2016: A Year Of Paradigm Shift

I have been working in the corporate scene for numerous years (God knows how long). Seriously, surviving the corporate ladder requires a total different set of skills (something that uni probably doesn’t teach). Else, you will fall off the ladder easily.

axe.jpg

If you happen to have immersed yourself for a substantial amount of time in the corporate world, you will definitely have the itch to start “something fresh” or perhaps, to embark on a new “journey”. To satisfy that particular itch, some people may choose to change their job or some may prefer to start working on their entrepreneurial ideas (e.g developing new mobile apps, etc).

When I started this personal blog back in February 2016, it was originally intended for me to formulate my personal analysis of the capital markets in a more systematic / structured manner. I believe that by publishing my postings, this will frame my mindset, my approach and my analysis in a more structured approach. Over the course of ten months, I have discovered that there are limitless opportunities with what we can do with data analysis / science and how it can be employed to support investment decisions. I believe this is the new paradigm shift in my life (transitioning from the corporate scene): to embark on my humble long-term journey to be a market analyst / data scientist in the area of capital markets….

In 2016, I have learnt a lot through mistakes. Even until today, I continue to make mistakes. I truly believe that mistakes are great opportunities to learn. Let’s review some of the key lessons that I learnt in 2016:

Lesson 1: Cheap Doesn’t Mean Good

If you see a company that is trading at price-to-book of 0.3x, you may think that the company is dirt cheap in terms of valuation. In reality, it may not be the case. There are numerous reasons for such low trading multiples. One possible reason could be that the company’s return on equity (RoE) is relatively lower than the required cost of equity, which may lead to value destruction.

Unless there is a corporate exercise that may strip out the value, the company may remain at low multiple for a considerable amount of time. In finance, the term “value trap” has been accorded for this type of company.

Lesson 2: Basis For Investment Decisions

There is always a basis for any investment decision. Do not just listen to others  (even research analysts / fund managers) without undertaking a comprehensive due diligence prior to investing. You may come across some “market gurus” advertising their investment techniques over Facebook, do not believe blindly. Always have a basis, a clear basis that can be objectively supported.

Lesson 3: Fundamentals vs Technical

Although I am more inclined towards fundamental, both fundamental and technical serve as counter-check against each other and thus, improving one’s sanity in terms of making an investment decision. If there is conflict between two methods, make your professional judgment. Sometimes, technical may be helpful in making quick investment decisions but it does not perform well in a range bound trading situation.

Lesson 4: Warrants

Common sense – please consider warrants that have:

  • Good liquidity
  • Lower implied volatility (if compared to historical volatility)
  • Longer tenure of maturity (but may be more expensive)
  • No too high warrant premium

More importantly,  you need to form a view on the underlying – up or down?

Lesson 5: Association does not equate causation

In this blog, I perform a substantial amount of statistical analysis. It is very important to understand that association (i.e strong relationship in a statistical analysis) does NOT always equal to causation (i.e one variable is NOT “guaranteed” to impact on another dependent variable).

Lesson 6: Insiders movements are important

Please consider insiders transactions before you make any investment decision. Since they run the company on a day-to-day basis, they know the Company better than the investors. One should not consider buying the shares of a company when the management are clearly selling out in massive volume.

Outlook 2017

For Malaysia’s FBMKLCI index, 2016 has generally been characterised as a “range-bound” year. Personally, I believe it is time for the index to develop a clear trend – either upward or downward for 2017. Possible wildcards: Trump? China? Russia? Malaysian GE14? Ringgit? Household debt?  Whatever the catalyst that may possibly be, we project 1,692 to be the key resistance point whilst 1,612 appears as a possible support line. 

0200I.MY.jpeg

In every blog posting, just want to reiterate again that there is a DISCLAIMER. Please kindly read / acknowledge it.

Hopefully 2017 will be a fruitful year for everyone. Happy New Year. Let’s embrace 2017 with agility and adaptability as per Bruce Lee’s quotes:

ca900c2b44a293d93917370b7570d3c0.jpg

 Sincerely

signature

31 December 2016

p:s – please kindly support my blog by clicking and making your purchases via the Amazon links.

THIS IS A PERSONAL BLOG AND SHALL NOT BE RELIED IN WHATSOEVER MANNER BY ANYONE. ALL ARTICLES CONTAINED IN THIS SITE ARE FOR INFORMATION AND ILLUSTRATIVE PURPOSES ONLY AND DOES NOT PURPORT TO SHOW ACTUAL RESULTS. IT IS NOT, AND SHOULD NOT BE REGARDED AS INVESTMENT ADVICE OR AS A RECOMMENDATION REGARDING ANY PARTICULAR SECURITY OR COURSE OF ACTION. SOURCES USED IN THIS SITE HAVE NOT BEEN INDEPENDENTLY VERIFIED FOR ACCURACY, COMPLETENESS AND TIMELINESS. YOU SHOULD SEEK INDEPENDENT AND PROFESSIONAL INVESTMENT ADVICE IN REGARD TO YOUR INVESTMENT DECISIONS. THE AUTHOR MAY HOLD POSITIONS IN THE SECURITIES MENTIONED IN THE ARTICLES

Author: Ken Utau

Data Scientist, Markets Analyst and Food Lover

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s