Saturday, 29 November 2014

Weekly Update - Week Ended 28 November 2014

Market Summary and Technicals 
  • Emerging markets underperform - I expect this trend to continue in the medium term in light of dollar strength
  • Small caps under-performed significantly on Friday - down 1.5% as we near resistance from the highs in March and July earlier this year 
  • Market Breadth deteriorating but no near term divergence yet 

Readings and Trends 

 Investment Implications and Opportunities 

  • Energy counters have highly attractive valuations and I believe this is the time to begin scaling in - see my previous article for some ideas 
  • Considering buying out of the money options in TWM (2 times inverse short Russell 2000) as a hedge to other positions
  • US dollar up-trend remains intact, though it is due for a pullback - likely negative implications for emerging markets - question is whether the US economy be pulled down as well
  • Recent disinflationary trend and fall in commodity prices could result in central banks keeping rates lower for longer (US) and expanding their balance sheets (Japan and EU already doing this) - there will be a bubble somewhere, possibly in US equities 
[Update: I own call options in TWM as of 2 December 2014]

Friday, 28 November 2014

Time to Overweight Energy

Bloodbath in energy sector on Friday! XLE down 6.4%, with many companies down >10%.

Fundamentals Remain Intact 

Yes, there is more supply than demand now - domestic US oil production at its highest since the 1980s (see

But new oil investment will be significantly curtailed in the next 1 to 2 years at current oil prices, and the supply imbalance will eventually correct (see

Investment Ideas 

Targeting companies with low debt and thus flexibility to allocate capital for acquisitions or share buybacks. 

Some initial ideas:- 

All 3 companies are in the oil services industry, which have seen greater price falls as compared to the oil majors. They have low net debt to equity (lower than above debt to equity which doesn't account for cash balance) and have strong cash flow. ESV and NOV are free cash flow positive for the 9 months to 30 September 2014. Though GLF had negative free cash flow for the same period, it had positive free cash flow for the 3 months to 30 September 2014 and future capex is expected to be lower with less than $90mil payable under its newbuild program. 

I intend to write individual focus articles on these stocks in the coming weeks. 

Disclosure: I am long ESV and GLF already. 

Investment Aims and Philosophy

I am a young investor and have been trading and investing since 2009 - so obviously the great financial rescession has weighed on my investment decisions and my thought process. It has kept me out of parts of the bull market since then as I was influenced by calls for double dip recessions etc.

This instrablog is meant to track my investments and my investment decisions and methodology. This will hopefully make me a more disciplined investor.

This post is to outline my investment / trading philosophy / target investment process. I expect to review this every year or two.

1) Macro Overview and Trends
  • Gauge where we are in the economic cycle - particularly for the major economies in the world.
  • Identify macro trends.
  • Identify key technical trends - to go hand in hand with the above 2 points.
2) Targeted and Concentrated Stakes
  • Identify situations / sectors which offer superior risk to reward.
  • Build concentrated portfolios.
3) Build Income Portfolio
  • Income investments to comprise 20-40% of the portfolio.
  • Focus on dividend growth stocks.
I intend to expand on these ideas as I post updates.