Ding Donging Markets, the Quest for a New Broker and More LKYisms

Happy Good Easter long weekend to everyone!

1. Markets still in limbo

The markets tried to rally early this week but did not manage to break any significant levels. Then it slumped on Tuesday and Wednesday before bouncing somewhat on Thursday, closing just 9 points higher than where we ended last week. Which means we are kinda in no-man's land with regard to whether we are still on the bull bus or if the bear party has already started. Essentially we are in a trading range between 2120 and 2040 on S&P 500. Break to the upside and the bull continues, break to the downside and we can start getting acquainted with Mr Bear (who has become somewhat a stranger after 6 long years of not meeting him).

Hi, do I know you?

The portfolio has bounced up US$4,061.94 and recovered some of the losses I was talking about last week. But the portfolio continues to be geared bullishly until 2040 is taken out on the S&P 500. If the markets do break 2040, there is a risk of large losses being sustained. But that's what we have to live with when we have a major trend change.

2. A New Broker, At Last?

The most astute readers will recall that way way way back in end January 2015 I mentioned that I was on the lookout for a new CFD broker that I could use in conjunction with my existing broker (City Index). This is to mitigate any concentration risk in a single broker, given that currently all of my trading capital is parked with just one broker (and we all know what happened to MF Global). Well after 3 long months of done-nothingness I got off my ass on Monday to start making some calls, and given that most brokers do not allow short trading to be done for the specific instruments that I trade, I was pretty much only left with one broker to "choose" from, and that being IG Markets. I had looked at Oanda, CMC, Saxo, Kim Eng Maybank and Philip but none of them were suitable. 

The IG Markets platform (note this is not a screengrab of my account!)

I've gotten the account open and what remains to be done is to inject funds into the account, which I will be doing over the weekend. I will then play around with the platform and execute a few trades to test the interface. If all things work out, my grand plan is to open new positions with IG Markets until there is parity between the size of my positions with City Index and IG Markets. The downside to this is twofold. First, when I want to change positions, I will now need to execute both with City Index and IG Markets separately. This would be a drag on how quickly I can switch positions. Second, my paperwork involved in doing up my trading records will effectively double as I need to calculate costs incurred under 2 trading platforms now. I'm damn lazy all about efficiency and so will need to think about how best to make use of the IG Markets account. 

3. LKY Redux

I found it very poetic that it rained during LKY's funeral. You can choose to think that the heavens teared for him, or that perhaps LKY wanted to give Singaporeans a final test of their resolve and dedication to see him off in the less than comfortable conditions. 

The rain led me to think of an election rally of his in 1980 at Fullerton, where at some point it began to rain and he shrugged the raindrops off his head like a bad-ass with nary a concern. He then had some tough words to say to the SIA pilots who tried to go on a strike back then. Very potent stuff. But despite our propensity to complain about how the ruling party can do a better job here and a better job there, and sometimes we even like to use our votes to give them a kick up the backside, LKY did say something in that rally that I can't really disagree with at all. I'm paraphrasing like crazy but in effect what he said was that: Yes we screw up sometimes. E.g. in this incident and in that incident. But at the end of the day, we get 80% of our decisions right. 

Screengrab of the rally on CNA. "And I'm prepared to start all over again!" says the man, in response to SIA pilots who thought he did not dare to disband SIA and start another airline if needed. 

And I think the man has a point. You can look at it from the perspective of how often a striker in football converts his goalscoring chances. An above-50% rate is world-class, and an average EPL striker probably has a chance-conversion rate of 20 to 30%. If LKY's "conversion" rate (i.e. proportion of "right" policy decisions made) has been 80%, I think we will one day look back and think, hey, 80% was a pretty darn good rate. And I'm saying this as someone who has not exactly been the biggest PAP fan in the past.

The Bear Market May Have Begun, Thoughts on LKY and My Final Reservist

1. Bear Market May Have Begun

The probability that the bear market has begun has increased, looking at the movements of the past week. We may not reach another new high on the S&P 500, as expected previously.

Unfortunately, my portfolio remains positioned long for now. That means this week I sustained five consecutive days of losses as the US financial markets were down for five days in a row. The portfolio is now down US$6,876.83 from last week, which means the previous week's gains have been wiped out, and then some. That is the nature of a major trend change. 

If the bear market is on now, where are we headed? I am looking for the S&P 500 to take a significant haircut to the 1200 to 1400+ levels before the bull market can resume. That is quite a spiral down so I've been telling my friends to be careful with their finances and to avoid changing jobs in the months ahead.

What are my next moves trading-wise? As my portfolio is still positioned to be bullish, I am looking for an exit point for me to rebalance my positions to take up a bearish stance. I am hoping that in the very short term, we have found a bottom and the S&P can rebound up a bit more before I do a rebalancing, so that I can reduce the US$6k+ drawdown somewhat. Yes I'm being greedy because the start of the bear can be very vicious, and may not give the bulls many chances to exit. I'm pushing my luck and Monday will be a day of tenterhooks watching how the futures pan out. Yep that's the "beauty" of a trend change.

2. LKY

I don't think I have any more to add to the numerous discussions and the endless broadcasts on TV and other media on him. All I shall do is to share what I wrote in the tribute book to LKY when I went down to one of the tribute centres earlier today, where I wrote this: 

"Dear Mr Lee

Thank you for devoting all of your life to build a Singapore that we can enjoy and live in today. I will not forget your efforts and will take inspiration from what you have done. Please go in peace."

I heard from friends that a typical workday for LKY would end at 2 to 3am, and the man would work on weekends as well. Such was his dedication and his grasping onto every second on the day to fulfil his mission makes me a little ashamed of how I have been making use of my time (erm have been playing SimCity a bit too much on my phone and trying to be an LKY in building my own utopian city). That was what I was thinking about when I said I would take inspiration from LKY.

Thank you, Sir. Singapore has lost a great man.

3. Reservist

When the news of LKY's demise broke, I was about to head to camp for the first day of my final reservist stint. How ironic because National Service was a baby of LKY and his cabinet (notably Goh Keng Swee). It's been 14 years since I first stepped into Pulau Tekong and then my unit, where we have completed 10 NS cycles together and are now placed on the military reserve. While I am happy that I have fulfilled my liabilities (bye bye mobilisations, in-camp trainings, IPPT and standing broad jump!), I will miss my army friends. Despite our pledges to stay in touch, I hope we do not break contact and never ever see one another again. Looking at pictures of ourselves when we were active NSmen, we were much scrawnier, naive, but smiling with bright-eyed optimism and wonderment. Time has doused some of our fire but most of us have turned out wiser, more contented and generally become better persons. It is beautiful to see how we have grown as individuals (even though most of us have also grown sideways). I look back in awe at the shit we managed to endure when we were so much younger and sigh. It is a bittersweet feeling. This, coupled with what happened to LKY, means it has been a week for reflection for me.

Trading Update: 21 March 2015

True Profits Earned in 2015 to date: US$18,270.90

All-time maximum profit earned since 2011: US$150,971.78 (new high water mark!)

Current drawdown from all-time maximum true profit earned: US$0

Change from last update: Up US$6,194.73

Directional stance: Portfolio is 56.03% bullish

A good week that ends with a nice figure for a new high water mark and no drawdown. Market is heading towards new highs again. The route to the top is currently plotted to be by way of three legs - S&P 500 will go on to 2120+, then down to 2070/2080+, then final top at 2170+. But market loves to surprise and will let us know if it decides to deviate - we just need to observe her very carefully and adjust our route as appropriate. It's all about trading the most highly probable scenario and not thinking too much, like Simon Mignolet.

My Property Hunting Journey

When it comes to financial matters, property ranks as a close second to trading amongst my interests. While I do not profess to be some kind of property guru (all I have bought so far is a matrimonial home), I have done quite a lot of research, viewed quite a number of units, and follow the market keenly as I am looking to buy another property for investment purposes. In the spirit of "sharing is caring", I am setting out the experiences of Mrs RetailTrader and myself in looking for our matrimonial property. 

Note: My account covers the purchase of a private non-landed residential property.

Phase 1 - Ascertaining the Baselines

When we decided we wanted to start looking for our matrimonial home, Mrs RetailTrader and I had to see where we both stood on the basics. It is critical to think through the basics, regardless of whether you are buying a place as a couple, with investment partners or by yourself.

The very first decision we had to come to was to decide the type of property we were going to buy. This intrinsically ties in with how much we were willing to spend on the home - our budget.

I subscribed to the thinking that a house was a consumption good and the more expensive the home we stay in, the higher the opportunity cost. The very rational personal finance school of thinking. And money saved from housing can be used for trading! But I had to admit the idea of staying in a condo also called out to me. After all, I had grew up staying in a HDB estate that was sandwiched between two condominiums that looked pretty sweet to me, so I always wondered what it would be like to stay in one like them.

Mrs RetailTrader also grew up in the HDB heartlands, but her family had since moved to landed which they have been staying for the past ten years or so. Since I was also a bit gian, we decided a condo would be an appropriate middle ground for the both of us. But as a nod to my financially prudent tendencies we agreed that budget-wise we were going to be relatively conservative. Phew first big decision out of the way huh!

We then had a long running debate about freehold vs leasehold. I was largely indifferent towards the two. I mean, all things being equal I would always take freehold, but the freehold status commands a price premium and to me whether that price premium is worth it is debatable. Mrs RetailTrader on the other hand was brought up on the "always buy freehold" mantra, to the extent this represented almost an absolute truism for her. Our decision on this point was that we would first try to source for freehold units only in our search, and see what comes up.

Next was location, location and location. 

Mrs RetailTrader and I did not live near each other. We are both family folks and envisage returning to visit our parents quite a bit, so we decided that a good starting point would be to stay somewhere in between our parents. She stays in the north and me in the east, so a compromise region would be somewhere between Novena, Bishan-Toa Payoh and Serangoon/Lorong Chuan. So we decided to focus on those areas for our initial search. 

Somehow despite our plans to stay near our parents, the idea of staying near to the CBD, where both our offices are, was also something that excited the both of us. Hence, as a wildcard option, we also decided to look for units in the Dhoby Ghaut/Harbourfront area to see if there was anything that fit our budget. 

The next biggie was buying used versus new. There was a divergence in our views for this one. Mrs RetailTrader likes fresh new things. "You never know what may have gone on in used units", she would say. Me, on the other hand, I like "what you see is what you get". You can study a plan of a development on paper for all you like, but it can never ever beat being able to step into the actual unit to see it, breathe it, smell it. I always think that when buying a unit off the plan, there will always be some factor which you will overlook (and regret). You could say it was a fear that was brought about by my consciousness of my lack of experience in property acquisition - but that was how it was then for me. So anyway yes, my preference was to buy resale and we were keen to get a unit that had already TOP-ed anyway so we didn't have to wait for our home to be ready. So our position became to look for TOP developments, but preferably not too old (not beyond ten years). 

Next was size. This one was easy. Mrs RetailTrader would have liked something with three full bedrooms if possible. I was more keen to keep the size smaller to keep the costs lower. We agreed to KIV this - if the psf (price per square foot) of a development was lower, we could afford to get a bigger unit, but if it was higher we would probably have to go smaller. But as a rule of thumb we agreed something like 1000 square feet would be a good starting point.

Then comes the matter of amenities. We both agreed that we would like to stay near a mall because of the convenience. And that there was a difference between staying near a small neighbourhood mall and a large regional one. We were not planning to cook so it would be nice if we had a variety of food options within walking distance to our future home. And I'm a huge sucker for having MRT near the home. And that's where my "buy the jewel of the estate theory" comes into play. 

The theory is that if you buy into a development that is near an MRT (I will discuss what "near" means subsequently - this is very relative!), near a decent-sized shopping mall with all the typical amenities and is the most desirable in the area, you cannot go too wrong with your purchase. 

Why is this the case?

My belief is that for most estates (except for those that are extremely out of the way, e.g. north of Ang Mo Kio, east of Marine Parade and west of Clementi), there will always be a pool of people who want to buy property in specific estates for their own personal reasons (e.g. the estate is near their family or near their workplace). So, as long as you buy a unit in a good stack in the most desirable development in any such estate, the "jewel of the estate", you will always have a ready pool of potential tenants and buyers waiting to buy/rent from you. In other words, everyone who wants to get a unit in XXX estate will always look to the jewel in the first instance. And desirability of the unit means less downward pressure when the market turns bad on you, compared to other developments in the same estate. 

The corollary to the theory is that, rather than buying one of the laggards in a "star" district, focus on buying the jewel of an estate which you can afford.

Ok brilliant, you say, but this then begs the question - how do you decide how a development is the most desirable in an area?

First, location takes the cake. All things being equal, the nearer a development is to a mall and MRT, the more desirable it is.

Second, the liveability of the development. Is there noise? Is the MRT line elevated or underground? Are there roads nearby? Schools, places of worship? Petrol station? Feng shui is too important to ignore - Is it sited on lower ground? Is the development at a T-junction?

Third, the appearance and condition of the development. This depends largely on the age of the development although the management of some developments can really screw up on the maintenance of the development. I have this test I call the "BBQ pit test" - take a look at the condition of the BBQ pit of any development you are viewing. Would you dare to use the BBQ pit there? There's also the "children's playground" test. Management councils that ignore these facilities are likely to be shabby in other aspects of the maintenance as well.

A simpler way to find the jewel of an estate is to look for estates with less developments. Less developments mean less competition for buyers and tenants. Some estates are very densely packed with condos, some less. For example, imagine an estate that only has one development that is within 2 minutes' walk to the MRT/mall, and the next development requires a 5 minute walk and is less liveable. You have found the jewel of the estate already!  

In the end we decided that our home should be no more than 500 metres away from the MRT and mall. 

Finally, I have this thing about the size of the development (i.e. the number of units in a development). I like developments to be large so there is more 人气 around. I find that developments with only one block tend to have puny swimming pools and the grounds are relatively poorly maintained. It's also depressing to me when I see the grounds of the development are always empty. Is it just me?

So we have pretty much covered all of the search factors you can input in Propertyguru. To sum up, we are going for:

• condo
• relatively conservative budget
• freehold preferred
• Dhoby Ghaut, Novena, Bishan-Toa Payoh and Serangoon/Lorong Chuan
• not older than ten years
• around 1000 square feet
• good-sized mall and MRT within 500 metres
• no small developments

So on one beautiful day when the sun was shining, and the birds were singing, I input our criteria onto the search bar on Propertyguru and waited for the search results to emerge...

Trading Update: 14 March 2015

True Profits Earned in 2015 to date: US$12,076.17

All-time maximum profit earned since 2011: US$146,572.34 (new high water mark!)

Current drawdown from all-time maximum true profit earned: US$1,795.29

Change from last update: Up US$3,656.98

Directional stance: Portfolio is 59.06% bullish

An up week with a new high water mark. That's always nice as the P&L for the year is slowly chugging up. 

But there have been some volatile down days this week which clue us in to weakness in the market. Hence, it may not be viable to expect the S&P 500 to hit 2200+ any longer. Instead, my primary target is for the S&P 500 to top below 2200+, or more precisely below 2180. Thereafter, the S&P 500 will retrace probably 50% to 62% of the upmove from the bottom set in 2009 (at 666 - what a number!) to whatever level it the S&P 500 is going to top at soon, within the next few months. Yeah do the math and you will find that S&P 500 will be going down to 1200+ to 1400+ territory sometime in 2016. 

There is always a chance the bull market can still be sustained and can go to 2200+ as planned, or even higher to 2500+. But for now these scenarios do not look as likely. We will need to watch the behaviour of the market carefully, like how a patient doctor observes a patient's health statistics.

Ridiculous? Well, about two years ago some people laughed in my face when I told them S&P was going to hit 1600, then 2000. Let's see.

The typical reaction when I shared my market views.

A lot of shit can happen in a bear market. But bear markets are necessary to knock complacency off our population, and drive us to get lean and resilient, in order to build a better base to shoot for the next new high. Markets (and humans) progress in cycles and not straight lines up. Such is the way of life.

Markets move up in cycles.

But I am getting ahead of myself. Let's enjoy the remainder of the bull run and bank as much profits as possible first. I will be sure to ring the bell when the bear market is here. In the meantime, I will be deliberating on how to tweak my tactics like Brendan Rodgers for profiting in a bear environment.