Friday, May 21, 2010

Missing an opportunity

The recent market correction has done two things.

The first is that it has reduced the value of the private portfolio - the amount of the drop is meaningful and absent a strong rally before month end will result in a drop in net worth this month. That's life. Markets go up. Markets go down. As much as it hurts watching the value of the portfolio decline, as I am still an accumulator of assets, a lower market is, in the long run, better for me than a higher market.

The second consequence of the correction is that the local Hang Seng Index has dropped to a point where it is trading at below its long run historical PE ratio (14.0 v 15.7) . This does not mean that the market will not go lower - merely that history and valuations are now more favourable. Given that the sell off has been somewhat indiscriminate, some individual stocks that I would like to add to the portfolio look quite attractive.

There is just one problem. Due to two bad calls on my part, I have almost no cash available to take advantage of the opportunities:

1. when we settled our last property purchase, instead of selling some shares and/or using the money set aside for writing options, I borrowed part of the deposit from Mrs Traineeinvestor and my cash flow for the last three months has been used to pay off that loan. If I had sold shares to fund the purchase, not only would I have sold at higher prices but I would have a useful block of cash available to reinvest;

2. the cash I did have was used to write put options on listed companies just before the market started sliding. Next week those options will most likely be exercised against me with the net effect that I will have brought the underlying shares (Sinopec, CCB) at prices higher than the current market prices.

I'm sure there is a lesson about keeping some cash reserves on hand in there somewhere. In any case, I have now settled accounts with Mrs Traineeinvestor and am hoping the market stays down for at least another few months so I can do some shopping.

1 comment:

James said...

How do you get the P/E ratio and dividend yield of the Hang Seng Index after August 2009?

I can no longer find the monthly excel spreadsheet download from http://www.hsi.com.hk/HSI-Net/HSI-Net