Catch Singapore Blue Chips Falling Knife Without Getting Sliced (Weekend sharing session)

This weekend, I will be sharing my thoughts on catching falling knife blue chips like M1, Star Hub, SPH and Raffles Medical Group. Usually, for stocks that fall so much within a short period, there is a reason and usually is due to change in fundamentals such as profit, growth or potential future earnings look bleak. In my opinion, if a retail investor who hates to see paper losses should wait a bit more before burning their cash as analyst reports are usually negative on them hence funds are selling. There is no point in catching a falling knife for them as there is a possibility of further pain in such shares. Is better in my opinion for such retail investors to chase high and buy when fundamental improve than to bottom fish. There is no one size fits all investment strategy for all. For me, I prefer to bottom fish as there is more upside potential but the risk is paper losses in some counters when they continue to fall.

I am one who believes strongly in probability and game theory. Catching a falling knife is a phrase used to describe a stock which has dropped significantly within a short period. One must know that the chances of a stock falling further or rebounding from the current levels are equally strong. To me is 50/50 unless you know the company well and have inside information. I have seen in some cases when the blue-chip even loses most of its market value when the situation does not improve. Technology, pharmaceutical and commodity darling companies had collapsed when things turned against them and eroded most of their value.

Let us use SPH as an example. When SPH is falling rapidly, for some fund managers, all bets are off on SPH as to them it is a falling knife situation and investors are jittery over it. As of now, SPH has a big bogey over a lot of retail investors as they lose a lot. My analyst on this is that if one invests in pedigree stocks like SPH, one should hang in there and do not panic. However, I may be wrong as if indeed SPH business is in the sunset industry and the company cannot find a new engine to grow, it may never see previous high again. Beauty is in the eye of the beholder, and although I like this company from what I know and see, my judgement is blinded as I am vested in it. Only time will tell.

I would like to share my thoughts on why when the stock fall, usually is hard for those who cannot stomach paper losses even to consider venturing out and nibbling on those falling knife blue chip stock. In case a lot did not know, a lot of high net worth in private banks like to pledge example shares, property and bonds at a low-interest rate and buy stocks like SPH which has consistent dividend like 5% and make the difference. When things are smooth, one makes the differential difference in interest rate. But when things turn awry, there will be margin call, and it is a miserable position to be in when bank force sell your shares. Hence the sell down of SPH recently could be due to margin call as a lot pledge SPH to private banking and financial institution and prior of this fall they use the dividend to pay the interest and make the difference. Similarly, a lot of accredited investors are pledging assets and buying bonds and REITs with good yield which is a good strategy when the stock keep going up or remain stable. BUT when the stock start to fall, it could also bankrupt you if you leverage too much on it.

I love to catch falling knife stock as I believe I can create wealth from stock falling steeply. I always believe that when a stock fall very steeply,it is due to its fundamentals changing and the technical stock chart being super bearish when it is falling. When things stabilise for the stock, my take is it will be the first one to bounce back. A good example is bank stocks being sold down on Swiber crisis, and all have rebounded. My advice for those is that investors should not buy stocks because it is cheap but select companies that could show improve earnings visibility in the future, linked to government reforms push such as healthcare, stable management, and preferably have low debt levels. One should look at stocks that have future growth potential and invest keeping a time horizon of at least two to three years, which will benefit in the long run and also nullify the effect of volatility.

Always trade within one means. If the company management is good I believe the "blue chip" will see light one day. Have faith in the company especially if you think you are not buying rubbish. Companies especially those with properties asset will appreciate over time due to inflation hence use the dividend (like collecting rent) when times are bad. Is like an investor buying properties at a high in 1996 and collect rental for next 10 years before seeing property prices reaching 1996 prices again. Have a good weekend all.

For further discussion and debate. This thread is not to induce buying and selling. This thread Is just for education purpose only. Please do your due diligence when buying and selling of shares and seek your financial advisors for clarification. All the best.

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58 likes 92 comments
audreylee

What percentage of your personal portfolio is in cash now?
What major situations will you adjust?

Li_Guang_Sheng

Reply to @audreylee : Yup. It applies to deep value investing. Sorry miss your post reply 1 mth late.

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TUBInvesting

Just sold off my M1 recently. no gain but no loss. Just a lot of time wasted.

TUBInvesting

Reply to @Sureshkumar : My portfolio is smaller than yours. haha.

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kliew

do u conduct seminars ?

TraderJedi

Reply to @Li_Guang_Sheng : ok.. for some counters.. i see 100.100.100.100.100..3500..4000.100.100.5000...commission is $50... value only $200.. to me it is strange..

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div1g4in

Honestly speaking, I used to avoid falling knife stocks. Now with my chart reading, I actually see more opportunities there to trade. Investing may be a different stories, but trading definitely is awesome.

NoeticInvestor

Reply to @div1g4in : Well said. I dont buy too. Why waste our money and time on this falling knifes. we could find another opportunity with better risk reward ratio or else wait one or 2 months to identify another fantastic opportunity.

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SonicIdeas

imo this really depends on the kind of stocks that one is referring to. ex darlings that were diving like Noble hasn't seen the light of day since, and is a long ways of reclaiming their heydey. companies come and go, and it really depends on picking the solid ones that will return. Not all falling knifes can be caught

Li_Guang_Sheng

Reply to @SonicIdeas : Ya. In fact very hard to know if something may turn around. When the shares is falling everything is negative be it banks during recent Swiber crisis, kep corp at $4 plus during recent oil crisis. Sometime depend on one analysis. Only time will tell.

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LevelUp

Fantastic sharing as usual!

I didn't know that HNWI will pledge shares, property and bonds to buy dividend stocks.
I would have thought they will just buy and hold dividend stocks directly.

Honestly speaking, the number of falling knifes among the fundamental counters are starting to get a little disturbing.
While the falling knifes could be attributed to competition within their respective industries, it could be some sort of a warning sign of tough market conditions ahead.
I do hope my gut feel is wrong, and the overall economy is not as negative as what I perceive it to be.

Have a good weekend all!

Elliot

Reply to @LevelUp : That's why STI index becoming stagnant. Many traditional bluechips facing headwinds. Telcos, O&G, CDG, SPH etc.

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KusaKanmuri

Good write up...some thoughts are actually my thought too.
I also thought why sph price is going down and down since mid April 2017? Before that it was mostly traded in a range of $3.60 to $4.10 zone.
In April sph finalized the New CEO and in May 2017 announced the new CEO's name. And the CEO is a very extraordinary successful man in his own profession and climbed to the highest rank. He is also very well known, well connected man. Such a successful man can be successful in every field that is the common perception. In the business world his first leadership as a CEO of NOL he may have gained business acumen but whether he was successful or not is a subjective matter as some see he may have driven the company to get sold to other company and some see it as his success as the company did not go for bankruptcy.
Some consider that the new CEO's name is a reason that SPH share prices are falling continuously. BTW the new CEO assumed his office from 1st of September only and now onwards we will know how he lead the company.
But most cited reason for the current low price is due to depleting print media business revenue. Due to internet and as a result of other alternative media the print business is shrinking, low readership, low ad revenue blah blah so many reason. My question here, are all these elements were not existed there a year before? Just only from May 2017 all this competition started which lead SPH to cornered like this that her share prices came down from 3.60 to 2.54 (more than $1) in 6 months?
There are hope, the new CEO took the lead and within 2 weeks time he secured $280m loan facility from OCBC, and this loan is not like Noble's loan. Noble always take loan to clear other debt, but sph loan is for their subsidiary's for generating more profit.

layers

Reply to @ForeverAKAzad : taxis also just later when epayment start.

anothet hurdle for epayment to start in sg

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BrennenPak

Interestingly, we also made a post of SPH today. Thank you for sharing...

NoeticInvestor

Good write up. Good luck to you on your investment in SPH.

ergkmaslowcari

I remember sph charged heavily on adv.
and noboby look at adv. classifi. now.
I best $4 per shareprice until sph diversified to old age nursing ,housings@ graveyards at upper serangoon Rd. http://www.businesstimes.com.sg/real-estat...
SPH, Kajima in top bid for maiden Bidadari site, Real Estate - THE ...

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