Monday, December 19, 2011

Reflections in 2011-2012

Merry Xmas to all my readers!

It's the end of 2011 and a new 2012 awaits us. Looking back, I must say it has been a fruitful investment journey for me, primarily of 2 main reasons:

Passive income from dividends
I have reached my intended objective in regards to my monthly dividend. The rewards of buying into income-producing assets and earn extra money in bearish times. Build my dividend portfolio early via accumulation of shares, getting into a mix of companies & Reits that pay you quarterly, semi-annually and once per year.

Cycle forecast
I learnt that the planned cycle forecast may not be what I expect, in fact far off the mark. There should be a buffer in between based on historic data, discounted off the high and low over the past 3-5 years. Obviously, there will be some assumption involved when comes to hypothesis but the target price to sell could be adjusted when signs of trouble are brewing - one needs to be sensitive, talk to more people in the industries apart from being commercially aware.

An example is the shipping cycle - I mistook my calculation after viewing the Shanghai containerized freight index that shown an increase in 2010 and that was it! Frieght rates tumble, bunkering costs went up (US$685/tonne, not too far off from mid 2008 peak of US$800/tonne), supply exceeds demand due to overcapacity when carriers prefer to chase market shares (buying more vessels to squeeze out lower-end shippers from the already congested trade lines - new shipbuilding orders in 2011). The container shipment market took a turn especially the sharp declines in Asia-Europe and Asia-US rates due to eurozone crisis and America fiscal policy respectively. On the other hand, spot rates in Intra-Asia (between China, Japan, Korea and Southeast Asia) are stable or rising in Q4 2011.


Instead of selling NOL (Neptune Orient Lines) in 2010 for a profit, I kept it to await for further upside in the broader sector, thinking that the dip was marginal. To simply put, I under-estimated the impact. Cycles are getting shorter and the double % drop in frieght rates are pointing to a possible crisis. Plus, stock market was forward looking. I understand, on historic terms, it's usually 2 good years followed by 1 bad year. Have to wait for next cycle.

Therefore, I have to hold on till the data indicators shown improvement in 2012 - expecting 2013 to bump up after the volatility in 2011 since larger carriers like Mitsui and Nippon Yusen have realized the cost implication and took corrective actions to cut container capacity and exercise discipline.

Furthermore, the world largest container shipping line Maersk has increased the rates across trades gradually at $200/TEU on the southbound Europe-Oceania, followed by the rest of the other trade lines in mid to end 2011. This could be an improvement, considering the total idled fleet could reach 500k TEUs by end of 2011(3.3% of global fleet - source by Alphaliner). However, I have to bear in mind that the aggresive competition between carriers may lead to a possible decline in average frieght rates that could dampen sector growth in 2012-2013.

In other words, I have to hold on to my paper losses for now and hopefully realized my gains in 2013 forecasted (upon revision should circumstances change) when the shipping sector rebounds after demand creeps up and frieght rates increase. A lesson for me in "cycles". I must be readily prepared and adaptable for heightened shocks and quick turnaround trends.

Moving forward to 2012....

5 things in my mind:

1) Think Contrarian
2) If I have excess funds, I would average down my property stocks to maximize the next up cycle trends after the latest government measures (ABSD)
3) Increase my dividend stocks/Reits in current holdings to reach my new 2012 target
4) Acquire new dividend paying companies (maybe overseas) to facilitate my div goal
5) Sell of Noble Group to lock in marginal gains during short term market rally

Good luck!

7 comments:

  1. Thanks for your thoughts, Ken.

    Merry Christmas and Happy New Year to you and your family!

    ReplyDelete
  2. Hello Ken,

    You already have one trait down on your journey towards becoming a great investor - see qien bei CW8888 latest post ;)

    #3 The ability to reflect and learn from our mistakes. Your're the Man!

    Merry Christmas and Best Wishes from Athens,
    Jared Seah

    ReplyDelete
  3. Thanks Musicwhiz!

    I read your Boustead 2nd analysis - appreciate the insights. Merry Xmas & Happy New Year!

    2012 to be a great bumper year!

    ReplyDelete
  4. Hi SMOL

    Thanks! Merry Xmas too!

    How's things in Athens? Is it still chaotic?

    ReplyDelete
  5. Hello Ken,

    Strikes are lesser now that the weather is too cold... It's the holidays too... It will bounce back in Spring!

    Next year I will write a post thanking you on the C&O trade ;)

    ReplyDelete
  6. Hi SMOL

    Great to hear that. I hope everything is well in Greece. One day, I will like to travel to Greece for holidays :)

    Thanks for your kind compliments.

    You bought C&O previously before the buyout?

    Happy new year 2012!

    ReplyDelete
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