Newbie stock market qns

[peterchan75]

I was looking through the STI components when I saw that Jardine corporation and some of its branches are inside the STI. However I thought that Jardine is an MNC which does not have its roots in Singapore, only has some of its operations here. If so why is it listed under the SGX and not the country which it originated from?

Jardine is a conglomorates. They have many businesses. If you go to supermarket, there is a high chance that you are their customers. SGX will accept listing of companies from anywhere in the world including those from China(aka s-chips... not blue chip) Those companies with solid fundamental will have a chance to be the component of STI.
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[Shiny Things]

I was looking through the STI components when I saw that Jardine corporation and some of its branches are inside the STI. However I thought that Jardine is an MNC which does not have its roots in Singapore, only has some of its operations here. If so why is it listed under the SGX and not the country which it originated from?

Great question. Here's a thing - there's no rule that says a company has to list on its home exchange. Companies will list on overseas exchanges for all sorts of reasons:

• For prestige (everyone wants to list on the NYSE!);
• To get listed on a market where other similar companies are (which is why the LSE is infested with dodgy African and Central-Asian resource stocks);
• Because nowhere else will take your listing fees (which is why S-chips became a thing; the SGX was the only exchange that would drop its listing standards enough to let that trash list).

 

[teehee93]

Hi, I was reading a lot of posts by members about the recent CMT retail bond, some say that the price of the bond may go down or something like that after it has been released to public.

What does this mean? If the price of the bond goes down, then isn't it like a stock alr? Bond price is not the initial deposit e.g $2000 when investors first put in to park their money and wait for maturity date?

 

[Rmondo]

Hi, I was reading a lot of posts by members about the recent CMT retail bond, some say that the price of the bond may go down or something like that after it has been released to public.

What does this mean? If the price of the bond goes down, then isn't it like a stock alr? Bond price is not the initial deposit e.g $2000 when investors first put in to park their money and wait for maturity date?

I'm not too sure what were the reasons put forth for their assessment that the price will go down after it has been released. Was the reason of the likelihood of increasing interest rates being cited?

I might be wrong, but you also seem to have the idea that an asset which has a fluctuating price is automatically classified as a stock?

I think you need to first distinguish that fundamentally, buying the bond of a company versus buying the stock is that the former is equivalent to lending money to the firm whereas the latter is buying a stake in the firm, aka you become one of the owners.

Anyway back to your point on the $2000. For the bond you purchased, the firm is legally obliged to pay you the coupon payments (interest for borrowing) and then pay you back the $2000once the bond matures. On the contrary if you purchased $2000 worth of stock, there is nothing in place to say, after so and so years, your $2000 will still be there should you decide to sell off the stock.

If you want to go into the textbook differences, there is a whole list of differences, which you can easily google.

One key factor that affects your bond price is interest rates. Here is a rather straight to the point explanation of their relationship:

Relationship Between Bonds & Interest Rates - Wells Fargo Advantage Funds

Other factors can also include things like downgrade of the issuer's rating. I.e The firm is deemed to be riskier and has a higher chance of default.

In this scenario, you can think of it as if you were to lend say $1000 to two fellas, where one fella is a compulsive gambler and the other who doesn't know what ban luck is. Who would you likely lend to? And if you did lend to the gambler, shouldn't you ask for a higher interest payment to compensate for his risk of default?

In times of bear runs, investors also typically shift money to bonds, so market conditions can also affect bond prices.

Note: I am not very well read about bonds, please feel free to add on or correct!

 

[teehee93]

I'm not too sure what were the reasons put forth for their assessment that the price will go down after it has been released. Was the reason of the likelihood of increasing interest rates being cited?

I might be wrong, but you also seem to have the idea that an asset which has a fluctuating price is automatically classified as a stock?

I think you need to first distinguish that fundamentally, buying the bond of a company versus buying the stock is that the former is equivalent to lending money to the firm whereas the latter is buying a stake in the firm, aka you become one of the owners.

Anyway back to your point on the $2000. For the bond you purchased, the firm is legally obliged to pay you the coupon payments (interest for borrowing) and then pay you back the $2000once the bond matures. On the contrary if you purchased $2000 worth of stock, there is nothing in place to say, after so and so years, your $2000 will still be there should you decide to sell off the stock.

If you want to go into the textbook differences, there is a whole list of differences, which you can easily google.

One key factor that affects your bond price is interest rates. Here is a rather straight to the point explanation of their relationship:

Relationship Between Bonds & Interest Rates - Wells Fargo Advantage Funds

Other factors can also include things like downgrade of the issuer's rating. I.e The firm is deemed to be riskier and has a higher chance of default.

In this scenario, you can think of it as if you were to lend say $1000 to two fellas, where one fella is a compulsive gambler and the other who doesn't know what ban luck is. Who would you likely lend to? And if you did lend to the gambler, shouldn't you ask for a higher interest payment to compensate for his risk of default?

In times of bear runs, investors also typically shift money to bonds, so market conditions can also affect bond prices.

Note: I am not very well read about bonds, please feel free to add on or correct!

thanks for your reply! But one thing i still do not understand is that can bonds be traded on the stock exchange? if so how is its price determined? say I put in $2000 to buy a bond that gives a 2% interest rate, on a stock exchange, how much would this bond be worth?

 

[Rmondo]

Isn't share prices determined by market demand and supply for that company's shares? How does the company increases the prices of its shares?

Thank you so much for your patience and taking your time to explain to me! greatly appreciated

Yes you are right about share prices being dictated by demand and supply.

Well this is somewhat a not so simple topic.

Okay, assuming we take away market noise and human emotions and that the market is efficient. [Which is to say firms are all correctly priced] Well a firm can increase it's share value by basically increasing profits and growing the firm. i.e Firm ABC is worth 20m in year 0, and manages to grow itself to be worth 30m. If there were no new shares issued, then the value per share should also naturally increase.

Firms are typically valued based on things like sales,earnings,growth potential,industry analysis,etc. If you are interested in this, pick up a book or two on valuations or fundamental analysis.

In reality, markets might not be so efficient, and stocks can be mispriced by investors due to asymmetric information. The managers of firms have complete visibility of their own operations while investors don't. Now consider another scenario, firm ABC is worth 30m in year 1, however the price per share is not reflecting it,investors maybe undervaluing it heavily. One of the methods that firms employ to signal this to get their share price up is by repurchasing shares.[As with all things in finance, this does not always hold true and there are other reasons why firms might do this.]

Share Repurchase: Potential Signal of Undervalue and Outperformance

If you are into speculating and trading on a daily basis, you can basically ignore everything I've written.

 

[Rmondo]

thanks for your reply! But one thing i still do not understand is that can bonds be traded on the stock exchange? if so how is its price determined? say I put in $2000 to buy a bond that gives a 2% interest rate, on a stock exchange, how much would this bond be worth?

You can check out SGX for the list of bonds that are traded.

As I mentioned earlier, bond prices are affected by numerous factors. At the end of the day when you sell something, it is only worth as much as the buyer is willing to pay.

But on the topic of how to actually calculate the theoretical fair value of the bond mathematically, that is not so straightforward. The short and simple version of pricing it, is to calculate the present value of all future coupon payments and par value.

If you're interested in the mechanics of how to price your $2000 dollar bond,

Bond valuation - Wikipedia, the free encyclopedia

Any other bond investors here who would like to share more on how they go about doing bond pricing?

 

[teehee93]

Yes you are right about share prices being dictated by demand and supply.

Well this is somewhat a not so simple topic.

Okay, assuming we take away market noise and human emotions and that the market is efficient. [Which is to say firms are all correctly priced] Well a firm can increase it's share value by basically increasing profits and growing the firm. i.e Firm ABC is worth 20m in year 0, and manages to grow itself to be worth 30m. If there were no new shares issued, then the value per share should also naturally increase.

Firms are typically valued based on things like sales,earnings,growth potential,industry analysis,etc. If you are interested in this, pick up a book or two on valuations or fundamental analysis.

In reality, markets might not be so efficient, and stocks can be mispriced by investors due to asymmetric information. The managers of firms have complete visibility of their own operations while investors don't. Now consider another scenario, firm ABC is worth 30m in year 1, however the price per share is not reflecting it,investors maybe undervaluing it heavily. One of the methods that firms employ to signal this to get their share price up is by repurchasing shares.[As with all things in finance, this does not always hold true and there are other reasons why firms might do this.]

Share Repurchase: Potential Signal of Undervalue and Outperformance

If you are into speculating and trading on a daily basis, you can basically ignore everything I've written.

woah you are very generous to take the payience and explain all these to me, I am currently reading books on stock marketa and stuff but I do not have much time to read it cause of my work, so eveyday I can only cover at most 2 chapters. I plan to be like a long term investor or a defensive one, for starting stage just buy a few good stocks and hold it for long term.

still learning haha the stock market is interesting yet complicated at the same time.

 

[w1rbelw1nd]

woah you are very generous to take the payience and explain all these to me, I am currently reading books on stock marketa and stuff but I do not have much time to read it cause of my work, so eveyday I can only cover at most 2 chapters. I plan to be like a long term investor or a defensive one, for starting stage just buy a few good stocks and hold it for long term.

still learning haha the stock market is interesting yet complicated at the same time.

If you are learning about investing, might as well add this book on your to read list

Catalogue - Full Display - Record 2 of 3

Its on the permanent portfolio. Even if you are not following the recommended portfolio in the book, you can learn much from the rationale the portfolio is constructed

 

[Rmondo]

woah you are very generous to take the payience and explain all these to me, I am currently reading books on stock marketa and stuff but I do not have much time to read it cause of my work, so eveyday I can only cover at most 2 chapters. I plan to be like a long term investor or a defensive one, for starting stage just buy a few good stocks and hold it for long term.

still learning haha the stock market is interesting yet complicated at the same time.

If you are looking to invest long term for retirement, then might I recommend 2 books. The first being 'Millionaire Teacher' by Andrew Hallum. This is his site, http://andrewhallam.com/. The second being 'A random walk down wall street" by Burton Malkiel.

My 2 cents worth of sharing, I won't call it advice because I am not qualified to do that. Maybe you already know this, maybe you don't. If you do, I mean no disrespect nor ill intent.

Before starting off investing in any stock or attempting to pick one, I think every investor needs to have a very clear objective and then formulate a plan to achieve it. There are 2 paths, investors who seek to beat the market benchmark, or to aim for benchmark returns.

The above 2 books I recommended offers the view that statistically speaking, in the long run, an overwhelming percentage of professional fund managers fail to beat the benchmark. Millionaire teacher offers up a very straightforward investing strategy that requires pretty much 0 effort and stock watching. It makes for very good general knowledge even if you do not subscribe to the benchmark path.

 

[wahkao3]

Before starting off investing in any stock or attempting to pick one, I think every investor needs to have a very clear objective and then formulate a plan to achieve it. There are 2 paths, investors who seek to beat the market benchmark, or to aim for benchmark returns.

of course aim to beat market lah
what are the key takeaways from those books? can summarize?

 

[Nakedtoes]

Not easy lor...

 

[Mecisteus]

of course aim to beat market lah

obviously you are not aware. there is a school of taught that aims to track the index closely.

aiming to beat the market means you can outperform but you may underperform at times.

 

[alexchia01]

obviously you are not aware. there is a school of taught that aims to track the index closely.

aiming to beat the market means you can outperform but you may underperform at times.

These are usually fund houses that buys the index stocks.

There is nothing wrong with just wanting to track the index, but this kind of funds are created to sell to retail buyers who are don't know anything about the market. They feel that following the index is the safest way to invest.

As a trader/investor, my aim is to beat the market. Whether I can do it or not is another question, but I'll aim high, so if I didn't reach the stars, at least I landed on the moon. Every traders'/investors' goal should be to beat the market, not just to follow it.

 

[Rmondo]

of course aim to beat market lah
what are the key takeaways from those books? can summarize?

The 2 books argue for a passive investment strategy as opposed to active. Passive investment strategies advocate buying into low cost index trackers, aka basically buying the market. The rationale is that statistically, active management consistently fails to outperform the market. You can easily google the figures, generally 70-80% of professional fund managers do not beat the market over a period of 10 years. The figures of underperformance are higher looking at longer periods of 10 years.

So the idea is that if actual professionals whose day job is to pick stocks are mostly unable to beat the market,what are the chances of a man on the street doing so? Andrew Hallum talks about how he started off on the path of investing, he used to be an advocate of active management, did stock pickings with investment circles, etc. But later on realised after factoring his wins and losses over the years, it really didn't seem like he was outperforming the market.

So the story continues on how him investing on a teacher's paycheck made his first million and he documents how you can go about implementing an investing strategy which requires little to no financial expertise. The good thing is,it is also in the Singapore context and he also answers questions on his website if you wish to talk to him.

 

[Rmondo]

Anyway whether or not down the path of attempting to beat the market or basically to go with the flow is widely debated. It's kind of like religion in my opinion.

I'm more of the passive investment route, reason being I hold a day job and I really don't have that much time to dedicate to looking into companies, understanding exactly how they operate, their strengths, the track record of the managers, etc, etc.

Consistently beating the market is about having access to superior information. Even if I had free time to do all that analysis of individual firms, those are what you call public information accessible to anyone on the street. That to me, is not sufficient. Why?

Just to share, I have a friend who used to work at a hedge fund. I shall not name it but it is a reputable one with certain ties here and there. What he shared with me opened my eyes, and swayed me away from active portfolio management.

You see, out there in the sea,there are the big players(big assed funds) and us (small fishes). In addition to the financial muscle being one major difference, the other difference was the gap in information.

The big fish are way ahead in terms of private information(not insider) in making investment decisions. These are players who have access to talk to firms' directors, managers to gather information and get a clearer picture of operations. First hand information from sell side analysts, in addition to their own buy side ones. For IPOs, they are approached first and again have more information and clarity than the man on the street. [Case in point but not my friend's ex-firm: Anyone remember the facebook IPO fiasco?]

The amount of resources they spend to gather information downright to things like expected yield of crops, purity of ores in mining sites to determine the value, etc is immense.

In short, imagine this, an american special forces soldier decked out in full gear standing beside a north korean infantry dude going into war. The SOF guys not only have advanced gear, they also have real time satelite feeds,updates provided to them to make decisions. The average infantry does not have those resources at their disposal.

In the finance world, the playing ground is never even when you are chasing outperformance of the market. That was my takeaway, and I was very grateful he shared that with me. Hopefully what I shared would be of some use to you guys. Cheers!

 

[Nyan]

The 2 books argue for a passive investment strategy as opposed to active. Passive investment strategies advocate buying into low cost index trackers, aka basically buying the market. The rationale is that statistically, active management consistently fails to outperform the market. You can easily google the figures, generally 70-80% of professional fund managers do not beat the market over a period of 10 years. The figures of underperformance are higher looking at longer periods of 10 years.

So the idea is that if actual professionals whose day job is to pick stocks are mostly unable to beat the market,what are the chances of a man on the street doing so? Andrew Hallum talks about how he started off on the path of investing, he used to be an advocate of active management, did stock pickings with investment circles, etc. But later on realised after factoring his wins and losses over the years, it really didn't seem like he was outperforming the market.

So the story continues on how him investing on a teacher's paycheck made his first million and he documents how you can go about implementing an investing strategy which requires little to no financial expertise. The good thing is,it is also in the Singapore context and he also answers questions on his website if you wish to talk to him.

halfway through andrew hallum book, i can conclude that there are two kinds. Stock market players and stock market investors.

 

[teehee93]

Hi guys, new question.

What does it mean when the newspaper or internet report says something like 'market interest rates rise/drops'? Does it mean interest rates that the bank gives when someone/company takes a loan from it? or is it referring to interest rates on securities like bonds

 

[Shiny Things]

Hi guys, new question.

What does it mean when the newspaper or internet report says something like 'market interest rates rise/drops'? Does it mean interest rates that the bank gives when someone/company takes a loan from it? or is it referring to interest rates on securities like bonds

Great question. I'm not a rates trader, just a mug punter, so if any actual SGD rates traders want to jump in and correct me go ahead.

So as you've probably guessed, there's not just one "interest rate" out there. There are lots of rates for lots of different tenors, lots of different instruments, and lots of different credit qualities.

When people talk about interest rates moving, though, it's usually talking about one of a couple of interest rates that people really pay attention to. Those are the rate on a mortgage (because that's the vast majority of people's debt), or the central bank's interest rate target.

In most countries that aren't Singapore, the level of interest rates is controlled by the central bank. The central bank picks a "target" level for short-dated interest rates: in Australia, that's the RBA overnight cash rate; in the USA, it's the overnight Fed Funds rate. (In Switzerland it's 3mth CHF LIBOR, which, they must be feeling a bit sheepish after the whole LIBOR rigging omnishambles.) The bank then adds or removes liquidity from the banking system to drive the target rate to the desired rate.

And if the central bank wants to slow the economy down (usually to restrain inflation), they withdraw liquidity from the system to raise that short-dated interest rate. That propagates through the yield curve because reasons, and that drives up the price of every loan in the economy. If they want the economy to run a little hotter, they do the opposite - lower the target rate and inject liquidity.

In countries that are Singapore, the central bank says "**** it, we're going to target the currency instead of interest rates, blah blah small open economy blah blah New Zealand? never heard of it blah blah wibble" and the end result is that interest rates end up pretty tightly linked to US and European interest rates (and Chinese interest rates, which are basically linked to US interest rates as well). This means that interest rates are completely unsynchronised with the business cycle, so booms and busts are both bigger than they would be without the moderating influence of a competent central bank.

In Singapore, the rate that people talk about when they talk about interest rates is usually SIBOR or SOR. SIBOR is basically like LIBOR but for SGD; SOR is a SGD interest rate that's derived from the USD LIBOR rate and the USDSGD forward rate (I think? memory's a bit fuzzy here). Basically they're like LIBOR; the rate you pay for your mortgage is probably pegged to these.

 

[wahkao3]

interest rate i look at 10 year risk free rate

the rest like sibor, libor, what ever bor, i dont care