per month since August last year.

    From a high 2.438 to presently 1.6 per share, I did not lose much although the fees charged in total is $51.36 ($6.42x8).

    I have the intention to keep investing in this stock until I could fully grasp equity investments.

    Just one more question. How do I know that STI ETF is overvalued? From what I read, many stocks have come down in price, are they still overvalued?

    ReplyDelete
  5. I will recommend using http://DesktopBudget.com to manage personal finances. Its the best offline personal finance manager I have seen so far.

    ReplyDelete
  6. One way to see whether its overvalued is to compare the P/E of the STI among the P/E or P/B of other INdexes such as S&P 500 or Hang Seng.

    Another way to see whether its overvalued is to compare the P/E or P/B of STI through the years.

    Based on 2008 dividends that STI ETF gives out, the current dividend yield is 6.62% based on current $1.81.
    Your "sales" charge is 3.21% and ASSUMING the dividends stays the same. You would earn a net yearly dividend of 6.62% - 3.21% = 3.41%.(Have not taken into account corporate actions charges which could happen).

    So what we are trying to say is: there re many ways to value it....its more art than science.

    Though, we wished you could invest more monthly to bring down the fees.

    SGDividends

    ReplyDelete
  7. Thanks for your advice. Surprisingly, the staff did not brief me through all these when I signed up this plan.

    Is there a possibility of topping up the amount so that I could receive a much better deal? How to go about making this change? Would Phillip Capital allow me to increase my level of investment?

    ReplyDelete
  8. Hi,

    Don't think the staff is obliged to tell you what we just said as it is not within their scope of work to tell you how to or whether the STI is overvalued....In fact it will look bad on them if they tell you as they are working for a company.

    Regarding the topping up amount, you should ask them as this, they have to be able to tell you. All the best!

    SGDividends

    ReplyDelete
  9. Hi Sgdividends,
    Absolutely agree with you. But, it makes a great difference if the counter staff would bring out the different charges for different amount of placement in the SBP monthly investments.
    I won't dare to go back to them because I naively believe them and bought into a stock that the lecturer recommended. I told him I just wanted to invest in stocks for dividends and to stay invested for a long time.
    Besides, I have purposed in my heart not to attend their talks in the future because it is not my cup of tea.
    Anyway, I want to thank you for your fine articles that bring out different perspectives for readers. Keep up your interpretation on investments!

    ReplyDelete
  10. Thanks SGdividends for the great explanation of DCA. Agreed after taking a 2nd look, POEM are charging at $6.42.

    Having said that, the STI index seems to be undergoing a minor bull run, closing at $1.84. It be good if we can see the ETF actually went back to $1.50. Can't deny STI ETF is the safest stock for rookie and a bum like myself.

    Pardon me for saying this, you seems don't have much confidence in some companies especially infrastructure or treatment plants. The reason why i shortlisted them was that i been reading them around, despite the current turmoil, China is still going forward. Furthermore, companies like Midas, Epure secured projects with the government. But how true is that, i really can't say much. You could be right, too much competitions.

    Well, end of the day, it seems to be a better choice for me to stick with STI ETF :)

    ReplyDelete
  11. Hi Anony,

    Actually we are ok with infrastructure-RELATED companies..treatment plants we don't know cos we don't look into it....

    Anyway, STI ETF should be a safer bet since you mentioned before that you are still relatively new. Yup....all the best and keep curious!

    SGDividends

    ReplyDelete
  12. thank you for this nice article about DCA, it’s definitely very interesting

    ReplyDelete