SMRT was viewed as a strong defensive counter when I first bought it, as it is seen as the main monopoly of Singapore's public transport system, especially for the MRT system. This attracted me because with the view of the growing population in Singapore, which results in possible increase in ridership and hence increasing revenue, dividends were expected to remain stable.
The opportunity came when SMRT was removed from the STI components, which led to a drop in its share price to an attractive level due to the selling by major funds. With this, I bought 3 lots of SMRT for possible capital appreciation from recovery as well as stable and consistent dividend. The first few months were fine, though with the volatility in share price, it hovered around my initial purchase price. As my initial plan to purchase SMRT is for its dividends, with any capital appreciation as a bonus, I am not too affected by the fluctuations.
However, it did not take long for things to take a hit. A series of breakdowns of SMRT trains, especially some which occurred during the peak hours, frustrated many commuters and these resulted in the interference of government bodies. More stringent checks and fines were imposed for transport companies failing to meet certain standards. In addition, cost pressures from labour and operations began eroding profits of the company, while the stagnating fares did not help to alleviate these issues. All these started to cause a strain in the finances, with cut in dividends as the first sign of trouble.
As observed from the chart above, since October 2012, the share price of SMRT has been falling. This was aggravated by the profit warning issued last month. The price of SMRT broke down below the support of $1.575, which mean that any further decline could only find its next support possibly around the $1.20 region based on historical prices. Hence when the share price drop to my stop limit, I decided to learn from my past experience to bite the bullet early and sell all my holdings at a loss.
My thoughts at that time: Although I harbour the thought that share price could recover, as fundamentally this is different from First Ship Lease Trust and Rotary because public transport definitely has the support in revenue. However, with all the government policies on transport operators recently, it may be hard for SMRT to regain its glorious past as the dividend gem. Hence I had to take the hit before conditions worsen. Even if it recovers to higher pricing later, as per the case of Rotary now, I shall have no regrets and move on due to the unfavourable conditions now.
Lessons learnt: Be disciplined, and sell when stop loss is reached. Do not fight against the market, because as a small investor, there is no way I can fight against the market and prevail.
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