2017: A Learning Year
It has been another learning year for me as I continue to learn from big and small mistakes. I define mistakes as failure to adhere to proper risk management techniques. Mistakes are primarily attributable to none other than one’s self-ego and greed. Nevertheless, the learning experience has guided me towards a more systematic (i.e less ad-hoc approach) in analysing securities and markets.
2017 is a year whereby I have started integrating global macro perspectives into my analysis. Although my focus has been centered towards Malaysian securities, global macro perspectives do supplement my understanding in certain situations. I am sincerely grateful to Erik Townsend & Team at MacroVoices (https://www.macrovoices.com/) for being a really good & reliable source for macro updates.
3 keys things I have learnt in 2017:
- PERSONALLY, I feel that the best strategy is really about finding value in “sudden-beaten-down-fundamental-stocks”. Sudden could potentially mean certain bad news (e.g owner has been charged, one-off incidents, exclusion from index, one-off demerger effects, intention of certain stakeholders, etc but fundamentally (if you think about it) it does not really affect the value of the securities. I certainly believe you could make quick return from these securities.
- Structured warrants – quick money, quick loss (an unimaginable quantum). Proper risk management is certainly required. Always have a view on underlying before considering the derivative instrument.
- Risk management, risk management, nothing but risk management (always prepare to cap your losses)
As anticipated, 2017 ended with a “massive last minute window dressing” for KLCI, closing at 1,796.8. As shown below, there was one big huge white candle in the last trading minutes on the last trading day of 2017.
The end result is relatively higher than my prediction of 1,740 in an earlier post (read more). Will we see massive selling when KLCI re-opens next week (in the new year)?
Since 1995 till 2016, the first trading day of a new year has a median day-on-day movement change of negative 0.39% and average day-on-day movement change of negative 0.29%. Further, a negative monthly return in the month of January is usually associated with a positive monthly return being recorded for the previous month (i.e December).
In addition, if you see the following seasonality chart, one might infer the following:
- The month of January is rather mixed – it’s like 50-50 positive and negative
- Since Dec 17 has recorded a relatively high m-o-m positive return, this may be comparable to the Dec months of 2011-2013 (or even Dec 2007)
- If that is the case, we may see possible similar negative returns in January 2018
2018 : Return Of Volatility?
1. Tightening cycle intensify? More interest rate hikes (especially with Malaysia with a negative real rate at this juncture, 3 rate hikes for US Fed). No more cheap money, time to pop the asset bubbles?
2. Inflation – could be a good thing as it potentially signifies growth. Believe that the rate hikes may be able to deal with any excessive inflation.
3. More worrying is the potential theme of GLOBAL STAGFLATION (high inflation, low growth rate, high unemployment) like Japan and UK in 1980s
4. Cracks appearing in China economy? Over-leveraged? How does this impact Australia. We shall see.
5. US Trump Tax Plan -> more borrowings to meet fiscal requirements -> print more money -> US dollar dethroned as world currency reserve? Rise of gold? Crowding out effects? Higher inflation and rate?
6. Geopolitical risks (North Korea, Middle East-Israel, Euro / BREXIT, Malaysia GE14)
Key focus for 2018 will be very much an ad-hoc strategy approach with the following primary themes:
- Focus on divergence (quantitative & macro analysis)
- Short term swing trading
- Avoid very high P/E and P/B stocks (in anticipation for a possible reversal in global equity)
- Rebound in the Oil & Gas sector – personally believe that Saudi may maintain oil price until at least after its Aramco IPO as well as the weakening effect of US Dollar
- Gold (positive hedge against a weakening USD)
- Long term – Malaysian consumer staples / healthcare / infrastructure yielding stocks / simple-to-understand boring businesses (with good margins / low gearing)
- Tactical positioning in response to the upcoming Malaysian GE14
Whatever strategy or tactic that one may have – one must remember the following famous quote. Irrationality of markets can outmaneuver you with ease.
Last but not least disclaimer – this is NOT an investment advice blog. Please read the DISCLAIMER.
Wishing you all a very happy new year 2018!
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Never stop learning. Life is always a learning journey.