Saturday, November 03, 2007

Saturday thoughts

This is one of the rare Sat that I do not have work. Come to think of it, the most recent Sat that I do not have work is on 30th June, where I hopped over to Batam for a short weekend getaway. Hence, I'm rather free to reflect about issues over my blog now.

The most naturally thing that comes into my mind is to debunk the myth that blue chips are stable. From investopedia, the definition of blue chips is:

A nationally recognized, well-established and financially sound company. Blue chips generally sell high-quality, widely accepted products and services. Blue-chip companies are known to weather downturns and operate profitably in the face of adverse economic conditions, which helps to contribute to their long record of stable and reliable growth.

Notice the last sentence of the paragraph above. Are blue chips really that stable? Well, of course not. The recent crisis that global markets are facing affects the bluest of the blue chips - financial institutions. Subprime crisis comes because banks sold debts of subprime loans to other banks, who in turn sell it to investors. Subprime loans are risk groups because they would have failed the normal credit task to secure the 'normal' loans to finance their houses. Can you believe it? Debts can be sold and there is even a market for it. Pay a certain amount to secure other people's debts, in return get a 'stable' interest payout.

How about other blue chips in Singapore? Are they stable? Sembcorp marine just recently announced their foreign exchange losses to the tune of SGD 439 million after they closed their transactions - meaning that the losses are realised. Sembcorp marine is a blue chip quality firm and they even won an award from SIAS (i think) for their transparency. Ironic isn't it?

Generally it's true that blue chip stocks are less volatile. Take a look a those china stocks or the crazy newly listed Uni-Asia. But my take is that investor still need to pay attention to the winds of change. Don't get me wrong, I'm not against blue chips. On the contrary, I think now is the best time to get these blue chips at super cheap prices. DBS at $16 (it was at this price around feb last year 2006) anyone?

Another topic is the different approach to investment. My parents went overseas for like a week plus and I was tasked to water the plants for them. I watered it for a day and nothing happens. I watered it everyday for a week and I see nothing happens. But today when I watered it, I noticed that little white flowers appeared on the plants (it was a chilli plant).

TA guy would watch the plant closely because a breakout had occured. Breakout (on the upside) is when a stock is trending sideways then suddenly (okay, I exaggerate) there is high volume movement above resistance. TA guy would buy at this point and ride the wave up.

FA guy would water the plants daily because he is the one who picked the seeds out of so many packets in the market, planted it to wait for it to grow. Patience is the key because FA guy could be watering the plants for days and weeks and months without seeing any results. Those who are not in the know who think you are just putting water on soil but the truth is - the seeds are growing slowly under the soil! It cannot be seen until the young seedling grows out of the soil and progress to grow flowers and bear fruit.

What's my point? It's just an analogy to the different approaches to investment. And I'm trying to be that FA guy.

Alright enough of my nonsense. Dow did pretty well, recovering strongly intraday to close +27 pts. Monday will be exciting. Will we recover from Fri's selling or sell even more? We'll see.

Have a great weekend!


sm@ll.fry said...

Hi lp,

You mentioned about you "trying to be that FA guy" but I often read you mentioning about terms like resistance and support, which is definetly TA concepts. Care to enlighten?


la papillion said...

Hi fishman :P

I started off with TA, so it's very natural for me to look at the charts instinctively. However, i realised the limits of using TA and wanted to learn about FA, hence the 'trying'.

You'll definitely see me doing less charts from the future (i already did less compared to a few months ago) and doing more FA from now on. I'll be reading up intensively on FA in the coming months to increase my base knowledge about it.

What about you? TA or FA or hybrid?