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Hi Dali,
Assumptions:
Cash-in-hand: RM100,000
Risk: average risk-taker but not excessive leverage
Expected return: better than Fixed Deposit rate
If an investor has a bearish view on the Malaysian market, wouldn't be easier to profit from market by shorting the KLCI futures (rather than bottom fishing for stocks)? I mean the investor can just buy one futures contact and wait for the market to fall.
I understand investing in futures market is a leverage game. But, just longing/shorting one futures contact is the maximum leverage that the investor is allowed to bear - in the above scenario.
What do you think about this futures strategy versus buying stocks?
Comment: Having open positions in futures requires a very good traders' mindset. Though you may be playing with futures, the danger is there only when you take on the LEVERAGE that is available to you via futures and options. If you don't take the leverage, e.g. if you buy one contract of KLCI at 1,270 ... instead of just putting down RM20,000 why not put down Rm127,000 in deposit - that will take out the leverage. But of course that would be quite silly. You must get a hold of your wanted exposure and work back to your gearing desired, you need to set cut loss levels as well. You need to rollover at the appropriate premium/discount. So, I would say, all things being equal, don't play futures unless you are a really really good trader.
If your aim is just to get better than deposit rates, that is easy. But you should not look at the stock price for a few years, just be happy collecting your dividend yield, and hopefully reinvesting them into the same stock for compounded gains. You maybe getting 2.5% or 3.0% if you are lucky on deposits. You should be happy if there is a 6% dividend yield for you.
Examples of good DY: Berjaya Sports Toto around 8%. Japan Tobacco 7.9%. Uchi Tech 10%. Carlsberg 10%. BAT 8.5%. CCM Duopharma 8%. Amway 7.6%. F&N 7.4%. Guiness 7.5%.
So, there are plenty to choose from. However not all are the same, some may pay good DY now but may not be consistent. Hence pore through the past 5 years at least, look for:
- CONSISTENCY
- A SOLID DIVIDEND POLICY
- SOUND BIZ MODEL THAT GENERATES LONG TERM ANNUAL GROWTH OF AROUND 5% p.a.
- LOOK AT NET CASH FLOW PER SHARE FIGURES
Once you have made your selection, look for right entry price as your entry price will determine your eventual yield. The lower the stock price, the higher the DY. Hence instead of timing the market buy gradually over a period of time, e.g. divide what you want to buy 4 times a year, then buy in 1st week of Jan, 1st week of Apr, 1st week of July and 1st week of Oct (just an example). Over time your DY stock and returns will compound nicely. Of course, keep abreast on all news surrounding the sector and business of that stock - exceptionally irregular developments should mean to get out and be sidelined because these stocks won't fly anywhere. Other than that, normal bear markets or busting of bubbles, you can still stay relatively happy staying put in good DY stocks.
Comment: Having open positions in futures requires a very good traders' mindset. Though you may be playing with futures, the danger is there only when you take on the LEVERAGE that is available to you via futures and options. If you don't take the leverage, e.g. if you buy one contract of KLCI at 1,270 ... instead of just putting down RM20,000 why not put down Rm127,000 in deposit - that will take out the leverage. But of course that would be quite silly. You must get a hold of your wanted exposure and work back to your gearing desired, you need to set cut loss levels as well. You need to rollover at the appropriate premium/discount. So, I would say, all things being equal, don't play futures unless you are a really really good trader.
If your aim is just to get better than deposit rates, that is easy. But you should not look at the stock price for a few years, just be happy collecting your dividend yield, and hopefully reinvesting them into the same stock for compounded gains. You maybe getting 2.5% or 3.0% if you are lucky on deposits. You should be happy if there is a 6% dividend yield for you.
Examples of good DY: Berjaya Sports Toto around 8%. Japan Tobacco 7.9%. Uchi Tech 10%. Carlsberg 10%. BAT 8.5%. CCM Duopharma 8%. Amway 7.6%. F&N 7.4%. Guiness 7.5%.
So, there are plenty to choose from. However not all are the same, some may pay good DY now but may not be consistent. Hence pore through the past 5 years at least, look for:
- CONSISTENCY
- A SOLID DIVIDEND POLICY
- SOUND BIZ MODEL THAT GENERATES LONG TERM ANNUAL GROWTH OF AROUND 5% p.a.
- LOOK AT NET CASH FLOW PER SHARE FIGURES
Once you have made your selection, look for right entry price as your entry price will determine your eventual yield. The lower the stock price, the higher the DY. Hence instead of timing the market buy gradually over a period of time, e.g. divide what you want to buy 4 times a year, then buy in 1st week of Jan, 1st week of Apr, 1st week of July and 1st week of Oct (just an example). Over time your DY stock and returns will compound nicely. Of course, keep abreast on all news surrounding the sector and business of that stock - exceptionally irregular developments should mean to get out and be sidelined because these stocks won't fly anywhere. Other than that, normal bear markets or busting of bubbles, you can still stay relatively happy staying put in good DY stocks.
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