Phillip Futures - 2021 Outlook: Post Covid and Beyond

One of our authors has attended the Phillip Futures Webminar yesterday and they have shared the content via Youtube. Do take note that this is shared by Phillip Futures Sdn Bhd to the public. Ant On The Street  shall not be liable for any reader's actions nor take any credit for the viewpoints shared. 

Stocks: How can we use 'Sentiments' to our benefit in stock investing?

In my previous article, we discussed about What Moves Share Prices. In that article, it is mentioned that Sentiments that is the key factor that affects and moves share prices. Now, knowing that the main contributor of share price movement is due to sentiment, how can we benefit from it? Remember one of the main mantra of Value Investing is "Price is what you pay and Value is what you get". 

I personally champion fundamental analysis and also a believer of Value Investing. However, since sentiment is not quite fundamental but it has to do with human behaviors and psychology, I will use mainly Technical Analysis method to select stocks and look out for opportunities.

1. Buy on Dips (if the overall market is on an uptrend)
If the investor has identified that the market is on a recovery and uptrend, buying during any dip is a feasible and proven option. As markets don't go up in a straight line, it's imperative that it'll correct itself once in a while and provide investors a good entry point to accumulate more shares. Normally in an uptrend market, actual data will provide support to the higher valuation and continuity of the bull market.

2. Buy on Price Irrationality (a combination of fundamental and technical analysis)
Often, there are companies that are selling below their intrinsic value. Some examples include property developers like SP Setia, Sime Property of even Banks like Ambank, CIMB, Affin Bank selling at 0.3 to 0.7 times of the book value. The prices are beaten down because of slow sales and anticipated massive impairments. However, if one were to look further and past the pain, most of these companies will bounce back strongly and valuation will rise certainly. 

3. Buy on Supports (Technical Analysis) I will not go in too detail as it involves a separate lesson on how to use each of the indicators (or a combination of them) effectively. Some examples as below:
a. Using Bollinger Band

b. Using RSI (oversold region <30%)

c. Using Stochastic

4. Using Contrarian Investing Strategy
Contrarian Investing is an investment strategy that is characterized by purchasing and selling in contrast to the prevailing sentiment of the time. A contrarian believes that certain crowd behavior among investors can lead to exploitable mis-pricings in securities. I have been using this strategy for over 12 years and it has been proven to be very profitable. 

However, risk management is key as when market sours, it normally means that businesses are suffering. This means that there will be some companies who will be bankrupt during the downturn. So, in order to exploit this method, you will have to study the balance sheet and fundamentals of the companies before you invest in them. This strategy involves buying companies' shares when stock market is having 'big discounts' (think of massive clearance sales) and hold them over a period of 2-5 years.

Conclusion
The above are some examples of strategies can be employed to profit from the stock markets. In the traditional market (non derivatives or structured products), the only way to profit is to "buy low sell high". For more advance or sophisticated investors, you may explore further instruments like warrants and futures which would allow you to bet both ways (able to profit when market is going up or down). However, the risks associated to it are normally higher as Warrants have an expiry date and normally trading at a premium to the underlying value. While Futures is normally purchased based on calendar month, it has a value (i.e. HKD10 per point for Mini-HangSeng) attached to the points movement. For investors wanting a smaller exposure it might not be suitable. 

2021 Stock Markets Outlook: Key takeaways from Principal Webinar (Positioning for Recovery in 2021 Part 2)

As an active investor in few fund houses, one is frequently invited to Investment seminars and events. Due to the pandemic, this year Principal Asset Management had a series of webinar. One of it is titled: Positioning for Recovery in 2021 (Part 2). which was held on 16th December 2020 at 8.30pm. For the benefit of all readers, we are going to summarize the key takeaways from it. 

Just some disclaimers here: The author is not responsible for any errors made while translating information given in the Webinar. The views were provided by the fund house and AntOnTheStreet shall not be held accountable or responsible for any accuracies of information provided in this article. Readers are advised to exercise their own judgement before making any purchases in stocks or unit trust funds. 

Due to copyright issue, we will not be able to share you the snapshots of the slidepack in this article. However, you may keep in touch with us should you want a copy of it and it's possible to do it privately.

Key Takeaways
1. China will continue to dominate world's growth in Year 2021. At least 1/3 of World's growth will be coming from China

2. Key risk will be if vaccines don't work or have issue. Current equity rallies factored in vaccine will work.

3. Principal has grouped the Year 2021 investment theme to: Renewal, Revitalize and Recovery.
  a. Renewal: new practise and right technology is deployed to address past weaknesses and to meet future demands.
  b. Revitalize: resume conducting business in new eco-system facing new demands from competitors, customers and business partners.
  c. Recovery: economies and companies leveraging on respective comparative advantage to generate better profitability/income.
To reposition into the 3Rs themes. Also, in biotechnology and technology sectors as their role in human day to day life will keep on increasing.

4. 2020 Q4 company results (due in Jan & Feb 2021) for European markets and some parts of the world might not be pretty (mobility chart shows that further lockdown caused reduced mobility). However, the speaker is unsure that it'll caused a big dip as markets might just look past the slowdown.

5. China's economy continue to transform from export based to services based and domestic consumption. The social migration (lower income to middle income) will continue to support demand for higher value products (i.e. branded shoes, cars, housing)

6. EPS expected to grow strongly in 2021, with China leading the pack followed by ASEAN countries. The rest of the world will also recover fast but expected to be slightly lower than China and ASEAN region. World's GDP is expected to grow ~5% (vs previous yearly average of ~2.4%) 

7. Expect markets to be less volatile as Biden will behave like 'a traditional president', no social media storms issues.

8. 2021 world's fiscal policy will remain supportive and not many countries will raise rates. Some countries might still do one more round of rate cuts and stimulus while some might do a small rate hike if economy stabilizes. 

9. Raw materials prices will do well due to increased demand. This includes metal, silver, oil, gold etc.

10. There are observations from majority of companies that they are seeing positive margins from Aug onwards. It was understood that before that a lot of facing negative margins. Hence, the companies are able to do proper business planning (i.e. starting to plan for expansions, upgrades etc). This is reflected in PMI numbers throughout the world.

11. When asked on "Any recommended Principal Asset Management fund to choose from to benefit from the Recovery in 2021". The speaker is bullish on Principal Greater China Fund (due to bright outlook in China). However, due to Portfolio and Risk Management issue, it's recommended to diversify into Asia Pacific Dynamic Income, Growth, Millennial Equity or ASEAN (China-Indonesia-India Fund).

Stocks: My Equities Investing Journey

We know that statistically, there are about 80% of retail investors which did not make money. After all, the market is a "zero sum game" where if you sell your shares at a higher price, someone has to buy it. 

I have been fortunate to start learning about stock investing early on in my career life and made a decent returns over the past 12 years. As I never actually did calculate the returns (due to the fact that I was adding money in over the years into the same share trading accounts), I am unable to quantify the returns per year etc. However, from the records of my trade in CIMB iTrade account, it can be seen that 85% of my trades/investments made money. What I observe is as below:
1. 85% of my trades were positive
    a. 15% of my trades made very good returns (i.e. >50%). 
    b. 20% of my trade made <10% returns
2. 15% of my trades end up losing money. 
    a. 2/3 of the losing trades lost <15% 
    b. 1/3 of the losing trade lost >15%

Separately, I have also managed 3 separate accounts for very closed friends and they enjoyed very good returns at 180% over the duration of 8 years (i.e. grew RM50k to RM140k). I will not share further details due to the agreement with them.

These are the things I have done over the past 12 years, which I hope that I have done the right thing.
1. I have started investing 'real money' after I got my first month's salary 
2. I really had no idea how to properly select a stock so I read up books and stumble upon the theory of Value Investing, which is used by famous investors like Warren Buffet. I utilized valuation methods like P/E ratio, PEG, ROE, P/NTA to try to assess a company.
3. To enable me to properly assess a company, I learn how to read company's accounts. Also, I try to understand the nature of different business and how it connects to different market dynamics. 
4. I read daily financial news, market information and company announcements. 
5. While I got better in trying to value a company via the valuation methods, I realized that I am unable to tell market sentiments. Hence, I started to learn about Technical Analysis. 
6. Technical Analysis is an exciting tool as it is 'a study about humans' response in stock market'. By only looking at Fundamental Analysis, one will not be able to pick up stocks at its lows and sells at certain peaks and leverage on 'price disparity' to gain some good profit. I picked up a few tools in Technical Analysis like MACD, Bollinger Bands, RSI, Moving Averages, Candle Sticks, Support/Resistant, Stochastic etc.
7. In order to gain access to books on both Fundamental and Technical Analysis, I went down to libraries and sometimes stand at the bookstores reading. This saves me a lot of money. What I realized is most of the stories shared, tools and methodologies used are very similar. 
8. To further strengthen my Technical Analysis, I attended a few free seminars organized by Chart Nexus and at one point spent an entire year subscribing to the back end tester of Chart Nexus software (to simulate buy/sell decisions based on a specific algorithm/combination of Technical Analysis). The results proved that it's not very useful to utilize only Technical Analysis in trading without the support of Fundamental Analysis as they are a lot of 'blind spots'
9. I also came to realization that Share prices are normally forward looking (i.e. 3 - 9 months ahead). Neither Fundamental nor Technical Analysis alone is useful in picking and selecting the next market champion. Hence, I decided to utilize Fundamental, Technical Analysis together with business projections (I call it the "trio" factor) a particular company to decide if the price is right to buy in, the target price over the next 12-24 months and is it worth taking the risk?
10. The "trio" factor did quite well for me and I was able to generate decent returns by just investing in Bursa Malaysia. Every year, I beat the market (i.e. Index) with the formulas which I adapted over the years of investment. 
11. It was the years between 2015 to 2018 that I realized that by investing in Malaysian market, I am restricted to returns in Malaysia. I am unable to take advantage of the positive business sentiments in other parts of the world. I had my Unit Trust and PRS license and started serving a small group of investors. 
12. Through the agency, I managed to gain access to some working insights of Fund Managers and of course the fundamentals of Unit Trust. As my fund size grew, I realized that I need to diversify (not only sectoral but also geographical). The important lessons that I learnt from Unit Trust is "Risk Management". All financial products including shares have associated risks which also fluctuate according to market, economic and political changes.
13. I got attracted to Futures trading in 2018 and started trading FKLI, FCPO and Mini-Hang Seng. This trading section of mine got mixed returns where I had made very good bets on certain time and products which gave me extremely good returns but some made some glaring losses.
14. I started to manage my stocks like a portfolio. The views changed as I have >RM1mil in just Bursa Malaysia alone. The understanding of Risk Management and realization that none of us can afford to lose all our hard earned money and stock markets should not be treated as "casino". Having a portfolio will probably not yields you 300% return over a single year but it certainly helps to manage risks. I am still able to enjoy returns way above the KLCI and KLSE Small Cap index's returns. I would strongly discourage someone to put >20% of the investible in a single company to avoid tremendous losses.
15. In the same year, I started venturing out in investing in US Equities. This came in realization as well that as our wealth increases, we also cannot put all our 'eggs' in Malaysian currency only. Also, there is a need for me to build skillsets and expand my investment horizons. 

By sharing what I have done, I hope that it will inspire young aspiring investors to learn investment and not speculate the markets. Yes, speculation does make money but at the end, fundamental will still prevail (i.e. a company which made better profits year over year will see a rise in share price and vice-versa). I humbly say that we all made mistakes and the spirit is that we must always learn from mistakes, not to give up and keep pursuing until we succeed again.