Market analysis and insights on Stocks, ETFs & REITs!

FREE Market Outlook Seminar in Penang: What are the Best Investment Opportunities for 2017?

This coming Saturday (25 Feb 2017), I have been once again invited to speak in Malaysia about the market outlook, and this time I will be speaking in Penang! [Scroll all the way down to register.]
 


 
For those of you (outside Singapore) who don’t know me, I am a professional trader with over 10 years of market experience, and have been featured more than 20 times in various media. I hold double degrees in accounting & finance (dean’s list), and I’m also a globally accredited CFTe, and one of the few official trainers for the Singapore Stock Exchange (SGX).


I was thrust into the media limelight when I retired at 27 (in 2013) and spent the next few years travelling around the world (50+ countries) while trading just 15 minutes a day.

Since this is my first time in Penang, I will be conducting an exclusive FREE workshop to share the 4 strategies that my students and I use to make 20-40% annual returns consistently. These strategies work for stocks, forex, CFDs, etc.

In addition, I will be logging into my live trading account to show my all my trades and also the records of my students.

Workshop details:

  • Date: 25 February 2017
  • Time: 9.00 am to 12.00 pm
  • Venue: YMCA Penang

To register, please whatsapp +65-9772-4280 or email info@synapsetrading.com with the following details:

  • Full name
  • Email address
  • Contact number
  • Number of tickets

Seats are very limited for this one-time event, so it will be based on a first-come, first-serve basis.

Good luck, and see you there! 😀

Guest Speaker at SGX “Live Trading Mondays”: Stock Picks for 2017

Last Monday, I was invited as an SGX trainer to speak at “Live Trading Mondays”, to share my views on the general market outlook, and more specifically on O&M (offshore and marine) counters.

I also took the chance to do a full analysis of various major market themes, as well as my predictions for major markets like stock indices, Gold, Oil, etc.

It was a great sharing session, and we managed to identify several good trading opportunities.

Although the focus was on O&M stocks, there were a lot of bullish property counters which were flagged out by our “Synapse Stock Screener”, which we use to flag out the best stock trading opportunities daily.

For those who are keen to start trading in stocks (or any other markets), or would like to know which are the best “hot” counters to be looking at now, do join us for our “Trading Foundation Workshop” this coming Wednesday on 15 February. See you there! 😀

Check availability: http://wp.me/P1riws-6gw

The 10 Financial Milestones that Every Singaporean Needs to Aim For

Many people want to attain financial freedom, but most have little to no idea what it takes to get there. In today’s post, I will be sharing the 10 key financial milestones that every Singaporean should be looking forward to, and it be a good chance for you to see how many you have achieved!

First things first…

Before one goes marching along the road of financial success, he has to get his house in order. Put it another way, he has to have a clean, honest audit of the current state of his financial health.

Also, the road to financial freedom is marked by progress. Overtime, as the person attains more and more milestones, he gets closer to his goal.

Some of these milestones are very critical; they can cause you to lose wealth in the future if they are not dealt with right now. Amassing wealth is great, but another key activity is preservation of wealth, which we are going to discuss in detail.

Here are 10 things that financial milestones that are often missed out in most people’s financial planning:

#1 HAVE A CLEAN CREDIT HISTORY

Paying personal bills on time is a great chore for many. However, the financially-free person has to attain mastery of this.

It’s quite simple really; don’t buy what is beyond you now. I’ve heard of startup founders who slept in basements to save on rent, bunking in with 4 other like-minded nerds who didn’t mind the initial shame for the future glory.

For many of us, truth be told, we are financially far-more secure. Even if we have debts, most middle-class families are able to get by and secure some savings each month.

Easier said than done; don’t spend what you don’t have.

Of course, business loans do not count, because they are much larger than personal loans.

Have you done a thorough audit of your personal debts? Getting a good credit rating is one big green tick on your financial health. Pay all your bills on time, avoid penalty fees, fines, and you can get a higher credit score on the CCRIS.

#2 LEARN THE SKILL OF BUDGETING

Before wealth is massed, one must learn how to manage small amounts of money. If he can be entrusted with little, he will be entrusted with much.

Budgeting is a simple skill, but truth be told, people don’t keep to their budgets. They adjust their budgets like their exercise schedule, their weight-loss plan, their study plan, and whatnot.

Budgeting without keeping to the budget makes budgeting useless.

The ability to keep to your budget is part of the skill of budgeting. No point having a great budgeting plan, but no resolve to get down to it. And you only have yourself to blame is you are unable to abide by your budget.

Parents have to instruct their children in this regard. If budgeting is taught to people when they are young, the attitude remains, and even when the amount of money gets bigger, the discipline keeps the person financially healthy over the long-run.

#3 BE A PROFESSIONAL TIME-INVESTOR

WRONG question to ask: “I have $10,000. What should I invest in?”

Anyone who asks this question is out of his mind. It’s not what you invest in; the correct question to ask should be “What skills should I acquire to become a proficient investor?”

Time is all you need to acquire skills. Many people complain about the lack of solid financially education in schools, but they remain at the complain stage. Being a professional investor of money requires you to first be a professional investor of your own time.

If you spend most of your time watching YouTube, great. If it makes you happy, great. But if that’s not what you want, do something about it.

Even after trading for many years, I make it a point to read good books, and stimulate my thoughts. They can be self-help books, trading-related books, or even fiction. You’ll be surprised how much you can learn from good, beefy fiction books!

#4 BE FINANCIALLY-INDEPENDENT

If you are still living off your parents, it’s ok. It’s nothing to be ashamed of, for all of us start that way. But you have to have a plan to get financially independent, where your livelihood is no longer dependent on who gives you money.

Many young people are truthfully still holding on to the security that their parents will save them if they mess up. That can be true, and no parent would want their child to suffer financial catastrophes. However, we all need to come to a place where we take responsibility for our finances, and keep track of where we are.

#5 ADEQUATE INSURANCE COVERAGE

As a responsible adult, your job is to not just protect yourself financially, but also the lives of those you love. You cannot compromise on insurance, because your life does not revolve around you alone.

Having a solid financial backing when something tragic happens will show your financial responsibility. It demonstrates that you have a clear plan for emergencies and know how to respond.

Investment-linked policies, in my opinion, aren’t really investments. Like I said above, invest your time, not in insurance policies. Take up the necessary protection, and that’s all you need. It gives you a peace of mind. You’ll be surprised by how uninformed most people are about insurance, and this is one key milestone that will set you apart from many others.

#6 HAVE AN ACTIVE PLAN TO KEEP YOURSELF FIT

Many people don’t even consider physical fitness as a key financial milestone. For what use is it to gain all the wealth you want, yet be unable to enjoy it?

Keeping fit is simple, but difficult to do.

Just like budgeting, many people know what to do, but don’t do it. Get yourself in shape if you want your financial health to be in shape.

#7 OWN THE ROOF OVER YOUR HEAD

Although there are stories of young people who’ve made it big, purchased a mansion with the $150 million they got from selling a company, most people don’t have that luxury. 

The majority of young people work their way to owning their first house, before getting anywhere major in life. When it comes to financial freedom, owning the roof over your head is the least you could do, because when an emergency strikes, you won’t be forced on the streets.

#8 MONITOR YOUR ACTIVE AND PASSIVE INCOME

Financial freedom involves having active and passive income. Monitoring them every 3 months or so is a good way to keep yourself up to date with your progress. It also gives a reality check every few months so that you won’t end up skiving.

A simple excel sheet will do the job. It’s just as easy as monitoring your expenses; most simple apps on the Apple Store of Android Store would do fine. It’s the discipline in keeping the routine that needs to be drilled in.

#9 KEEP 6 MONTHS OF EXPENSES IN CASH

Another defensive safety net; if you don’t even have a 6-month warchest, don’t even think about attaining financial freedom. It takes lots of effort and risk to achieve the goals that you want to set out, and the last thing you want to be worried about is whether there is bread on the table or milk in the fridge.

#10 MEET INVESTORS REGULARLY

If you are a pokemon card game fan, you probably spend most of your time around fellow pokemon addicts. That’s fine if you want to be Ash Ketchum, but if you want to be an investor, hang out around real investors.

Go to events, meet like-minded people, network like crazy, and find out what the scene is like. Know what is trending, what is out-dated, what people are interested in, and by spending time with these people, you will be in sync with the world of investments, and this expands your thinking greatly.

For example, when I first heard of options, it blew my mind; you can actually make money when prices do not move. You don’t have to bet on a rise or a fall; you simply collect premium. I won’t go into much detail, but this opened my mind when I was much younger, and kept me hungry to learn and explore.

Many people fall into a comfort zone once they reach their 30s-40s. It’s normal because the trials of life and the painfulness of toil takes a hit on people, but if you really want that fulfilling life you have, you got to step out and behave like you are going to live a fulfilling life.

Here’s a useful quote for those who are just starting out in the investment community:

If you’re 25, behave like you’re 35. Be mature, sensitive, patient, and be kind in your dealings with people.

On the other hand, if you are a seasoned veteran in your are of expertise, here’s a quote for you.

If you’re 55, behave like you’re 35. Be excited, passionate, willing to change, and accept young people for who they are.

In the past, I was criticized for spending too much time on my phone. Guess what? I now spend most of my time on the phone trading and analyzing charts, and I’m not confined to a desk in an office in Raffles Place. The things which society didn’t really accept, can actually become mainstream in a very short time.

stonesHave you got these 10 mile-stones laid out?
Image Source: Dimitri.co.uk

WHAT’S YOUR DECISION?

If you’re going to make any headway in the path to financial freedom, it had better start today. Make a plan. Go to your drawing board. Stop complaining about the past, and live a life of possibilities. Don’t know where to start? Look for help. Ask, learn, and seek.

But first, make sure you’ve got these 10 financial milestones set up. Of course, you could forgo a few initially, but to be really stable, you’ve got to build up your foundation very strong.

When the storm comes, would your financial house stand strong?

Here’s to a great month ahead, cheers! 😀

 

The January Barometer: An Accurate Predictor of Stocks for 2017?

There are many speculations about leading indicators in the market, and one of the most popular ones is the January Barometer. In this post, we will explore this phenomenon, and see if it holds up to the test, and whether it will provide any useful insights going forward.

WHAT IS THE JANUARY BAROMETER?

“As January goes, so will the market go for the year.” – Wall Street Folklore

The January barometer is a tool used to determine if the year will be bullish on the equity space. If January sees a winning month, the year would be a winning year.

January can be said to be an indicator to whether the year would be bullish or not.

This idea first emerged in the 1972 edition of Yale Hirsch’s Stock Trader’s Almanac. Here’s what was published:

“We doubt that any technique or indicator ever devised has been so remarkably accurate as the January Barometer. The barometer, which indicates that as January goes, so will the market go for the total year, has proven correct in 20 of the last 24 years…. Very few stock market indicators show such an 83.3 percent accuracy for even short spans of time.”

 

 

PREVIOUSLY… INVESTIGATING THE SANTA CLAUS RALLY

A couple of months back, I collected statistics for a simple ‘buy in January, sell in February’ portfolio. How it works is simple: I would purchase the stock index on 1 January, and sell it on 1 February and see the results.

Buy in January, Sell in February Statistics

2011: 4.34%

2012: 1.28%

2013: 4.55%

2014: 5.62%

2015: -0.08% — Total returns for 5 years = +15.71%!!!

Over the last 5 years, it has indeed been a great run for the ‘buy in January, sell in February’ portfolio.

This got me excited, but I decided to look further back in history…

Breaking up the time periods into 5-year chucks, here are the statistics:

5-year “Buy in January, Sell in February” Statistics

2011-2015: +15.71%

2006-2010: -8.7%

2001-2005: +0.88%

1996-2000: -6.38%

The santa claus rally didn’t really exist as claimed by most sensationalists.

This time, we want to look at whether January tells us if the year would be a winning year.

 

JANUARY BULL RUN = WHOLE YEAR BULL RUN?

Quantpedia has a good summary of this, and the strategy is simple: Invest in equity market in each January. Stay invested in equity markets (via ETF, fund or futures) only if January return is positive otherwise switch investments to T-Bills.

To put it more simply, there are two scenarios:

Scenario 1: January positive –> Stay invested in equities

Scenario 2: January negative –> Exit equities

The results are shocking. Quoting from a research paper titled: “What’s the Best Way to Trade Using the January Barometer?” (M. J. Cooper, J. J. McConnell, A. V. Ovtchinnikov, 2009)

“We investigated the power of the January market return to predict returns for the next 11 months using 147 years of U.S. stock market returns.

Using 147 years of U.S market data, this was the result:

We found that, on average, the 11-month holding period return following positive Januarys was significantly higher, by a wide margin, (-7.76%) than the 11-month holding period return following negative Januarys.”

This meant that on average, a year with a positive January outperformed a year with negative January by 7.76%. This is a very significant difference.

 

 

Having a drink at the highest pub in Africa! Finally clocked my 51st country – Lesotho! 🇱🇸 #feelinghigh #lesotho #southafrica

A post shared by Spencer Li 🇸🇬 Synapse Trading (@iamrecneps) on

 

5 TRADING STRATEGIES THAT WERE RESEARCHED

In the research paper that I mentioned above (you can read the whole paper by downloading it in the link at the bottom of this article), here are 2 strategies that can be taken knowing that January is a good predictor of the market for the rest of the 11 months:

(1) LONG/T-BILL STRATEGY

Long in Jan, continue being long if Jan is positive, but exit and go long on bonds if Jan is negative.

(2) LONG/SHORT STRATEGY

Long in Jan, continue being long if January is positive, but go short if Jan is negative.

The results for 1857 – 2008 are highlighted below:

Strategy 1 ( completely outperformed strategy 2.
Source: Page 21 of “What’s the Best Way to Trade Using the January Barometer?” (M. J. Cooper, J. J. McConnell, A. V. Ovtchinnikov, 2009)

In the research paper, 5 strategies were outlined, but I only cover the 2 that are relevant to our discussion.

It seems that this would be a very profitable strategy:

Firstly, buy stocks in January.

If January is positive, remain long on stocks from February to December.

If January is negative, exit stocks and go long on bonds from February to December.

In addition, the research paper also published returns for the years 1940 – 2008:


Strategy 1 completely outperformed strategy 2, even in the recent 70 years.
Source: Page 23 of “What’s the Best Way to Trade Using the January Barometer?” (M. J. Cooper, J. J. McConnell, A. V. Ovtchinnikov, 2009)

 

Christmas tree + Cape Town Flyer + National Geographic photo frame 😄🇿🇦🎄 #Christmas #southafrica #capetown

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WHAT HAPPENED THIS YEAR?

The STI is up 5.5% for the month of January 2017. Going by the strategy outlined above, if you are a buy-and-hold investor, it would be wise to hold the STI until the end of 2017.

 

On the contrary, for the Dow, we’ve only seen a +0.4% increase in Jan 2017. At the time of writing this (2:00am Singapore Time, 1 Feb), it still makes sense to hold the U.S stock index until the end of 2017 (if you’re a buy-and-hold investor). That being said, it’s wise to employ price action strategies and focus on a precision entry/exit if you are already long.

While the January barometer is good information to know, it’s largely a super long-term strategy (10-20 years) and investors will position themselves well if they have strong price action fundamentals in a generally bullish market.

Going forward, I expect the stock market in both Singapore and U.S to be bullish. This is a probabilistic approach; I would still be making trades based on solid price action strategies, and make portfolio adjustments where necessary.

All the best for 2017, and happy trading! I hope that this article has shed some light for those who hate reading research papers 🙂

 

RESEARCH SOURCES & REFERENCES

investopedia.com/terms/j/januarybarometer.asp
cnbc.com/2014/01/30/uld-totally-ignore-the-january-barometer.html
quantpedia.com/screener/Details/113
papers.ssrn.com/sol3/papers.cfm?abstract_id=1436516
fullertreacymoney.com/content/2010-03-02/Januaryeffrct.pdf
Cover Image: wallpapercave.com

Top 3 Reasons Why You Should Start Investing in 2017

copy-of-copy-of-not-allthose-who-wanderare-lost

Brexit, Trump, Italy, asset bubbles all over the world… you name it, there’s probably some financial market jitters that keeps most people out of the world of investments.

On the flipside, the financial world often quips about some investment that has made xx% over a certain period of time, trying to entice visitors with a glimpse of the profits possible for anyone. In the world of investing, it is easy to find spectacular returns on hindsight, and salesmen go through great lengths to market what has already happened.

As traders, we live in a constant state of uncertainty. Every trade we make has the possibility of going wrong, and this is taken into account when a decision is made. It is the knowledge of this that gives power to a trader; if he can understand the math behind his investment decision, he can have a positive expectation and a positive traders’ equation.

There are three main reasons why trading is even more attractive these days. Indeed, with advanced technology, there has never been a better time to step into the world of finance, and grab a golden egg while you still can.

GOLDEN EGG 1: TRADING GIVES A HIGHER INTEREST RATE THAN BANKS

fdThe best you can get on a fixed deposit is 0.35% a year in Singapore, as at December 2016.
Source: moneysmart.sg

While inflation is a constant enemy for our savings accounts, most people do not know what to do to combat inflation. The most common quick-fix is to work harder and earn more money. While that does feed us and our families for some time, the need to build a war chest for emergencies becomes more and more real.

 

How much can you make from trading? Institutional traders bring in a success rate anywhere from 30%-70%. Why is this so?

The greatest insight into the markets that can make you profitable is this: 90% of the time, the odds are 50-50, while 10% of the time, the odds swing 60-40 (slightly in your favor).

That’s right. While most of the time, markets are 50-50, it is those brief moments when the market gives some opportunity, and prices quickly move to take advantage of this opportunity. That means that if you were to buy or sell randomly, you already have a 50% chance of success!

Another insight to know is that a high success rate (hit-rate) brings a lower profit target, while a low success rate brings a higher profit target.

What do I mean by this? Institutions trade using a combination of low-probability and high-probability trades.

Example: 40% (low) success rate, win = +2%, lose = -1%.”

low

In this case, if you were to make 100 of such low-probability trades, you would make +80% on winning trades and -60% on losing trades, bringing a 20% return on capital.

Example 2: 75% (high) success rate, win = +0.5%, lose = -1%

high

In this case, if you made 100 high-probability trades, you made 37.5% on winning trades and -25% on losing trades, bringing +12.5% return on capital.

It is impossible for the market to give high-probability trades with a high profit potential. This would be quickly detected by institutional traders, who have mathematicians, PhD staff, and computer science experts who can quickly make adjustments and profit from it. With hundreds of millions of dollars at stake, these people would do all they can to bring profits for their firm.

 

That is why if anyone quips that they have a 80-90% success rate, they are probably having many small wins but a few gigantic losses. If you don’t believe me, try trading forex and planting random trades with low profit potential and high loss potential. The numbers indeed prove to be true!

That is also why it is important to understand the traders’ equation. With a reasonable success rate and an appropriate win-loss ratio (or risk-reward ratio, RRR), you would be profitable over the long-run.

I have had days where I ran 7-8 trading losses in a row, but because I trusted in the probabilities, the next 3-4 trades ended up profitable, as long as I stuck to my trade setups and didn’t let the emotions get the better of me.

GOLDEN EGG 2: TRADING DOES NOT REQUIRE LOTS OF CAPITAL

If you have $500 to invest: trade forex.

In the Forex market, you are entitled to ‘get a feel of the game’ by risking a few dollars per trade. By trading the smallest lot size (0.01 lots), you can learn to make a few dollars here, lose a few dollars there, and rack up trading experience and learn to trade ‘live’ without incurring hefty losses.

By learning to make many decisions and experiencing all the different conditions of the market, you would become seasoned enough to trade a bigger size, and fine-tune your own trading strategy.

Many traders discover they have certain characteristics about themselves that hinder success. In trading a ‘live’ account with a small sum of money, they are putting in some skin in the game, and getting used to the ups and downs of their account.

The best part about forex is that there are no commission charges. The broker makes money from the bid-ask spread, which is the difference between the buy/sell price, and most brokers charge reasonable spreads, allowing you to trade with almost negligible transaction cost.

If you have $3000 to invest: explore stock CFDs.

Stock CFDs have low commissions and can be bought in small quantities – a few thousand dollars can allow you to have a portfolio of 5-10 stock positions.

For people with less time and more money, stock CFDs can be a great way to learn to deal with commissions, spreads, fee structures, and the whims and fancies of the stock market.

The stock market is only open during working hours, unlike the forex market. Someone who is interested to take longer-term positions may be open to trading stock CFDs, risking small amounts of money, and yet racking up trading experience.

Some people quip that the forex market is more difficult to trade than the stock market. I beg to differ, because it is your circle of competence that determines your success, not the actual characteristics of the market.

If I were to ask you to drive a Formula 1 race car, you probably would kill yourself within the next few hours or so. However, if you were progressively taught how to drive the race car, it doesn’t become dangerous, and because of the progressive nature of your learning, the high speeds don’t come as a shock to you.

f1Driving this car is dangerous, only if you are not trained.
Source: wallscorner.com

Many people get shocked at the speed by which forex markets move during the Non-Farm Payroll Announcements and FOMC Interest Rate Announcements; prices can move 10-50 times faster than normal during those crazy periods! However, with practice, these sessions can become a profitable time for traders with experience and proper risk management.

If you have $10,000 to invest: trade everything.

People with more money have the luxury of trading a combination of stocks, forex, commodity, bonds, and index trades. These can be accessed through any decent forex broker, and you’ll be surprised to find that most forex brokers let you trade forex, oil, gold, the Dow Jones Index, the S&P, the bond markets, wheat, corn, natural gas, and more. These of course come with higher margin requirements, but exploring all the asset classes makes you a seasoned, well-rounded investor that can take any market condition.

Sideways in the forex market? Maybe there is a trending opportunity in the oil market. There’s always something to trade if you have the experience and know where to look.

However, in my opinion, the greatest investment is Golden Egg 3.

GOLDEN EGG 3: TRADING BOOKS ARE CHEAP AND EASY TO FIND

John Murphy: Technical Analysis of the Financial Markets. One of the great trading classics that builds a strong foundation.

John Murphy’s book on technical analysis reveals the fundamental nature of financial markets. Prices move in patterns and cycles, and understanding history helps you to cope with what is to come.

In my trading journey, I’ve read more than 200 books, and found only about 11 of them that are useful in my trading career. These books were either borrowed from the library, or bought only for $30-$50 a book, which is a very good price (since stock commissions can be $15-$25 already!).

Buying a few good trading books can completely change your destiny.

If you are starting out, why not invest in 3-5 good trading books, before getting your hands wet in the financial markets? These books would build a strong foundation, and you would start off with a better understanding of why things happen.

bookSome of the more famous online bookstores.
Source: Company websites

Amazon.com and bookdepository.com provide great options and they ship almost anywhere in the world. Personally, I found that bookdepository has the more exotic books, but it is a little pricey (yet still worth it since you can’t find the books easily!)

Second-hand books: Carousell if you live in Singapore! If you’re lucky you can find good books at a discounted price. Even though the books may be a little dusty and yellowed, it’s the content that you want to really absorb. You can always find what you want if you search hard enough!

TRADING & INVESTING EDUCATION IS WITHIN OUR GRASP

If you are still thinking about it, here’s why you should pick up investing education:

  • Historical chart data is free (we used to need to pay in the 1990s and 2000s)
  • Free resources are available
  • Books are cheap and easy to find
  • Starting cost is as low as $500
  • Cost of failure is low
  • Experience can be racked up with very little capital
  • There is a market for every type of investor

And most of all, it can bring higher returns in the long-run than placing your capital in the bank account. Sure, you might risk losing a couple of dollars at the start, but the cost of ignorance is a lot higher when compounded over the next 5, 10, or 20 years!

Wishing you all the best in your trading journey, and I do hope this article serves as a pump to start you on your quest for investment expertise!

Cheers!

 

RESEARCH SOURCES & REFERENCES

http://www.moneysmart.sg/fixed-deposit
http://www.lifehack.org/articles/money/15-best-online-bookstores-for-cheap-new-and-used-books.html