Outlook for 2011.

I've read an article whereby people say buy when the media report doom and gloom, whilst sell when the media reports rosy and flowery outlooks for the market.

Unfortunately there's been alot of noise recently, with people disagreeing on the outlook for 2011. Some people say another recession is arriving, whilst others say there's still 10% upside to the market.

So who to believe?

I personally feel it's not exactly a very good time to initiate "buy and hold" positions right now. Many stocks are either overbought or at median levels, which limits upside and with large downside. Risk to reward ratio for many stocks is not exactly very good. Most STI stocks are trading at PE>15, which is historically overbought territory.

Hence I will be nimble footed this year with my stock purchases, with tight stop losses.
I have the unique privilege of being unemployed during office hours when the market is running and employed at night (teaching tuition) hence I have more time to monitor the stock market.

From what I've read and what I've inferred, I will be staying away from a few sectors, namely:
1.) Property- I feel that the property market in Singapore, China and the Asia Pacific region is overheated. Look, HDB flats were selling at $70,000 over market value? The govt has done a commendable job of cooling the market, but still leaves much to be desired. Situation in China is even worse, hence I'm bearish with regards to property. REITs on the other hand, I have to be meticulous and buy into those with low gearing and with long term leases locked in, like First REIT, which I might increase my position should there be a huge selloff due to the rights issue.

2.) Companies with revenues largely deriving from Japan- Japan has an unstable government with very poor fore and insight, and the economy, whilst not being in shambles, is not doing too well. I will be staying away from companies with large Japan exposure like GLP. (unless it's for short term speculation)

3.) Airlines- The recent fiasco has shown how Airlines are at the mercy of so many factors. The weather is obviously a huge problem for them, with 2010 having the Icelandic volcano eruption, the poor planning for poor weather in E. United States and W. Europe, the staff unions, pilot unions, etc. Also, with commodity prices like Jet fuel expected to increase, their COGS will increase. Airlines though being an oligopolistic sector, is at the mercy of so many unpredictable factors, and I will be avoiding airlines.

I will be KIV-ing these sectors, however:

1.) Offshore Marine- With oil prices increasing, oil companies will be seeking out companies like Keppel and Sembcorp Marine to build rigs and other technical stuff for them to increase supply. Which obviously bodes well for these 2 companies and others like STX OSV, Cosco corp etc. In fact, I have a small long CFD position on Keppel now.

2.) Commodities- With global consumption from rising giants like BRIC and Indonesia, demand is expected to increase and hence increase the bottom line of commodity firms. Will be KIV-ing Golden Agri, IndoAgri, Archer Daniels Midland, Olam.

3.) Oil- Same reason as above. KIV: Petrochina ADR(NYSE market), ExxonMobil, ConocoPhilips (whilst not a dividend aristocrat like XOM, Buffett has a large position in this company, and probably DB Oil Fund). Not sure which companies in Singapore has a large portion of revenue deriving from Oil- with exception of Golden Agri and China Aviation Oil (Which I don't want to buy)

4.) Medical Services- Rapid greying of the United States, Japan and many of the developed countries will increase demand for medical services. Medical stocks in Singapore are not attractive to me. Raffles Medical (FA here) is way too expensive although I like the company very much. Healthway and SG medical aren't very established and both have unpredictable profits and revenue. They also don't or give miniscule dividends. Hence, I'll be looking at United Health Group Inc. (UNH)
 

Unfortunately I don't have much capital, it's tied up elsewhere, like I have to buy a laptop in preparation for University, my medical school texts, my winter clothes(which by the way cost a BOMB in Singapore) and other incidental expenses, like going to Australia to backpack with friends in June.(which by the way, the Aussie Dollar is SO EXPENSIVE!!!) Therefore, I'll be putting my money into a few well researched stocks. Hopefully Dapai puts up good 4th quarter results for 2010 in early Feb this year.

I also already have an exit plan for stocks as I prepare for uni. As I have to concentrate in school, I lose out on this unique opportunity the next 8 months presents me as a full time trader. I'm using the term very very loosely. I will probably put my capital into good dividend yielding counters come matriculation in september this year. If the market overheats, I'll be very happy to wait for the next recession and pile on my cash during the next market crash.

I also have to remember that stock investing is, and always will be, a secondary source of income for me. It's easy to get carried away when you're earning.

Personally 2011 looks to be a good year for me. 2 major milestones are reached in 2011. Firstly, my ORD in 2 months time, and matriculation into uni in September, where I can embark on my dream to be a doctor. It's also the year i turn 21, and the year I really test my independence from my family.

Let's look what 2011 holds for us.

Wishing all readers a happy and fulfilling 2011.