Price movement of DBS shares over the past month

The price of DBS has fluctuated greatly in the past 1 month or so. This increase in volatility has benefited short term traders. Fundamentally, there is no change in the business condition and environment that DBS is operating in. All said, these movements are not unexpected and can be anticipated if one is able to understand the effects of corporate actions and read the market well.

I am not suggesting that the share price is being manipulated. The point I want to make is that there are certain ‘invisible hands’ in the market (how else do you explain the buying of 100-200 lots at one go) and their buying and selling stirs up the volume and interest of this counter.

In the period straight after the rights announcement was made on 22 Dec 2008, the share price went down as the public reacts to the fact that DBS needed a capital boost and upon conversion, the rights will dilute future EPS and dividend payout.

After the initial fall, the share price went up under higher volume in the last week of Dec before the ex-rights date as the investors went in knowing that they will be entitled to the rights and they (the rights) can be sold in the open market in the event that the shareholders do not wish to hold them. The share price continue to firm in the first few days of Jan as investors are aware that it is in their interest for the price to remain high so that the rights can be disposed off for a substantial amount in the near future.

The fall in DBS share price start to accelerate on the 8th Jan, 2 days after the commencement of the rights trading. By then those who wanted to sell their rights would have sold and the incentive to keep a high share price is no longer present. More investors exited the counter as they took profit on the main shares that they bought just 1 week ago. As evident from the graph on the right, the turnover volume is the highest at this point in time.

Immediately after Chinese New Year, the counter was in play again as the price went surging up based on the trades done and volume turnover. I believe this happened in anticipation of the new shares, which will be added on 2nd Feb. In light of the events that took place, I am confident that the price will go back down to the $8 range next week. My conclusion is based on the anchor price of $8.37, which is the theoretical price DBS should be trading in after the conversion of all the rights.

In short, the price movements that we have observed are typical of a blue-chip company with strong following and high liquidity, which decided to do a rights issue. I have no doubts that the share price of Capitaland will follow the same pattern should they issue renounceable rights too.

Eight stages of life by Vittachi

Stage one: The Intern.
Arrives late. Explains that he got lost. Told to make coffee. Makes undrinkable black gunge. Sits in on meetings at which he realizes - with horror - that he knows nothing about anything being discussed. Spends most of the day feeling useless. Asks inane questions such as, "Please, sir, do we have to ask before we go to the toilet?" At midday, eats packed lunch from home.

Stage two: The Short-Contract Worker.
Arrives early. Waits outside until a staff member arrives with a key. Devotes all his energy to volunteering for assignments because he is desperate to get hired full-time.
At lunch, he eats sandwiches at his desk while doing everyone else's work. He leaves the office last, at 9pm, but still arrives the next morning before the rest of us.

Stage three: The New Hire.
Arrives slightly before other staff. First to take his seat at meetings. Talks constantly about "our vision." Starry eyed and enthusiastic. Does much of the work that gets done, although he is constantly interrupted by older staff wandering into his room to sit on his desk and spout rubbish. Leaves at 8pm.

Stage four: The Experienced Executive.
Arrives at exactly 9am, not a minute early or late. Has a lot of work to do, but spends most of his time transferring it to other people. Occasionally buys lunch at the wine bar for people at stages one, two and three, because he enjoys the way they worship him. Leaves at 7pm.

Stage five: The Senior Manager.
Strolls into the office at 9.40am. Cannot avoid work completely, but does the bare minimum. Lunches at private club, practicing his "vice president" look of worldliness and ennui, so as to be ready for the next stage. Sneaks out of the office on the dot of 6pm.

Stage six: Vice President.
Languidly ambles into the office around 11am. Finds work a total bore, so he gets people at stages one, two, three and four to do all of his work for him. Spends most of the day sitting on the desks of new hires to give them the benefits of his wisdom. Leaves the office at 5pm, pretending to be on the way to a client meeting.

Stage seven: Chief Executive Officer.
Comes into the office at noon, and then goes straight out again for a long lunch at his club, which takes him until 3pm. No longer even pretends to do any work. Leaves at 4pm for a quick round of golf.

Stage eight: Chairman.
Arrives late. Explains that he got lost because his memory is not what it was. Serves coffee from private percolator. Turns out to be undrinkable black gunge. Sits in on meetings at which he realizes - with horror - that he no longer knows anything about what is being discussed. Spends most of the day feeling terrifyingly useless. Asks inane questions all the time, such as, "Shall we open some overseas offices, or have we already done that sort of thing?" Before leaving at 3pm, he eats packed lunch from home, because he can't eat anything without bran.

Have a good laugh and a great chinese new year!

Hear no evil, read no evil

“Many stock commentators are saying that stocks are cheap, dividend yield is high, time to buy.”

“A value investor should not be obsessed about short term fluctuation. Long term value is more important. Now is the time to ferret out the wheat from the chaff.”

“If it is because of a short term bull market that commentators recommend/ investors buy stocks, it is speculation. Those commentators need to be fired and those investors need to be educated.”

The above are some comments on my earlier posting titled “Short term bull, long term bear”. All the things mentioned by stock commentators and stock articles found in various media channels (newspapers, websites, magazines) contain some truth in it. In reality, most people just accept things at face value. But as value investors, we must be discerning on what we buy. Some stock commentators are sell-side analyst themselves, and one must be prepared to take what they say with a pinch of salt, as they need to sound optimistic so that their clients will continue to trade.

Stocks are cheap. They are cheap on what basis? Cheap because P/E is low and dividend yield is high? If you are just using the above 2 metrics to conclude that stocks are cheap, then I would say you are missing the point. Metrics are not to be used in isolation. It can give you a distorted view of the truth. For example, many China textile stocks in SGX are trading at P/E of 2-3. On this basis alone, some would consider them cheap. However, the P/E will tell you nothing about the state of the textile industry in china, which is now on the brink of collapse. Many companies have folded (including China Printing and Dye) and things are not expected to return back to normal in this year.

What value investors should buy in times of panic are quality companies with a widely recognizable brand name, consistent positive cash flows, low debt and having a business model which serves a niche market. Textile companies in the commodities trade certainly do not fit into the above description. More often than not, the dividend yield that you see are based on historical payout, which indicates nothing on the amount and stability of future earnings of that particular company.

I agree that value investors should not be obsessed about short-term fluctuation. Value on individual companies can present itself at a different period of time. They need not appear in sync with the lowest point of the STI. It is not my intention to dwell too much on the daily ups and downs. The point I want to bring across is that I don’t see much catalyst for the stock market as a whole to go further up within the next 2 months. Do not forget that nearly half of the STI is made up of local banks. All will announce their lower earnings in February and we will find the January and Obama effects disappear quickly over the horizon. The upsurge, which we have observed in the past few months, can be classified as a bear rally. Bear rallies are not new occurrences. In the market downturn during the USA Great Depression, bear rallies also took place that sent the index up by 30-40%. There will be many false starts before the real bull run starts again.

For those who must invest, I would suggest dividing your money into four equal portions and start buying stocks once every 3 months from Q2 onwards. This dollar cost averaging method of purchase should be complete in Q1 next year. In this way, the cost price is spread out and the chances of suffering a loss after investing in a stock is lower.

"Viagra" needed for porn industry

This piece of news is incredible. The porn industry is the last one you will expect to require a bailout. I very much doubt the government will help in this. If it does, very soon all the business leaders from various industries will be queuing up to ask for handouts from the government.


Two porn moguls including Hustler magazine founder Larry Flynt are seeking a five-billion-dollar bailout from Washington, arguing that the limp US economy has thrown cold water on the adult entertainment industry.
Flynt and "Girls Gone Wild" video series creator Joe Francis asked the newly convened 111th Congress "to rejuvenate the sexual appetite of America" in a bailout move similar to the one set aside for US auto manufacturers.
"Congress seems willing to help shore up our nation's most important businesses, (and) we feel we deserve the same consideration," Francis said in a statement.
"In difficult economic times, Americans turn to entertainment for relief. More and more, the kind of entertainment they turn to is adult entertainment."
The pair were quick to admit that "the 13-billion-dollar industry is in no fear of collapse, but why take chances?"
Francis, recently imprisoned for nearly a year on a prostitution-related charge after pleading no contest in a plea bargain, cited industry figures that show adult DVD sales and rentals decreasing 22 percent in 2008, as people turn to the Internet for adult entertainment.
"With all this economic misery and people losing all that money, sex is the farthest thing from their mind," Flynt said.
"It's time for Congress to rejuvenate the sexual appetite of America. The only way they can do this is by supporting the adult industry and doing it quickly."
Flynt said people were "too depressed to be sexually active."
"This is very unhealthy as a nation. Americans can do without cars and such, but they cannot do without sex."

Short term bull, long term bear

Last friday, the STI closed at 1829.71 points. Within 1 week, it went up 5.15% from around 1740 points. The picture on the right shows that the STI has breached the 50 day moving average ever since it went below that line in June 2008. This indicates a short term bullishness in the market right now. I expect the STI to go higher in the next few weeks and the reasons are as follows:

1) The Obama factor – This will be a change welcomed by all. Obama will take office in January 2009 and he has already assembled a group of very credible people to help him. The good news that most americans will be looking forward to is the stimulus package he will be announcing. I believed that the rescue package is not empty talk and it will most likely be the catalyst to kick start the economy which is under intensive care unit for the past months. What started off as a $350bn package has now ballooned to $600bn, and now its likely to top $1 trillion. Whether the $1 trillion is enough remains to be seen.

2) The fear factor has decreased - Most of the bad news have been announced and the peak of pessimism has passed. I would say the worst part was the period in Sept & Oct 08 when Lehman collapsed and AIG almost went under. The fear has somewhat subsided as governments around the world have signalled their willingness to inject cash to stimulate the economy and to bailout large companies in distress regardless of industry. The Chicago Board Options Exchange Volatility Index, reached a low of 39.61 on Wednesday, a level unseen since 2nd Oct 2008. The VIX, based on a number of index options, shows the market's expectations for volatility over a 30 day period.

Even though things are beginning to look brighter, I believe it is still too early to go long on stocks. Why?

1) Low volume in market - For those technical investors, its generally accepted that anything that goes up too quickly on low volume is not sustainable.

2) More bankruptcies and job cuts on the way - The IMF has predicted that 2009 will bring slower growth in emerging countries and negative growth in the UK, Europe and USA. Dont think that just because we did not see any news announcement, everything is well. Many small and medium companies are closing and employees laid off. This trend will continue for most part of 2009.

3) Lousy earnings outlook - Most companies will announce their financial report in Feb 2009. The earnings for fiscal year 2008 will be dragged down by the poor and difficult business conditions in the second half of the year. A lot of stocks are trading at a P/E level of below 10 in the SGX. If you think that the second half of 2008 is a bad dream for earnings, then be prepared for a nightmare in first half 2009. A lot of stocks are trading at a historical P/E level of below 10 in the SGX. However, when a 50% decrease of earnings take place, the P/E can easily double and the price no longer seem attractive.