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SET to succeed: A ‘crash’ course in the Thai stock market

PHUKET: For the past 10 months or so, I’ve enjoyed a steep learning curve trading stock through the Stock Exchange of Thailand (SET), and hereby share some reflections.

economics, agriculture,


Steven Layne

Sunday 14 August 2016, 10:00AM


Shares for Solartron PLC took an overnight dip after a negative quarterly report was released. Source: Bidschart.com Graph: TradingView.com
Shares for Solartron PLC took an overnight dip after a negative quarterly report was released. Source: Bidschart.com Graph: TradingView.com

First, it should be noted that I do not come from a “seasoned” business background. I’m a 33-year-old journalist with a degree in Communication Arts who for much of my adult life has gone from pay cheque to pay cheque teaching English if not writing, translating and editing content for a handful of publications, and will continue to do so for the foreseeable future to pay the bills.

The rudimentary business knowledge I possess – which made me confident enough to start putting a little cash aside each month for the purpose of investment – came mostly from working on the Business Desk for one of my former employers, complementing Economics 101 coursework in college, in addition to many leisurely hours clocked playing a stimulating PC business simulation game called “Capitalism 2”.

That said, notwithstanding possessing an actual MBA, a fundamental understanding of economics – micro and macro – is essential for anyone looking to successfully trade company stocks, in Thailand or anywhere for that matter. Understanding what makes a business, and economy, quantitatively thrive will ensure that one has a better chance of choosing, and running with the “right” companies. Moreover, as I shall explain, “timing” – when to get in/out – is everything.

That said, I’ve had to learn some hard lessons which, for the time being, has put me in the red by about 10 per cent, where I’m steadily working my way back to even.

 

Quarterly crash course

My first six months of SET trading proved to be steadily fruitful. As ubiquitously advised, I diversified my portfolio and conducted basic fundamental analysis on the companies I was attracted to (mostly in the agri-food and energy sectors), reinforcing my knowledge base with some useful Thai-language “tips” books and periodicals. Before long, I was in the green, eyeing 5% appreciation.

But just like that, without clear warning, the share value in one of the companies I had about 30% of my portfolio staked – a solar-energy company – took an overnight plummet.

When said company released a negative report in May for a sluggish first quarter, I could only watch in disbelief over the following three trading days as the price per share raced to its new bottom at B4, from B9. As the stock price plunged in the hours after the two-month-lagged report was released, I had the snap reflex to sell the bulk of my stake in the company, settling for a 20% hit to my overall portfolio – luckily I didn’t hesitate too long, otherwise it could have been worse.

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All those financial advisers telling you to diversify and perform due diligence in financial fundamentals are not blowing hot air!

In hindsight, I should have scrutinised the company fundamentals and dealings a little finer before getting in. Clearly I jumped in too quick because I wanted my own stake in the potentially lucrative alternative energy sector, despite that particular stock being fundamentally inflated. A little more scrutiny of their cash flow and earnings reports and forecasts would have provided some important indicators that at B9, it was already overpriced, and thus vulnerable to any negative catalyst.

There are various indicators that can signal whether a stock is considered overvalued, and thus vulnerable to a market correction. A favourite is the Price to Earnings ration or P/E, which is a number derived from dividing the current stock price by its most recent Earnings per Share (EPS) figure. Interpreting the value of a stock using the P/E can be tricky and it’s best taken into consideration with P/E values of other similar companies.

The Price to Book Value (P/BV in the SET, or P/B elsewhere) is a more straightforward indicator that is derived by dividing the current stock price by its underlying assets minus intangible assets and liabilities. A higher P/BV (more than 1) tends to suggest a stock is over-valued. No one indicator should be used to draw conclusions, however.

In sum, traders hoping to reap capital gains in the short or medium terms should always be prepared to act or react to catalysts, which can happen overnight and may be triggered from a bad – or good – earnings report, keeping in mind that for many SET-listed companies, it may take up to two months after the last quarter concludes for such reports to be issued to the bulk of minority shareholders.

It goes without saying that well-informed and researched “foresight” and intuitive “forecasting” skills and knowledge are priceless. That, and the luxury to be able to set an automatic “stop-loss” on your positions, which is feature only recently allowed by my SET broker. More on that later, and until next time.

 

Disclaimer: This article should not substitute qualified “investment advice”. The author does not represent any bank, fiduciary, broker or consultancy of any kind and is merely one individual whose aim is to learn more about investing in the Thai stock market, and share his direct experiences with others, and thus assumes no responsibility or credit for any action or inaction by readers, whether resulting in gain or loss. Serious investors are advised to consult with a qualified financial adviser or fiduciary.

 

 

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