Risk of Buying Foreign Stock

It's has been a while since I've updated this blog. Being on study exchange do take up my a whole load of my time. In this post, I want to talk about the risks of buying foreign stocks listed on foreign exchanges. In my 3 years plus experience, I had only purchased several foreign stocks. These stocks were namely Apple Inc, Bank of America and Bank of Ireland. As one can see, buying an average of 1 stock per year seems awfully miniscule. This is because of the added risks of buying shares of a foreign company.

1) Foreign Currency Risk

Perhaps the most prominent reason to research doubly hard when one is buying into a foreign company and that is the foreign currency risk. The ultimate aim of buying stock is to grow the money you have and that is achieved through capital gain and dividends. When purchasing foreign stocks, the foreign currency risk adds another layer of hindrance to the desired capital gain. A prime example is my purchase of Bank of Ireland (BKIR). I bought it at 0.34 EUR back in 21 February 2014. As of today, I have an approximate gain of 6% at 0.36 EUR. BKIR Chart

Admittedly, the gain is not up to standard given the time invested. Now, take a look at the EUR-SGD rate. On 21 Feb 2014, the rate stood at 1.7346. Today, it is a whopping low of 1.4492 - a drop of almost 17%. As you can see, my capital gain was wiped out by my currency loss. Foreign currency risk needs no further explanation.

2) Lack of Information

Knowledge is king as many once said. Keeping in times with financial news is important when it comes to stocks. Many a times, news can convey a sense of general sentiment in the stock market. Also, crucial news will reach you last unless you are specifically hunting for it (eg. results release). I normally use Google Alerts to update me of any news related to the foreign companies I buy into. However, it is not enough in my opinion as I am not in the midst of the "battlefield". In the case of Bank of Ireland, I am unsure of Irish opinions on the bank. I am unsure of BKIR's reputation in Ireland. I am unsure of its scale within Ireland. These are some of the many uncertainties that one have to deal with when buying into a foreign company and thus foreign stocks are not suitable for investors without much experience.

3) Different Time Zones 

Another disadvantage of buying foreign stock is dealing with different time zones. If you own European stock, the market opens in the afternoon and closes at SG evening time. That seems fine enough. If you hold US stocks, the market only opens ~ 9pm and closes just before you wake up. In the time that you are asleep, crucial news might emerge and affect stock markets without you knowing. That is the stuff one has to deal with when buying foreign stock.

Despite all these shortcomings, one might consider buying foreign stock due to several reasons. One might be to diversify stock holdings out of one's country. Second, it might be due to the long time horizon of a stock where you have faith in. As a result, short term fluctuations that might be disadvantageous to investors would not be significant. However, as mentioned earlier, it is not advisable to invest in foreign stock unless one accumulated enough experience in the market.

Selling Stocks with a Purpose

It's been a long while since I've posted on this humble investing blog. The reason being that this Singaporean child here is currently residing in Sweden for student exchange programme. Settling in has been time-consuming. In this post, I want to touch on the topic of selling stocks. If you did not know, I advocate long-term value investing as influenced by Warren Buffet. This means that you buy undervalued stocks and hold long term as the intrinsic value will definitely be realised eventually. Personally, I think holding stocks is the easy part while selling brings about more emotional struggle.

In one of the books I've read (but cannot remember), the author suggested investing and by extension, selling stocks with a purpose. This purpose is non-exhaustive and can range from buying a car, paying child's university education to retirement fund. The concept is essentially like a saving accounts albeit that investing in stocks will generate high returns. Need money for house at 32 years old? Start putting money into stocks every month till the time you buy a house.

The reason why I’m mentioning this is due to the fact that I had sold my Apple Inc holdings recently. I had mainly thought to sell Apple Inc as its iPad sales were weak and the next catalyst should be the launch of iWatch. Having tried the cheaper version of Mi band, I feel that wearable devices are not going to be as indispensable as something like the iPhone. Within one month putting the Mi band, I had stopped wearing it as it was too troublesome to keep it on all the time and the function of tracking steps and sleep was not worth the trouble. Having Apple trading at the high, I decided to sell it at $124.30.

Should I have sold this stock due to short-term gains? For me, investing right now is for capital appreciation and to fund my university education. Selling in this period even for short-term gain seems like an OK choice personally. The lesson to take away here is that investing should be done with a final aim in mind. Only when you are approaching the period when you need the physical cash that you should start liquidating the holdings you have.

Apple is currently trading at $129.49 and it looks like I sold too early or on wrong premises! However, gain is still a gain. 40% gain for this stock.

Investing Report Card

Amidst the lab reports, presentation, projects and upcoming exams, this post was done up in light of my third year anniversary in investing.

My first transaction was done back in 8 November 2011 with the purchase of STI ETF. Throughout these 3 years, I had recorded and subsequently archived all my stock holdings with no way of finding out how well I fared against the market index. However, I recently discovered that I could track the CAGR of my portfolio using the XIRR function within Microsoft Excel and thus started to input my transaction history in the spreadsheet.

XIRR function works by inputting two sets of data, transaction value and date (this is reflected by column A and column B as shown in the picture). There are also a couple of rules to follow in order for the function to work. 

1. Beginning value of portfolio must be positive
2. Any "deposit" into the portfolio must be keyed in as a positive value
3. Conversely, any withdrawals (sale of stocks/dividends) is a negative value
4. When you finally want to compute the CAGR, input the ending balance as a negative 
5. Note that the date of transactions need not be in order (but must correspond to transaction!)

Using this method and inputting three years' worth of transaction, my portfolio's CAGR for the three year period turned out to be 9.25%!

This figure is definitely an A+++++ grade for me.  If this CAGR is sustained for 10 years, $10000 at the start will have turned into $24782 at the end of 10 years. However, given that there was a fantastic bull run these past three years, I am not optimistic that this growth will be sustained. Let's wait and see!

In the mean time, here are some interesting facts of my 3 years investing journey

1. My largest gain (unrealised) is currently Singpost, having bought it at $0.98. It is currently at $1.935 now. Including dividends over the years, Singpost is one of my two multi-bagger stocks
2. My second multi-bagger was Straco. I first bought it at $0.335 and watched it climb to $0.70 range. In the middle, I also received a special dividend of $0.020 per share.
3. My worst investment was definitely Vard. I first bought it at $1.37 and subsequently average at $1.28 and $1.08. All these was in hope that the takeover by the Italians would not succeed and stock price will run thereafter. I was only half right. The takeover did not succeed but the stock price did not run. Haha... Sold it some time after Vard declared that it is caught in a tax charge from Brazilian government (whew, missed a bigger fall when it declared profit guidance)
4. Had good profits in the US market. Bought and sold Bank of America for a good profit before. Currently have Apple Inc in my portfolio which I bought in at $88.58
5. On track to receiving $1000 dividends this year based on average capital size of $28500. This translates to 3.5% yield.

This is the end for my 3-years-investing report card. Hope you have gained some insight (however little) from this post. Pardon if there are many grammar errors or what not within this post as I am blogging this in the middle of my mugging session! Hope my finals will do as well as my investing :/ 

 

Signing off,
SG Youth Investor

To Hold or Sell Apple Inc.

Every buy or sell decision made in the stock market is a deliberate and conscious decision to me. This is because of the numerous factors that are unique to each stocks and also due to many conflicting teachings I had received over years.

Today, I'm particularly conflicted on whether to sell my Apple Inc holdings which I bought at $88.58 27 May 2014. As of now, Apple is trading at $102.25 - representing a gain of 15.4%. The reason I bought Apple was quite clear and it was to bank on the upcoming release of iPhone 6 and also a bet on iWatch release. The primary aim of my buy decision had been achieved but as time goes by I realised Apple had further upside in iPhone 6 sale results and quarterly results. After Apple's quarterly earning was released on 20 October where 39 million iPhones were sold and EPS came in higher at $1.42, all my reasons to hold Apple were fulfilled and stock price rose accordingly.

So is it time to sell now?

That is my dilemma which I hope to sort out here. Instead of asking is it time to sell, I should ask, "are there reasons to hold?" Therefore, I listed a few thoughts on the reasons to hold and also counter-arguments to them.

1. iWatch has been revealed to be be released in 2015 and this will provide impetus for stock price. However, it is a long wait to 2015 where macro market conditions are unknown to us. Furthermore, iWatch may be a miss or that its earning potential is not significant.
2. Apple Pay announced today may be a great integration to iPhone 6, strengthening the ecosystem of the iOS and generating revenue. That said, I think this argument is lacking firstly because of other existing paying system like Google Wallet. Apple Pay is definitely not a new innovation that can push stock price. 
3. Next quarter results should be fantastic. Given that this stellar quarter earnings did not even include iPhone 6 sold in China, next quarter should be impressive now that iPhone 6 is released in China. However, as per point 1, it is a long wait to the next quarterly results and the next 3 months may not guarantee that Apple may rise or maintain its level today. 

As you can see, for every point I had listed, I have some counter-arguments for it and there lies the dilemma. To sell or hold Apple? 

After much consideration, I have decided to keep my Apple stocks so as achieve my mantra of investing  on the stocks rather than trading them. Some people may say that Apple is losing innovation and that  iWatch may not live up to its hype, however to me, it is clear that Apple is still dominant in the smartphone market. I acknowledge that Apple may become Nokia or Blackberry one day. But the day is not today. Apple continues to sell iPhones and maintain an economic moat around its business.

Unless 1) global economy enters recession / stock market turns weak (I believe Apple product will lose its shine in recessions), or 2) when its earnings start to disappoint or 3) Stock price outstrips fundamental value, I'll still probably keep this stock.