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Saturday, 3 January 2015

SKPETRO: How likely it will drop to 2.87, 2.55, 2.23, and 1.91? (12 Nov 2014)

Today I received this question from 1 of our group members. ^-^.
Back to my key points as below:
1. Keep in view:
Monitor the OIL PRICE – price will stabilize at one point of time. You may see the price trading few dollars in range with no further drops and good news starts being reported. From there only starts to deploy your funds in if your bullets is not much.
As at the time of writing, oil price keeps sliding with no sign of recovering. OPEC has made it clear they are not going to reduce the production for the next meeting. Simple macroeconomics:
Supply > Demand – Price will not crash but will be weaken further. Back to 2008 when market crashed, oil price was trading around USD 40++. Fast forward to 2014, factored in the inflation, it should be USD50 ++ if the market crashed. If the market not crashing, it should be above USD60++ and above at least. For the market to crash, generally you need to see a BIG BLACK SWAN swimming over.
1997 – Asian Financial Crisis – Currency collapsed, 1 by 1 the countries lost control of their
2001 – Dotcom bubble – 1 by 1 Big Dot Com companies went bust.
2008 – Global Financial Crisis/Subprime crises – 1 by 1 big financial institutions went bust.
2014 – Banks are here, currencies is dropping but still okay, no big bankruptcies recorded.
Financial Report Card so far still acceptable, with the BIG BLACK SWAN not yet sighted.
The reason why we put the numbers; 2.87, 2.55, 2.23, and 1.91 is because we are downward
bias to the oil price and the Non-Syariah Compliant issue. As I do not
know where

is the bottom, I’ll break my entry price into 5 pieces.
Price touches 2.87: I can deploy additional 20% of my funds in. If price stabilizes and reverse up,
I have balance 60% to average up. Perhaps to deploy another 20% again at 2.90 and to deploy
another 20% at 3.
(Refer to my first posting on SK Petro- If SK Petro is not being designated
as Non Syariah Compliant and OIL Price recovers, I can always do average up and do my ‘Portfolio
Price touches 2.55: 60% funds in and if price stabilizes and reverse up, I have 40% to average up.
Price touches 2.23: 80% funds in and if price stabilized, I have 20% to average up.
Price touches 1.91: 100% went in with my cost dollar averaging @ 2++, I can still sleep well.
I believe the Institutional Fund Managers are more likely not able to sleep.
The issue is not the price can touches 1.91, the issue is if you ALL IN maybe 50% at 3 and balance 50% at 2.90. All your funds are locked, if this OIL ISSUE prolong/further dropped, you are out of the game. No more average down and no more bullets. If the BLACK SWAN comes at 2015, what is your plan B? No more cash. Cut loss or borrow money to buy more? GAMEOVER. But if the oil starts recover without the Black Swan, I can always average up again. If you’re trading right, price touches lowest let’s say around 2.90 +-, stabilizes then bounces up, your money will goes up fast, but who says I can’t average up at 3 or 3.10 while the Target Price (TP) is 6 given by Research House? You have forgotten I am keeping 60% balance cash on hand? Value Investing is about mid and long term – It makes no difference if your entry price is 2.90 and my ‘new average up price of 3’ given the TP of 6.
P/S: If price recovers, as mentioned I shall do my own ‘Portfolio Restructuring’. Then you may see I post new entry price base on higher prices. After all, value investing is part of PORTFOLIO MANAGEMENT.

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Humble Pie, 

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