Monthly Review- September 2010

This month is a month of rally due to better than expected economic data from the US. STI broke through the previous high of 3,043 and reached a new 2-year high. This boosted the confidence of many investors previously staying at the sideline to participate in the rally. However, near the end of September, things looked a little subdued as markets were overbought and worries of the Eurozone returned to send jitters to the markets.
For my portfolio, the decision to add on my positions in Noble when the opportunity presented itself last month proved to be the right move. This month, Noble announced the acquisition of the retail commodity marketing operations of the joint venture between Sempra Energy and the Royal Bank of Scotland. This move will boost the portfolio of Noble and its earnings per share is projected to increase by approximately 10% with this acquisition. This boosted the share price of Noble to shoot up by 8% in a day and it prompted me to sell off part of my holdings in Noble to lower my average buying price to a safe $1.46. I will continue to hold on to this strong commodity counter until fundamentals change.
Another big event for me this month is the announcement of the placement of new shares by Mapletree Logistic Trust. The purpose of this placement is to raise funds for further acquisitions and pay down debts to strengthen its portfolio. Part of the new shares is for institutional investors and part is for existing shareholders, who will be eligible to purchase 2 shares for every existing 25 shares at $0.815. This is an expected move by Mapletree Logistic Trust, hence I will definitely add on my positions in this strong counter, and hopefully be able to apply for excess shares so that I won't end up with odd lots. With further acquisitions up and coming, I believe there is still upside for its yield. Hence when opportunity presents itself, I will definitely buy more shares for consistent dividend play.
In addition, Parkwaylife Reit had a spectacular performance in September until a private equity firm announced that it will sell off its 9.3% stake in Parkwaylife Reit at a price range of $1.56 to $1.62. This move caused Parkwaylife Reit's share price to drop by about 5.4% in a day and I made use of this opportunity to add on my positions in this counter. With this purchase, I also decided to sell off my positions in Yongnam at a slight loss due to commissions to free up some cash for better investing opportunities, as explained in the previous post.
Overall this month has been a good month and my portfolio's unrealized profits rose to the highest level for the year to date. I hope the macroeconomic conditions for the coming months will continue to be sustainable and the upcoming 3rd quarter results will continue to thrive with good dividend payments. It has been expected that growth in the 2nd half of this year will slow, hence the upcoming results will not be as spectacular as the 1st half of this year. Nonetheless, I believe my counters are still fundamentally strong, and as a long term investor, in the event of a dip, I will add on my positions.

My Current Portfolio:

Lessons learnt: A reminder to myself that patience is a virtue. For fundamentally good stocks, continue to hold on to them until their fundamentals changed or their share price outran their fundamentals. Else a good amount of profits will be missed. In addition, remember to rebalance the portfolio by weeding out the losers and holding on to the winners. Selling away underperforming counters to minimize losses is an important skill to learn.

Yongnam (26th Jan 10 to 23rd Sep 10)

Yongnam is a company in the construction sector specialising in steel structures. It has a strong balance sheet and good fundamentals. Its order book is also healthy with many potential contracts to be clinched along the way. The above are some of the reasons why I invested in this counter in January.

Although Yongnam is a value stock in my opinion, it is not a "hot" stock. Through the 8 months that I held on to the stock, there were only 2 short profitable periods. Overall investing interest in this counter was low, and during the 2 profitable periods, interests in this counter was strong, but not sustainable. During the first rally, I was overcome by greed and thought that with patience, the rally would be sustainable and the price could go higher. However my expectation was not realized, and the share price came tumbling down soon after, leaving it in the red for a long time. It was till much later that I learnt that for penny stocks, the rally for them is a sharp spike, but only for a short period of time. Hence, for penny stocks I should just realize my profits when the tide turns.

I thought I have learnt my lessons after missing the first rally, but that was not the case. In the recent rally, instead of realizing my gains after the share price rose to the profitable region, I insisted on my target price of $0.30 and held on to it. In my disappointment, my target price was not reached, and the price retreated soon after.

Things took a turn when the share price of Parkwaylife Reit suddenly plunged by 5.4% in a day when a private equity firm sold their holdings in the counter. With this event, I decided to sell my holdings in Yongnam for the following reasons.

Firstly, Yongnam has been stagnant for a long time. This caused my money to be stuck in this counter for a long time with almost no returns, especially with my high initial buy price. The situation is aggravated by the low dividend yield of Yongnam, making this counter less and less attractive for me as this signifies a loss of opportunity cost.

Consequently, I came across the investing strategy share by an analyst recently: "Let the winners run, and weed out the losers". All this while, I do not have the courage to do so because I am very reluctant to realize any losses. It was till the counter returned to my buying price that I decided to sell off this counter with the losses stemming only from commissions, so I can finally free off this amount of strapped cash for more profitable investments.

Lastly I sold it off because a better investment opportunity has presented itself. Parkwaylife Reit has always been a stable counter generating good dividends every quarter. With the sudden plunge in the share price, I believe a good buying opportunity is presented amidst the panic selling. My belief is further strengthened by the outperformed call by an analyst.

With the above reasons, I believe there are more pros than cons for me to divest my money out of Yongnam and invest into Parkwaylife Reit. Even with the loss realized from the commissions, I believe that in the long run, the profits and dividends from Parkwaylife Reit will make this short term loss worthwhile.

My thoughts at that time: I was in a dilemma on whether to sell or to wait. I cannot foresee how the share price of Yongnam will turn out in the following weeks. If it rises, that will be great news, but if it continues to drop, that may mean I have to wait for another long cycle before any possible rally begins for this counter. With a better investment opportunity presenting itself before me, I decided to sell the counter despite the small losses from commissions.

Lessons learnt: Buy-and-hold strategy is not advisable for penny stocks with low dividend yields. Penny stocks usually have their long dormant periods and short spike rallies. If a rally is missed, a long time may be required for the next one to come, and this may mean the loss of opportunity cost when the money is stuck in a counter in the red, with little or none dividend payout during this period. Hence always be decisive when the rally for penny stocks seems to end and the tide has turned. It is always better to realize a smaller than expected profit than trapped in a losing stock.